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, 2005 Commission file number 001-34436
MIRAMAR MINING CORPORATION
---------------------------------------
(Exact name of Registrant as specified in its charter)
Not applicable British Columbia, Canada Not Applicable
-------------- ------------------------ --------------
(Translation of Registrant's (Province of other (I.R.S. employer
name into English jurisdiction of incorporation Identification
(if applicable) or organization) Number (if
applicable))
1040
------------------------------------------------------
(Primary Standard Industrial Classification Code Number (if applicable))
Suite 300 - 899 Harbourside Drive, North Vancouver,
British Columbia, Canada V7P 3S1
(604) 985-2572
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(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
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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 Name of each exchange on which registered
Common shares 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, 2005, 186,301,430 Common Shares without par value were
issued and outstanding. As at March 25, 2006 there were 187,404,627 Common
Shares without par value 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-____________ [X] No
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.
[X]Yes [ ] No
2
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 Hope Bay Project, its plans related to the closed Con Mine 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", "intends" "strategy", "goals",
"objectives" 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:
o risks and uncertainties relating to the interpretation of drill
results, the geology, grade and continuity of mineral deposits;
o 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;
o mining and development risks, including risks related to accidents,
equipment breakdowns, labour disputes or other unanticipated
difficulties with or interruptions in production;
o the potential for delays in exploration or development activities or
the completion of feasibility studies;
o risks related to the inherent uncertainty of production and cost
estimates and the potential for unexpected costs and expenses;
o risks related to commodity price fluctuations;
o the uncertainty of profitability based upon the Company's history of
losses;
o 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;
o risks related to environmental regulation and liability including mine
permitting;
3
o 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;
o risks related to tax assessments;
o political and regulatory risks associated with mining development and
exploration; and
o 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 ("SEC") 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 30, 2005, 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 $1.1656.
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. In particular, and without limiting the
generality of the foregoing, the definitions of proven and probable reserves
used in NI 43-101 differ from the definitions in the SEC Industry Guide 7. Under
SEC Guide 7 standards, a "final" or "bankable" feasibility study is required to
report reserves, the three year history average price is used in any reserve or
cash flow analysis to designate reserves and the primary environmental analysis
or report must be filed with the appropriate governmental authority. In
addition, the terms "mineral resource," "measured resources," "indicated
resources," and "inferred resources" are recognized and required by Canadian
regulations, they are not defined terms under standards in the United States. As
such, information regarding mineralization and resources contained or
incorporated by reference in this annual report may not be comparable to similar
information made public by United States companies.
"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 cannot be assumed that all or any part of an
"indicated mineral resource" or "inferred mineral resource" will ever be
upgraded to a higher category of resource. Investors are cautioned not to assume
that any part or all of mineral deposits in these categories will ever be
converted into reserves.
4
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" included in the Company's Annual Information Form for the year
ended December 31, 2005, attached hereto as Document 1 to this Annual Report.
ANNUAL INFORMATION FORM
The Company's Annual Information Form for the fiscal year ended December 31,
2005, is included in this Annual Report 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 for the years ended
December 31, 2005 and 2004, including the report of the independent auditors
with respect thereto, included herein as Document 2.
For a reconciliation of measurement 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 to this Annual Report.
Management's Discussion and Analysis
The Company's management's discussion and analysis ("MD&A") included herein as
Document 4 to this Annual Report.
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual 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-15d 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
5
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. A copy of the Company's Code of
Ethics for Chief Executive Officer, Chief Financial Officer and Controller was
previously filed with the Securities and Exchange Commission as Exhibit 99.1 on
Form 40-F for the year ended December 31, 2003, 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 to be filed in Canada on April 7, 2006
(submitted to the SEC on Form 6-K on April 7, 2006) 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 Risk Management, Corporate
Governance and Nominating Committee and the Human Resources Committee of the
Company are described in the Company's Management Information Circular to be
filed in Canada on April 7, 2006, and available in print to any shareholder who
provides the Company with a written request.
AUDIT AND RISK MANAGEMENT COMMITTEE
The Company's Board of Directors has a separately-designated standing Audit and
Risk Management 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, 2005 and as at the
date of this Annual Report, the following individuals comprise the entire
membership of the Company's Audit and Risk Management 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
6
Independence
The Company has adopted the criteria for director independence and unrelatedness
for members of public company audit committees that are consistent with the
criteria prescribed by the Sarbanes-Oxley Act of 2002, Section 10A(m)(3) of the
Exchange Act and Rule 10A-3(b)(1) promulgated thereunder. Each member of the
Company's Audit and Risk Management Committee satisfies the criteria for
director independence.
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 and Risk Management 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 and Risk Management Committee - Independence".
AUDIT AND RISK MANAGEMENT COMMITTEE CHARTER
The Company's revised Audit and Risk Management Committee Charter is filed as
Exhibit 99.2 on this Form 40-F for the year ended December 31, 2005 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, 2004 and December 31, 2005 are set forth
below:
----------------------------------------------------
Years ended December 31
----------------------------------- ----------------
2005 2004
---------- -------------
Audit: $ 139,000 $ 144,150
Audit Related: 79,950 $ 78,175
Tax 82,430 $ 69,250
All Other Fees - $ -
Total 301,380 $ 291,575
-------------------------------------------------
"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 consultations on proposed transactions
and internal control reviews.
"Tax Fees" are fees for professional services rendered by KPMG LLP for tax
compliance, tax advice on actual or contemplated transactions.
7
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
The Audit and Risk Management Committee pre-approves all audit services to be
provided to the Company by its independent auditors. The Audit and Risk
Management 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 and Risk Management 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 and Risk Management 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 13 of the consolidated financial
statements
TABLE OF CONTRACTUAL COMMITMENTS
The following table lists as of December 31, 2005 information with respect to
the Company's known contractual obligations.
--------------------------------------------------------------------------------
Payments due by period (in thousands)
--------------------------------------------------------------------------------
Contractual Obligations 2006 2007 2008 2009 Thereafter
Oxygen Plant $ 822 $ 612 $ $ $
Office lease costs 306 316 316 316 1,110
Exploration Equipment 293 30
Site reclamation $6,240 $3,059 $ 15,635
--------------------------------------------------------------------------------
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 as such only a
portion of the obligation has been show in the table above. The remaining costs
are expected to be largely incurred over a five year period following the
approval of the final Abandonment and Reclamation plan. The Company is in the
process of finalizing its Abandonment and Reclamation plan with regulatory
agencies for the Con Mine which will establish the extent and timing of
reclamation activities. Additionally, to the extent that the Company continues
to be engaged in active exploration activities, reclamation of exploration sites
will be deferred.
For additional information related to the Company's obligations and commitments
see note 15 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
8
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 is consistent with the laws, customs and practices in Canada. In
addition, the Company may from time-to-time seek relief under from AMEX
requirments on specific transactions under Section 110 of the AMEX Company Guide
by providing written certification from independent local counsel that the
non-complying practice is not prohibited by the Company's home country law, in
which case, the Company shall make the disclosure of such transactions available
on the Company's website at www.miramarmining.com. Information contained on the
Company's website is not part of this annual report.
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.
9
DOCUMENTS FILED AS PART OF THIS REPORT
1. Annual Information Form of the Registrant for the year ended December 31,
2005
2. The following audited consolidated financial statements of the Registrant,
are exhibits to and form a part of this Annual Report:
Auditors' Report on the Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Operations and Deficit for the years ended
December 31, 2005 and 2004
Consolidated Statements of Cash Flows for the years ended December 31,
2005 and 2004
Notes to Consolidated Financial Statements.
3. Supplementary Information, Reconciliation with United States Generally
Accepted Accounting Principles
4. Management Discussion and Analysis of Financial Conditions and Results of
Operations
10
1. ANNUAL INFORMATION FORM OF MIRAMAR MINING CORPORATION
11
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, 2005
March 25, 2006
12
TABLE OF CONTENTS
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Description Page
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Cover Page 12
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Preliminary Notes 14
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Glossary of Terms 17
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Corporate Structure 20
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Incorporation 20
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Subsidiaries 20
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General Development of the Business 20
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Narrative Description of the Business 21
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The Hope Bay Project 21
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The Back River Project 32
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The Con Mine 33
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Equity Investments 35
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Risk Factors 36
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Dividends 41
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Description of Capital Structure 41
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Market for Securities 41
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Directors and Officers 42
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Legal Proceedings 44
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Interests Of Management & Others in Material Transactions 44
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Transfer Agents and Registrars 45
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Material Contracts 45
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Interests of Experts 46
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Additional Information 46
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13
PRELIMINARY NOTES
Financial Statements and MD&A
The Corporation's consolidated financial statements and management's discussion
and analysis ("MD&A") have been filed with Canadian securities regulatory
authorities and are available electronically on SEDAR at www.sedar.com. 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 March 25, 2006 unless otherwise indicated.
Forward Looking Statements
This AIF contains forward-looking statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995 concerning the
Corporation's plans at the Hope Bay Project, its plans related to the closed Con
Mine 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 a property is
developed and, in the case of mineral reserves, such statements reflect the
conclusion based on certain assumptions that a 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", "intends" "strategy", "goals",
"objectives" 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:
o risks and uncertainties relating to the interpretation of drill
results, the geology, grade and continuity of mineral deposits;
o 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;
o mining and development risks, including risks related to accidents,
equipment breakdowns, labour disputes or other unanticipated
difficulties with or interruptions in production;
o the potential for delays in exploration or development activities or
the completion of feasibility studies;
o risks related to the inherent uncertainty of production and cost
estimates and the potential for unexpected costs and expenses;
o risks related to gold and other commodity price fluctuations;
o the uncertainty of profitability based upon the Company's history of
losses;
o 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;
14
o risks related to environmental regulation and liability;
o 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 ongoing maintenance will exceed the
funds held in trust for such costs;
o risks related to tax assessments;
o political and regulatory risks associated with mining development and
exploration including mine permitting risks; and
o 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. Specific reference is made to
"Risk Factors" 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") of the Canadian Securities Administrators 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 (the "SEC"). In particular, and
without limiting the generality of the foregoing, the definitions of proven and
probable reserves used in NI 43-101 differ from the definitions in SEC Industry
Guide 7. Under SEC Guide 7 standards, a "final" or "bankable" feasibility study
is required to report reserves, the three year history average price is used in
any reserve or cash flow analysis to designate reserves and the primary
environmental analysis or report must be filed with the appropriate governmental
authority. In addition, although the terms "mineral resource," "measured
resources," "indicated resources," and "inferred resources" are recognized and
required by Canadian regulations, they are not defined terms under standards in
the United States. Accordingly, resource and reserve information in this AIF may
not be comparable to similar information reported by United States companies.
The terms "resource(s)" do not equate to "reserves" and normally may not be
included in documents filed with the SEC.
Technical Information
The technical information in this AIF has been prepared in accordance with
Canadian regulatory requirements set out in NI 43-101 and reviewed by John
Wakeford, P. Geo. Vice President, Exploration for Miramar Mining Corporation,
the Qualified Person for the Corporation.
Currency and Exchange Rates
All dollar amounts in this AIF are expressed in Canadian dollars unless
otherwise indicated. Some of the revenue of the Corporation is derived from the
sale of gold, which is denominated in U.S. dollars. The noon rate of exchange on
March 16, 2006 as reported by the Bank of Canada for the conversion of Canadian
15
dollars into U.S. dollars was CDN$1.1537 = US$1.00; (Cdn.$1.00 = US$0.8668). The
following table sets forth (i) the rate of exchange for the Canadian dollar,
expressed in US. 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
----------------------------- ------------- ------------- --------------
2005 2004 2003
----------------------------- ------------- ------------- --------------
Rate at end of period $0.8598 $0.7683 $0.7713
----------------------------- ------------- ------------- --------------
Average rate for last day $0.8581 $0.8319 $0.7749
----------------------------- ------------- ------------- --------------
High for period $0.8682 $0.8469 $0.7789
----------------------------- ------------- ------------- --------------
Low for period $0.8524 $0.7141 $0.7710
----------------------------- ------------- ------------- --------------
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
----------------------------- ------------------- -------------------
16
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.
Cyanidation The process of extracting gold or silver through dissolution
in a weak solution of sodium cyanide.
Corporation Miramar Mining Corporation.
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.
Flotation A milling process by which mineral particles of value attach
to bubbles and float, separating them from the worthless
portion of ore.
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.
Indicated Mineral That part of a Mineral Resource for which quantity, grade or
Resource 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
17
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 That part of a Mineral Resource for which quantity and grade
Resource 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 That part of a Mineral Resource for which quantity, grade or
Resource 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 techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are
spaced closely enough to confirm both geological and grade
continuity.
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 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 deposit further exploration/development work. A deposit does not
or deposit qualify as a commercially mineable ore body until a
feasibility study is concluded and supports Proven/Probable
Mineral Reserves.
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 costs, usually including smelting, refining,
transportation and insurance costs.
18
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 comprehensive study of the viability of a mineral project
Feasibility Study that has advanced to a stage where the mining method, in the
case of underground mining, or the pit configuration, in the
case of an open pit, has been established, and which, if an
effective method of mineral processing has been determined,
includes a financial analysis based on reasonable
assumptions of technical, engineering, operating, economic
factors and the evaluation of other relevant factors which
are sufficient for a qualified person, acting reasonably, to
determine if all or part of the mineral resource may be
classified as a mineral reserve;Each
Probable Mineral The economically mineable part of an Indicated, and in some
Reserve circumstances a Measured Mineral Resource demonstrated by at
least a Preliminary Feasibility Study. The 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 The economically mineable part of a Measured Mineral
Reserve 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.
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/2204.6 pounds).
19
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"). By Notice of Articles dated March 17, 2005 the Corporation
continued under the Business Corporations Act (British Columbia).
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%
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 exploration
and development of gold bearing mineral properties. The Corporation's business
is presently focused in northern Canada in Nunavut and the Northwest
Territories.
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 Hope Bay Project is an 85 km long
greenstone belt on which three significant deposits have been discovered to
date: Doris, Boston and Madrid. On March 6, 2006 the Nunavut Impact Review Board
recommended to the Minister of Indian and Northern Affairs Canada that the
Corporation's proposed development plan for the Doris North project should
proceed. The project is now before the Minister for decision on whether the
Doris North project should proceed.
Miramar Con Mine Ltd. ("Con Ltd.") owns the Con Mine, a former producing
underground gold mine located near Yellowknife, Northwest Territories, Canada.
Underground mining operations at the Con Mine ceased in November 2003. The Con
Mine generated 3,155 ounces of gold in 2004 from reprocessing mining residues,
and 62,166 ounces of gold in 2003 from mining operations.
20
NARRATIVE DESCRIPTION OF THE BUSINESS
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 were granted by
Nunavut Tunngavik Incorporated ("NTI"), a corporation representing the Inuit
people 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, MHBL 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, MHBL 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 67(0) 30' N and longitude 107(0) 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 frozen lakes 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 25 Crown mineral claims, 24 Crown mining
leases, 29 Crown mining leases pending approval and 7 Inuit Owned Lands
Exploration Agreements (which replaced the NTI Concessions). The Hope Bay
21
property comprises an area of 1,094km(2) and forms one continuous block that is
approximately 80km long north to south by between 7 and 24km 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.
In 1991, BHP Minerals Canada Ltd. ("BHP") assembled a contiguous block of claims
covering approximately 1,016km(2) and over the next several years carried out
systematic exploration airborne and ground geophysical surveys, geological
mapping and prospecting, overburden drilling and more than 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, 2005 an aggregate of $105.5 million was spent by the Corporation on
exploration and supplies at the Hope Bay Project. During this period a further
195,000 m of core drilling was completed.
The 2005 program totalled 33,176 m of core drilling, mapping, prospecting and
sampling on selected portions of the Hope Bay belt.
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 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-Larder Lake).
Three gold systems or districts have been defined on the belt to date, which are
known as Boston, Doris and Madrid. Each of the three systems is centered around
a key deposit which may have multiple zones of mineralization.
Boston System
The Boston system is located in the southern end of the Hope Bay belt. Gold
mineralization at the Boston deposit is present in multiple 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, the B-2 and B-3 zones, and one weaker horizon, the B4 zone
of gold mineralization have been identified at the Boston deposit. Each zone
extends to over 1km in length and is composed of numerous 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
22
the majority 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. On the basis of the
16 deep holes completed at Boston in 2003-2004, MHBL believes that it has
demonstrated that the Boston-style alteration and gold mineralization continues
to depths of up to 1,000 m below surface and can be traced over a strike length
of more than 750m. MHBL believes the geology indicates that the alteration zone
continues to depth and that it contains quartz veining and gold mineralization
analogous to that seen in the B2, B3 and B4 zones in the upper parts of the
Boston system. Surface mapping and the 2003-4 deep drilling at Boston has led to
a re-interpretation of the geology in the Boston area, defining a near vertical
overturned fold with a steep south plunging fold axis. This interpretation is
supported by a number of features observed in surface and underground mapping
and more recently by the deep drilling. Mineralization remains open along strike
to the south and at depth.
Doris System
The Doris system at the north end of the belt is localized in the core of a
regional fold axis and consists of an extensive, deeply dipping quartz vein
system hosted in folded and metamorphosed pillow basalts and is situated at an
inferred inflexion of a subsidiary shear to the regional Hope Bay break. The
veins occupy the contact between different volcanic suites within a narrow
envelope of intense dolomite-sericite alteration. The Doris vein system likely
formed in a saddle reef setting with dilational sites localized at lithologic
contacts during synfolding deformation.
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.
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
contains most of the Doris North resources is 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 1.2 km to the south of the Doris Hinge, in an area where the
Lakeshore vein is well mineralized and forms a shallow southerly plunging
structure. At Doris Central the Lakeshore vein is similar in character to the
veining at Doris North. The current geological interpretation at Doris central
defines the intersection of a cross cutting structure with the Lakeshore vein
and subsequent increases in gold mineralization.
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.
23
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 tourmaline-pyrite septa or ribbons.
MHBL proposes to develop the Doris North deposit as described below under the
subheading "Doris North Development Plan". The majority of the mineralization in
the Doris Connector zone and a small portion of the Doris Central zone lies
within 100 m of the bottom of Doris Lake and cannot be mined under current
mining regulations without a specific authorization from the Nunavut Mines
Inspection Service.
Madrid System
The Madrid system is the largest deposit on the Hope Bay belt and is located 6
km south of Doris. The majority of the currently defined resources appear to be
bound by the Deformation Zone, a zone of localized strain and alteration that is
traceable over 11 km of strike. Substantial gold resources have been identified
near a flexure in the Deformation Zone over a strike length of approximately 2
km and to depths of approximately 700 m.
The Deformation Zone is a regionally significant corridor of high strain and
hydrothermal alteration adjacent to and locally transecting prospective
iron-rich rock units. This structural and stratigraphic corridor is the locus of
a significant mineralized trend with a number of mineralized occurrences
identified through drilling over an approximately 11km strike length. Drilling
to date has defined a number of zones along this strike length, with the
best-defined areas to date lying within the northernmost 2,000m. These include
the Naartok West Zone, Naartok East Zone and Suluk Zone. Additional zones within
this corridor include the Marianas, South of Suluk, Rand Spur, P112, Patch 14,
Patch 7 and Perrin Bulge areas.
Naartok
The Naartok discovery is the westernmost deposit in the Madrid system to date,
where one drill hole in 2000 encountered 6.9 g/t gold over 51.8m (including 21.4
g/t gold over 11.4m). Drilling at Naartok in 2001 defined a broad zone of gold
mineralization with a strike length of about 300m and a thickness of 10-30m.
This zone is located in the hanging wall of the Deformation Zone and is
characterized by a broad zone of >1g/t gold assays containing shoots of higher
grade mineralization. Deeper testing of the Naartok West and East zones in 2004
identified an additional higher grade area in Naartok West, expanded the Naartok
East lens to more than double its previous extent and located a number of higher
grade shoots within the main lens. Recent infill and expansion drilling on the
Naartok East lens has increased the extent of the lens by an additional 200m.
Mineralization at Naartok occurs in zones of multi-phase brecciation, quartz
stock working/silicification, albitization and pyritization in the hanging wall
of the Deformation Zone. Gold mineralization appears to be controlled by a
combination of structures and favourable volcanic rocks that are preferentially
altered and mineralized. Drilling to date has defined a steeply plunging zone of
intense silicification/albitization and higher-grade gold values (15-25 g Au/t)
extending 75-150m along strike, plunging +200m and averaging 5-25m thick in
Naartok West and has defined a shallower plunging zone of intense albitization
and pyritization (+5 g Au/t) extending +200m along strike, plunging +200m and
averaging +30m thick in Naartok East.
24
Suluk Zone
Drilling in 2002-2003 tested an area approximately 600m southeast of Naartok
along the Deformation Zone under Patch Lake where previous drilling by BHP
intersected 15.5 g/t gold over 2.0 m in one hole in a setting broadly similar to
that of Naartok. At Suluk sub-parallel and variably altered and mineralized
horizons which dip at -80 degrees to the west have been traced for 500m along
strike and to depths of more than 500 m below surface. The mineralization at
Suluk is similar to Naartok, with silicification quartz stock works and pyrite
within a broader sericite-dolomite alteration halo.
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 identified active carbon that
could potentially adversely affect the recovery of gold in a conventional
cyanidation recovery circuit, however, 2004 work established that this only
applies to a portion of the Suluk resources.
Other Zones
Significant gold mineralization is found along the trend of the Deformation Zone
outside of Naartok and Suluk 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 other less explored areas
associated with the Deformation Zone, remain important targets for future
exploration activities in the Madrid area.
Exploration and Development Plans
The Corporation's objective is to become an intermediate gold producer through
the sequential development of the Hope Bay Project by first developing the high
grade Doris North deposit to generate cash flow to pay for the mining
infrastructure and fund the subsequent development of a bulk tonnage operation
at Madrid and a satellite mining operation at Boston. The Corporation's strategy
is to have Doris North as the infrastructure centre for the entire Hope Bay
belt, minimizing the capital requirements and optimizing the return on future
development areas. In parallel with these development activities, the
Corporation plans to increase the overall gold resources on the belt through the
expansion of the known deposits and discoveries for new ones. The targets for
the phased approach are:
Phase 1: Short Term: Develop a small-scale, high-grade, low-cost,
high-return gold mine at Doris North with the objective of generating
significant cash flow, after capital payback, which would be used to
advance the subsequent phases while minimizing equity dilution. Doris North
is projected to produce 155,000 oz of gold per year for two years.
Phase 2: Medium Term: To extend and expand production levels by developing
the higher grade, more accessible areas of the Boston, Doris and Madrid
deposits, with a target production level of approximately 250,000 to
300,000 oz of gold per annum, generating cash flow anticipated to proceed
with Phase 3.
25
Phase 3: Longer Term: To further expand gold production by maximizing the
potential of the Madrid deposit and the remainder of the Boston and Doris
deposits, to generate sustained production estimated to be in the range of
350,000 to 400,000 oz of gold per annum.
However, internal studies have indicated that there may be opportunities for
larger scale production at the Hope Bay Project and work in 2006 will include
examining the viability of larger scale operations.
Production from Doris North is subject to successful completion of permitting
procedures and any options for production from Doris Central, Madrid or Boston
will be subject to the successful completion of additional drilling, economic
studies and permitting procedures, as well as availability of financing among
other conditions. The production levels of Phases 2 and 3 are only conceptual
and may increase or decrease once further technical work is completed.
Prior to 2004, exploration tended to target outcropping shear and quartz vein
hosted Archean lode gold deposits, such as those discovered at Boston and Doris.
However, with the discovery of the larger mineralized Naartok and Suluk zones in
the Madrid system in 2001 combined with a better understanding of the
exploration potential for these large systems, exploration shifted toward
discovery and delineation of mineralized zones at Madrid resulting in the
majority of resource additions on the Hope Bay Project in 2003- 2005.
The goals and objectives in 2005 at Hope Bay were to upgrade sufficient
resources within the Boston, Doris Central and Naartok deposits to an indicated
confidence level which would support a feasibility study for phase 2 development
on the belt with emphasis on the Madrid deposits. The results are summarized
below.
Madrid. In 2005, the Corporation targeted potential extensions of the
existing Naartok East resource to both the north and northwest based on
geologic modeling which suggested the favourable volcanic strata that hosts
the Naartok East resource was open in these directions. A total of 26,310
meters of core drilling were completed in 2005. Drilling at Naartok East
confirmed the presence of wide, higher-grade mineralization including one
drill hole which intercepted 11.5g/t gold over 66.5m at a depth of
approximately 275m below surface.
Drilling at depth has extended the current limits of mineralization a
further 200 meters north of that hole, a vertical depth of approximately
300 m. Drilling also extended mineralization a further 100 m north in the
area of another hole at a vertical depth of 200 m.
These results demonstrate the continuity of the Naartok mineralization,
especially of the higher grade, thicker areas discovered at depth in 2004
and 2005 and illustrate significant potential to expand the known
mineralization based on an improved understanding of the geologic controls
on mineralization. Boston. Resource calculations and internal studies are
ongoing and will be completed in April 2006. Compilation has identified new
targets in the shallow portions of the B4 zone which is scheduled to be
drilled in 2006. There was no drilling on the Boston deposit in 2005.
Doris Central. In 2005, drilling at Doris central was successful in
defining additional mineralization which will be incorporated into Phase 2
development studies.
26
Assessment Exploration. In 2005, a regional exploration program was
completed to meet or exceed assessment requirements. No significant new
discoveries were made. Data collected will be used to design the 2006
exploration program.
The Corporation has established the following goals for its activities at Hope
Bay during 2006:
1. Advance Doris North through the permitting process towards a development
decision - discussed under "Doris North Development Plan" below.
2. Complete required resource definition, resource calculations and
geotechnical field work to support the Phase 2 development plan.
3. Complete required resource definition, resource calculations and
geotechnical field work to provide sufficient background information to
determine the potential to accelerate the current Phase2 / Phase 3
development plans and/or the potential for a larger scale development plan.
4. Complete both regional and perimeter exploration programs to identify new
resources on the belt and maintain the current land package.
The Corporation plans to spend at least $15.5 million on exploration at Hope Bay
in 2006. This work commenced in March and will continue through to late
September. The bulk of the exploration will focus on resource in-fill and
expansion drilling at Madrid, with smaller resource programs at Boston and Doris
Connector.
Doris North Development Plan
In 2002, Steffen Robertson and Kirsten Consulting ("SRK") was engaged to prepare
a feasibility study with respect to the economic potential of a stand alone
development of the high grade, near surface Doris North zone. The feasibility
study prepared by SRK (the " SRK Feasibility Study") was delivered to the
Corporation in January 2003.
The following table sets forth certain information contained in the Feasibility
Study relating to the base case for bringing the Doris North Project into
production.
Base
Assumptions Case
----------- ----
Gold price (US$/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) $190
27
Capital Costs (C$ millions) 39.3
The SRK 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 that which 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.
The SRK Feasibility Study contemplates that 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 would require 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 an 85%
limit 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
has not yet been determined and will depend upon the deduction of historical and
current explorations costs, capital and operating costs.
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 3.7 km to the north, a barge landing site, an airstrip, and a tailings
dam. 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 SRK 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 175 personnel (sufficient for
operating and exploration activities) 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 and Operating Costs
The following table sets forth the capital costs to bring Doris North into
production as estimated by the SRK 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
----------------------------------- --------------------------
28
The estimated capital cost of $39.26 million represents the total capital
required over the life of the Doris North Project. This includes all anticipated
lease/purchase costs for both the mill buildings and the power plant for a 36
month term.
Additional work completed by MHBL staff since the SRK Feasibility Study suggests
a number of opportunities to optimize the Doris North Project and to take into
account the potential for longer term production from other deposits. The prices
of fuel, steel and other commodities have increased since the SRK Feasibility
Study; however, the price of gold has increased during the same period so that
increased revenue will likely offset any increase in capital or operating costs.
The Doris North Project development is affected less than other proposed mining
projects by recent increases in commodity prices because it is a relatively
small scale high grade underground mining operation, with minimal development
required to access very high grade reserves. Future fluctuations in commodity
prices could affect the economics of the Doris North Project.
The following table sets forth the operating costs of the Doris North Project,
as estimated by the SRK Feasibility Study, over the full project life.
---------------------------- -------------------------- ------------------------
(C$ 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
---------------------------- -------------------------- ------------------------
Development Schedule
On March 6, 2006 the Nunavut Impact Review Board recommended to the Minister of
Indian and Northern Affairs Canada that the Doris North Project should proceed
to obtain permits. Subject to the Minister accepting the Board's recommendation,
the Corporation is targeting having all required permits for production at Doris
North by the end of 2006. This would permit shipping of construction materials
to site in the summer of 2007, construction in the winter of 2007 and production
commencing in 2008.
2004 Year End Resource Estimate
Cautionary Note to U.S. Investors concerning estimates of Measured and Indicated
Resources. This section uses the terms "measured" and "indicated resources."
U.S. investors are advised that while those terms are recognized and required by
Canadian regulations, the SEC does not recognize them. U.S. investors are
cautioned not to assume that any part or all of mineral deposits in these
categories will ever be converted into reserves.
Cautionary Note to U.S. Investors concerning estimates of Inferred Resources.
This section uses the term "inferred resources." U.S. investors are advised that
while this term is recognized and required by Canadian regulations, the SEC does
not recognize it. "Inferred resources" have a great amount of uncertainty as to
their existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an Inferred Mineral
Resource will ever be upgraded to a higher category. Under Canadian rules,
estimates of Inferred Mineral Resources may not form the basis of feasibility or
pre-feasibility studies, except in rare cases. U.S. investors are cautioned not
to assume that part or all of an inferred resource exists, or is economically or
legally mineable.
29
The following table sets forth the mineral resources at the Hope Bay Project as
at December 31, 2004 including the 310,000 ounces set out as reserves in the
Doris North Feasibility Study. NOTE: These resources are as of December 31, 2004
and do not include work done in 2005. The December 31, 2005 resource estimate
will be announced once it is finalized in the second quarter of 2006. This new
resource estimate will be available for review on the Corporations website at
www.miramarmining.com.
Category/Deposit Tonnes Gold Grade Contained Gold
---------------- ------ ---------- --------------
(000s) (g/t) (000s oz)
--------------------------------------------------------------------------------
Measured & Indicated
--------------------
Boston 1,387 15.4 687
Doris 763 23.9 586
Madrid 4,708 5.5 837
--------------------------------------------------------------------------------
Total Measured &
Indicated Resources 6,853 9.6 2,111
Inferred
--------
Boston 2,574 10.9 901
Doris 1,675 14.7 795
Madrid 14,959 5.4 2,602
--------------------------------------------------------------------------------
Total Inferred 19,208 7.0 4,298
Resources*
*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 and the Qualified
Person in accordance with NI 43-101. 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 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 m of
a drill hole within detail drilled areas and inferred resources
generally lie no more than 50 m from a drill hole. The estimates for
the Madrid area (except South Patch 14) were reviewed by Roscoe Postle
Associates Inc. in 2003-5, while those for Doris Central and Boston
were audited by an independent resource consultant in 2001. The
resource estimates for Doris Hinge, Doris North and South Patch were
audited by, SRK 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 the characteristics 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.
30
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. 300,000 ounces of inferred resources lie within 30m of lake bottoms
(pillars) and are considered unsafe to be mined due to the proximity
of the resources to the lake bottom. They are considered unlikely to
be mined without significant economic and permitting challenges. The
regulations for mining pillars under lakes in Nunavut require a
variance from the Mines Inspection Service 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.
The mineral resources at the Hope Bay Project are being recalculated at December
31, 2005 using work completed in 2005 and the updated resources will be released
by the Corporation when available.
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.
Any water use on Inuit lands requires a licence. The NWB issues all water
licences and permits within Nunavut subject to a review by NIRB, which can make
recommendations to the NWB 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 2002 and a draft EIS with NIRB in January 2003, which
detailed the Doris North Project and included the project description,
environmental baseline studies, impact assessments, socio-economic
considerations, environmental management plans and reclamation and closure
plans.
31
NIRB held public hearings to review the Doris North Project in four local
communities in July 2004. On August 16, 2004, NIRB recommended to the Minister
of INAC that the Doris North Project should not proceed on the basis of the then
existing application, and identified five areas where additional information was
required. The Minister of INAC accepted the NIRB recommendations in December
2004.
MHBL filed an updated preliminary project description with NIRB in 2005 to
commence a new application for the environmental assessment of the Doris North
Project and filed a Final Environmental Impact Statement ("FEIS") with NIRB on
October 31, 2005. NIRB held public hearings in Cambridge Bay, Nunavut from
January 31 to February 3, 2006. On March 6, 2006 the NIRB issued its report
recommending to the Minister of INAC that the Doris North Project should proceed
to obtain permits. The Minister will issue a decision either supporting the NIRB
decision or not. If the NIRB decision is supported by the Minister, NIRB would
then issue a project certificate which would allow the NWB to schedule and hold
hearings into the granting of a water licence for the project following which
the NWB would decide whether to recommend to the Minister that a water licence
should be granted for the project. Assuming a positive NWB decision, the
Minister would decide whether to approve the water licence and would set the
bonding amounts. The project will also need a number of other permits, such as
an an authorization from the Department of Fisheries to deposit tailings into
Tail Lake, a federal lease of a portion of Robert's Bay to allow construction of
an offloading jetty and an amendment to the Metal Mining Effluent Regulations
("MMER") to add Tail Lake to schedule 2 of the MMER. MHBL has taken steps
towards obtaining all required permits. MHBL will also require a production
lease from NTI allowing the removal of minerals, various surface leases from the
KIA and an IIBA. MHBL has settled an agreement in principle for an IIBA and is
currently negotiating the terms of the other agreements.
Windy Camp
On June 16, 2004, an estimated 19,000 litres of fuel spilled from a storage tank
at the Windy Lake Camp at Hope Bay. Immediate and effective cleanup was
initiated and the appropriate authorities notified. The major proportion of the
spill was contained and recovered. The incident has been investigated by the
relevant authorities. It is unknown whether charges will be laid and may not be
known until up to two years after the incident.
BACK RIVER PROJECTS (GEORGE LAKE AND GOOSE LAKE)
Pursuant to an agreement (the "Kinross Option Agreement") dated February 25,
2004 between Kinross Gold Corporation ("Kinross"), Miramar Bathurst Resources
Ltd. ("MBRL"), a wholly owned subsidiary of the Corporation, and the
Corporation, Kinross granted to MBRL the option (the "Back River Option") to
earn a 60% joint venture interest in the Back River Project. The Back River
Project encompasses a number of land packages, including the George Lake and
Goose Lake projects in Nunavut. Pursuant to an assignment of the Option
Agreement dated February 3, 2005 (the "DPM Assignment Agreement") between the
Corporation on behalf of itself and 688282 British Columbia Ltd. (the indirect
assignee of MBRL) and Dundee Precious Metals Inc, ("DPM") the Kinross Option
Agreement including the Back River Option was assigned to DPM for:
1. Reimbursement of the Corporation's aggregate costs incurred in acquiring
and exploring the Back River Properties, plus 5%, being approximately $10
million;
32
2. 150,000 common shares of DPM, or the then cash equivalent, if either (i)
the total mineral resources on the Goose Lake property are not less than
1,500,000 ounces of gold or (ii) a decision is made to place a mine into
commercial production on any part of the Back River Project; and
3. 187,500 common shares of DPM, or the then cash equivalent thereof, if DPM
exercises the Back River Option.
DPM agreed to reimburse certain general and administrative costs associated with
the Back River project and the Corporation agreed to provide office space for a
period of 12 months. In March 2006, DPM announced that they had entered into a
Letter of Intent with Kinross to purchase the whole of the Back River Project
for US$6 m. DPM expects this transaction to close during the first quarter of
2006.
CON MINE
The Con Mine is owned by Con Ltd., a wholly owned subsidiary of the Corporation.
The Con Mine operated from 1938 until November 2003 when mining operations
ceased. During that time, 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 a strike by the
hourly workers. The Con Mine was operated from 1986 to 2003 by Con Ltd. The
Corporation acquired all of the outstanding shares of Con Ltd. together with the
outstanding indebtedness of Con Ltd. to NERCO Minerals Company ("NERCO
Minerals"), its former parent, for a purchase price of approximately
US$25,000,000 and 3,900,000 Common Shares valued at $4,875,000 on October 14,
1993.
On August 8, 2000, Con Ltd. received a renewal of the water licence (the "Con
Water Licence") for the Con Mine under the Northwest Territories Waters Act. The
Con Water Licence expires on July 29, 2006. Con Ltd. requested an extension to
this licence in July 2005. This request is being considered by the MVLWB and the
Minister. As a condition of the Con Water Licence, Con Ltd. must maintain a
security deposit for the cost of future reclamation of the Con Mine as required
by the Mackenzie Valley Land and Water Board ("MVLWB") and in a form acceptable
to Indian and Northern Affairs Canada ("INAC"). The Con Water Licence required
initial security in 2000 of $1.5 million which was to increase by $1.5 million
per year to a total of $9 million. The balance of the security requirements have
been satisfied through the transaction described below.
Pursuant to an agreement dated September 18, 2002 between Con Ltd. and Northwest
Territories Power Corporation ("NTPC") (the "Bluefish Sale Agreement"), on April
4, 2003 Con Ltd. sold the Bluefish Power Plant ("Bluefish") to NTPC for a
purchase price of $10 million which was paid on December 30, 2004 (the "Bluefish
Proceeds").
On December 31, 2004, $9 million of the Bluefish Proceeds was deposited into a
reclamation security trust (the "First Con Mine Trust") 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 closure of
operations at the Con Mine under the Northwest Territories Waters Act and the
Con Water Licence. The deposit into the First Con Mine Trust satisfied the
security deposit obligations of Con Ltd. under the Con Water Licence.
In connection with the Bluefish sale, the Corporation and Con Ltd. granted to
NERCO Minerals an indemnity ("NERCO Indemnity") with respect to any costs
related to the potential environmental liabilities associated with the operation
of the Con Mine. As security for its obligations under the NERCO Indemnity, Con
Ltd. granted to Nerco Minerals a general security agreement over all of the
33
assets of Con Ltd.. In addition, Con Ltd. established 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. On December 31, 2004, the
remainder of the Bluefish Proceeds ($1 million) was deposited into the Second
Con Mine Trust. All proceeds of sale of the assets of the Con Mine (net of Con
Ltd.'s reasonable costs of sale) will also be deposited into the Second Con Mine
Trust. The second Con Mine Trust currently has approximately $1.5 million
committed to it.
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.
An autoclave facility was constructed and commenced operation during late 1992
to process refractory ores and gold-bearing arsenic sludge from historic
roasting operations. Operation of the autoclave to process the arsenical sludge
eliminates a potential environmental liability at the site by 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 and will continue to do so until completed
and it moves into other reclamation activities. The main thrust of arsenical
sludge treatment was completed in 2005 with final wash down and treatment
scheduled for the summer of 2007.
As required under the Con 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 MVLWB in March 2003. The MVLWB established a working group
with representatives from Environment Canada, Department of Fisheries and
Oceans, INAC, 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.
Meetings continue with the working group to finalize the plan.
As all mining and processing activities have terminated at the site, all other
reclamation will be carried out as part of the current closure plan, with
physical site remediation anticipated 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. could continue for up to 25 years.
34
Reclamation activities at the Con Mine commenced in 2005. The Corporation has
recorded an asset retirement obligation ("ARO") of $19.2 million, which includes
an increase recorded in the fourth quarter of 2005 of $8.1 million for the
expected closure costs to be incurred from 2006 to 2033. The increase results
from a revised estimate of closure costs to incorporate water treatment and
monitoring for 25 years, the addition of rock cover to the tailings ponds, and
processing costs of additional mill roaster tailings excavated in 2005. Details
of the calculation of the ARO are provided in the Management Discussion and
Analysis of the Corporation's consolidated audited financial statement for the
year ended December 31, 2005. The majority of the expenditures will likely be
made in the next five years. A portion of the funding for the reclamation
activities will be provided by the $10.5 million plus accrued interest, in the
First Con Mine Trust and Second Con Mine Trust.
The goal of Con 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 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. Con Ltd. pled guilty to certain of the charges, paid a fine of
$10,000 and contributed $80,000 to a fund established by Environment Canada.
EQUITY INVESTMENTS
Sherwood Mining Corporation
The Corporation owns 2,282,143 common shares of Sherwood Mining Corporation
("Sherwood"), representing an 7.6% interest. Sherwood is a publicly-traded
Company listed on the TSX Venture Exchange.
Pursuant to an option and joint venture agreement dated March 19, 2004 (the
"Sherwood Option Agreement"), the Corporation granted to Sherwood the option
(the "Sherwood Option") to earn a 60% interest in the Chicago area of the Hope
Bay belt, encompassing the Chicago/Kell trend and the Heku trend (the "Chicago
Area"). Sherwood conducted exploration work in the Chicago Area but in 2005
determined not to proceed with the Sherwood Option.
In 2005 Sherwood completed a takeover bid for Minto Exploration Ltd. ("Minto").
In consideration of Quest Capital Corp. ("Quest") providing a financing facility
to Sherwood to facilitate the Minto takeover, on March 23, 2005 the Corporation
granted to Quest an option to purchase 1.0 million Sherwood shares at $0.25 per
share for 18 months, and 1.5 million Sherwood shares at $0.35 per share for 18
months from the date that Sherwood completed the Minto takeover. The Corporation
also agreed not to sell any shares of Sherwood while the Quest finance facility
is outstanding. Sherwood issued to the Corporation 428,571 shares and 428,571
warrants exercisable at $0.35 per share. These warrants were exercised and sold
by the Corporation in 2006. The Corporation purchased 1.2 million Sherwood
shares at $0.25 per share by private placement. After these transactions the
shares of Sherwood were consolidated at the rate of one new share for four old
shares.
In 2006 the Corporation exercised its warrants and sold 107,143 shares of
Sherwood (428,571 pre consolidation shares). Quest has also exercised both
options granted to it by the Corporation. The 2,282,143 Sherwood shares held by
the Corporation are after giving effect to the share consolidation.
35
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 products sold from the Agua Rica property. 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 property. The maximum amount payable under
the Proceeds Agreement is $15 million. 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.
Maximus Ventures Ltd.
In September 2004, the Corporation and Maximus Ventures Ltd. ("Maximus") entered
into an option agreement, (the "Maximus Option Agreement") pursuant to which the
Corporation granted to Maximus an option (the "Maximus Option") to earn a 75%
interest in the Eastern Contact and Twin Peaks areas of Hope Bay (the "Maximus
Option Property") by spending $7.5 million on exploration over a three year
period. In consideration for entering into the Maximus Option Agreement, Maximus
issued 1.5 million shares to the Corporation and to maintain the Maximus Option
must issue an additional 3.5 million shares to the Corporation over time. Up to
an additional 16.5 million Maximus shares could also be issued to the
Corporation upon specific resource milestones being reached at the Maximus
Option Property. By the end of the first Quarter 2006, the Corporation will own
3,000,000 common shares of Maximus representing 8.4% of the issued and
outstanding shares.
During the 2005 field season, a program of surface exploration and diamond
drilling was conducted, funded by Maximus in the Eastern Contact area of the
Maximus Option Property and carried out by staff of the Corporation. The results
of this work have been publicly reported by Maximus.
The Maximus Option Agreement has been amended to (i) extend the period during
which Maximus may exercise the Maximus Option to April 30, 2009, and (ii) drop
the Eastern Contact area from the Maximus Option and substitute the Chicago
Area.
RISK FACTORS
Gold Price Volatility
The economics of developing gold and other metal properties are affected by many
factors including the cost of operations, variations in the grade of ore mined
and the price of gold or other metals. Depending on the price of gold or other
metals, the Corporation may determine that it is impractical to commence or
continue exploration of its properties or development efforts if any. The prices
of gold and other metals continually fluctuate. During the year ended December
31, 2005, the market price for gold ranged from US$411.10 (low) to US$536.50
(high) per ounce and averaged approximately US$444.74 per ounce. Sources: Metals
Week, Kitco, Reuters and Bloomberg. There can be no assurance that the price of
gold will remain at these levels.
36
The potential of the Corporation's properties 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 U.S. dollar and other currencies, 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
Environmental
Con Ltd. and MHBL have, respectively, been granted various licences and permits
relating to Con mine and the Hope Bay Project. As a condition of these licences
and permits, each company 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 its water licence and other
agreements, Con Ltd. has deposited into two reclamation security trusts $10.5
million for reclamation of the Con Mine. The final Closure and Reclamation Plan
for the Con Mine has not yet been approved and changes to the plan could require
Con Ltd. to contribute more funds to secure the abandonment and reclamation of
the Con Mine site. The actual reclamation costs are currently estimated to
exceed the amount deposited in the trusts. Reclamation may take several years
and standards could change, increasing costs. MHBL could be subject to
proceedings relating to a fuel spill from a storage tank in 2004 described under
"Windy Camp". Con Ltd. pled guilty to certain charges relating to the discharge
of effluent beyond permitted levels in 2002 described under "Con Mine".
Permitting
Production from any deposit at the Hope Bay Project, including the Doris North
Project, 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. The Corporation competes against
larger mining companies with greater resources.
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
37
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. Currently, the Corporation has no
properties in development or production and it has no revenues from operations.
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
adequate to cover any resulting liability. In some cases, coverage is not
available or considered too expensive relative to the perceived risk.
Additional Funding Requirements
As of December 31, 2005, the Corporation had cash and cash equivalents of
approximately C$70 million and working capital of approximately C$61.2 million.
The Corporation estimates that it will spend approximately C$15 million on
exploration programs and permitting expenditures related to its properties,
plant and equipment during the next twelve months. Although the Corporation
currently believes it has sufficient financial resources to undertake its
presently planned exploration and development program, further exploration on
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.
38
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.
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.
Losses
The Corporation has incurred losses and may continue to incur losses for the
foreseeable future. The Corporation incurred losses during each of the following
periods:
o $11 million for the year ended December 31, 2005
o $32.5 million for the year ended December 31, 2004
As of December 31, 2005, the Corporation had an accumulated deficit of $212.5
million.
The Corporation currently has no properties in production or under development.
It may be several years before the Corporation will generate any revenues from
operation if at all. There can be no assurance that the Corporation will realize
revenue or achieve profitability.
Reserves and Resources
The reserve and resource figures set forth in this AIF are estimates and there
is no certainty that the indicated quantities and grades of gold 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. Disclosure standards in the
United States differ from those of 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.
Under standards set forth by the SEC,, 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 SEC standards the
term "reserve" means that part of a mineral deposit which can be economically
and legally extracted or produced at the time of the reserve determination. The
term "economically," as used in the foregoing definition implies that profitable
extraction or production has been established or analytically demonstrated to be
viable and justifiable under reasonable investment and market assumptions; and
the term "legally," as used in such definition, 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
39
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.
Under NI 43-101, Mineral Reserves are divided into two categories, "Proven
Mineral Reserves" and "Probable Mineral Reserves" on the basis of the degree of
confidence in the estimate of the quantity and grade of the deposit.
Under NI 43-101, "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. This definition
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.
Under NI 43-101, "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. This definition 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.
Note to U.S. Readers: The terms "Measured Mineral Resource", "Indicated Mineral
Resource" and "Inferred Mineral Resource" used in this AIF are Canadian mining
terms as defined in accordance with NI 43-101 under the guidelines set out in
the CIM Standards on Mineral Resources and Mineral Reserve Definitions and
guidelines adopted by the CIM council on August 20, 2000.
Under NI 43-101, Mineral Resources are divided into three categories, "Measured
Mineral Resource", "Indicated Mineral Resource" and "Inferred Mineral Resource"
which are defined in accordance with NI 43-101 under the guidelines set out in
the CIM Standards as follows.
Under NI 43-101, "Measured Mineral Resource" in accordance with 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.
40
Under NI 43-101, "Indicated Mineral Resource" in accordance with 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.
Under NI 43-101, "Inferred Mineral Resource" in accordance with CIM Standards 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.
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 AIF 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 SEC. "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 cannot be
assumed that all or any part of an "indicated mineral resource" or "inferred
mineral resource" will ever be upgraded to a higher category of resource.
Investors are cautioned not to assume that any part or all of mineral deposits
in these categories will ever be converted into reserves.
DIVIDENDS
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.
DESCRIPTION OF CAPITAL STRUCTURE
The Corporation's authorized share capital consists of 500,000,000 common shares
without par value of which as at March 20, 2006 there were 187,404,627 Common
Shares issued and outstanding. Each Common Share entitles the holder to one vote
on all matters voted on a poll at meetings of shareholders, to receive dividends
if, as and when declared by the board of directors and to share in the remaining
property of the Corporation on a dissolution or winding-up
The Corporation had 664 registered shareholders of record as at March 14, 2006.
The Articles and by-laws of the Corporation contain no restrictions on the right
to hold or vote the Corporation's Common Shares.
MARKET FOR SECURITIES
The Common Shares are listed on the Toronto Stock Exchange and the American
Stock Exchange under the trading symbols "MAE" and "MNG", respectively. The
tables below present the high and low sale prices for the Common Shares and the
41
volume, on a monthly basis for the Toronto Stock Exchange and the American Stock
Exchange for 2005.
Toronto Stock Exchange (Canadian Dollars)
--------------------------------------------------------------------------------
Month High Low Volume
--------------------------------------------------------------------------------
January 1.49 1,28 3,067,746
--------------------------------------------------------------------------------
February 1.53 1.20 2,823,301
--------------------------------------------------------------------------------
March 1.64 1.23 4,193,144
--------------------------------------------------------------------------------
April 1.36 1.08 6,236,783
--------------------------------------------------------------------------------
May 1.14 .87 5,146,632
--------------------------------------------------------------------------------
June 1.43 1.00 9,867,298
--------------------------------------------------------------------------------
July 1.59 1.32 2,730,578
--------------------------------------------------------------------------------
August 1.56 1.38 3,595,634
--------------------------------------------------------------------------------
September 1.99 1.43 9,374,536
--------------------------------------------------------------------------------
October 2.01 1.43 2,856,981
--------------------------------------------------------------------------------
November 2.52 1.46 9,410,685
--------------------------------------------------------------------------------
December 2.99 2.00 9,667,957
--------------------------------------------------------------------------------
American Stock Exchange (US Dollars)
--------------------------------------------------------------------------------
Month High Low Volume
--------------------------------------------------------------------------------
January 1.18 1.08 3,847,200
--------------------------------------------------------------------------------
February 1.21 1.00 4,899,600
--------------------------------------------------------------------------------
March 1.30 1.03 5,287,800
--------------------------------------------------------------------------------
April 1.06 .87 5,060,900
--------------------------------------------------------------------------------
May .90 .69 6,525,800
--------------------------------------------------------------------------------
June 1.16 .82 5,376,700
--------------------------------------------------------------------------------
July 1.22 1.09 3,334,800
--------------------------------------------------------------------------------
August 1.28 1.11 4,472,100
--------------------------------------------------------------------------------
September 1.64 1.22 8,898,900
--------------------------------------------------------------------------------
October 1.66 1.24 8,409,000
--------------------------------------------------------------------------------
November 2.02 1.27 13,870,000
--------------------------------------------------------------------------------
December 2.51 1.79 14,046,000
--------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The following table sets forth the names and municipalities of residence of the
directors and officers of the Corporation, their position(s) held with the
Corporation and their principal occupations.
42
------------------------------------------------ --------------------------- ---------------------------------------
Name and Municipality of Residence Position(s) Held Principal Occupation
------------------------------------------------ --------------------------- ---------------------------------------
Lawrence Bell(1)(4)(5) Director Corporate Director, B.C. Hydro,
West Vancouver, B.C. electrical utility
------------------------------------------------ --------------------------- ---------------------------------------
David Fennell(2)(4) Executive Vice-Chairman Mining Executive
Nassau, Bahamas and Director
------------------------------------------------ --------------------------- ---------------------------------------
Catherine McLeod-Seltzer(3)(5) Director Chairperson, Pacific Rim Mining
West Vancouver, B.C. Corporation, mining company
------------------------------------------------ --------------------------- ---------------------------------------
Peter Nixon(1)(5) Director Corporate Director
Keswick, Ontario
------------------------------------------------ --------------------------- ---------------------------------------
Anthony J. Petrina(2)(3)(4)(5) Chairman of the Board Mining Engineer, Corporate Director
Vancouver, B.C. and Director
------------------------------------------------ --------------------------- ---------------------------------------
Christopher J. Pollard(1)(4) Director Retired lawyer, Corporate Director,
Vancouver, B.C.
------------------------------------------------ --------------------------- ---------------------------------------
William E. Stanley(1)(2)(3) Director Mining Engineer, Industry Consultant
West Vancouver, B.C.
------------------------------------------------ --------------------------- ---------------------------------------
Anthony P. Walsh(2) Officer and Director President and Chief Executive
West Vancouver, B.C. Officer of the Corporation
------------------------------------------------ --------------------------- ---------------------------------------
Elaine Bennett, Officer Vice-President and Controller of the
North Vancouver, B.C. Corporation
------------------------------------------------ --------------------------- ---------------------------------------
Heather Duggan Officer Vice-President, Human Resources of
North Vancouver, BC the Corporation
------------------------------------------------ --------------------------- ---------------------------------------
Brian Labadie Officer Executive Vice-President, Chief
Maple Ridge, B.C. Operating Officer of the Corporation
------------------------------------------------ --------------------------- ---------------------------------------
A. David Long, Officer Vice President Legal of the
West Vancouver, B.C. Corporation
------------------------------------------------ --------------------------- ---------------------------------------
John Wakeford Officer Vice President Exploration of the
North Vancouver, B.C. 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
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;:
Heather Duggan who, prior to 2004, was the Director of Human Resources &
Workforce Development at Diavik Diamond Mines and prior to 2002, was the
Principle Consultant, Mountain Consulting International, a human resources and
change management consulting Company; David Fennell who, prior to 2002 was the
President and Chairman of Hope Bay Gold Corporation Inc.; and Catherine
McLeod-Seltzer, who prior to 2006 was President of Pacific Rim Mining
Corporation.
Directors are elected at each annual meeting of shareholders and serve until the
next annual meeting or until their successors are elected or appointed.
43
To the best of the Corporation's knowledge, having made due inquiry, no director
or executive officer of the Corporation is or has been in the last 10 years, a
director or executive officer of another issuer that, while that person was
acting in that capacity (a) was the subject of a cease trade or similar order,
or an order that denied the other issuer access to any exemptions under Canadian
securities legislation for a period of more than 30 consecutive days, or (b) was
subject to an event that resulted, after that person ceased to be a director or
executive officer, in the issuer being the subject of a cease trade or similar
order or an order that denied the issuer access to any exemption under Canadian
securities legislation for a period of more than 30 consecutive days, or (c)
within a year of that person ceasing to act in that capacity, became bankrupt,
made a proposal under any legislation relating to bankruptcy or insolvency or
was subject to or instituted any proceedings, arrangement or compromise with
creditors or had a receiver, receiver manager or trustee appointed to hold its
assets.
To the knowledge of the Corporation, the number of Common Shares of the
Corporation which were beneficially owned, directly or indirectly, or over which
control or direction was exercised by all directors and executive officers of
the Corporation as a group as at March 25, 2006, was 2,670,000 shares
representing 1.4% of the then outstanding Common Shares.
To the knowledge of the Corporation, no director or officer of the Corporation
has an existing or potential conflict of interest with the Corporation or any of
its subsidiaries.
LEGAL PROCEEDINGS
The following is a description of the legal proceedings to which the Corporation
is party or to which any of its property is subject and which involves a claim
for damages, excluding interests and costs, exceeding 10% of the Corporation's
current assets or which may otherwise be material to the Corporation as at
December 31, 2005.
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. The transaction was based upon an independent valuation prepared for
the Corporation. In 2000, Canada Revenue Agency (the "CRA") 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. However, 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 $2.4 million at December 31, 2005, such amounts to be payable
should a ruling be made against the Corporation denying the transfer of certain
tax pools. In January 2005, the CRA issued a Notice of Confirmation of the tax
reassessment which challenges the fair value of the property and the allocation
of the fair value to assets and associated tax pools The fair value established
by the Corporation in 1995 was supported by an independent valuation that the
Corporation intends to strenuously defend. The Corporation has filed a Notice of
Appeal with the Tax Court of Canada and expects the matter to be heard in late
2006; however, the outcome of this matter cannot be determined at this time.
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
No director, executive officer of the Corporation, person or company that is the
direct or indirect beneficial owner of, or who exercises control or direction
over, more than 10% of the outstanding Common Shares or associates or affiliates
of the foregoing has any material interest, direct or indirect, in any
transaction since January 2002 that has materially affected or will materially
affect the Corporation other than as described in the following paragraph.
44
DPM owns or exercises control or direction over an aggregate of 18,917,000
Common Shares, representing approximately 10.8% of the total number outstanding.
In 2003, 2004 and 2005, Dundee Securities Corporation, an affiliate of DPM,
acted as an underwriter or agent in respect of one public and several private
placements of securities of the Corporation. In consideration for its services,
Dundee Securities Corporation and the other underwriters and agents collectively
received cash commissions equal to between 5% and 6% of the gross proceeds of
the offerings and, in some cases, compensation options exercisable to purchase
between 5% and 6% of the number of securities sold.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Common Shares is Pacific Corporate
Trust Company, 2nd Floor, 510 Burrard Street, Vancouver B.C. V6C 3B9 and Suite
1101, 4 King Street West, Toronto, Ontario.
MATERIAL CONTRACTS
The following is a list of agreements (other than those made in the ordinary
course of business) that are material to the Corporation and that were entered
into (i) since January 1, 2005, or (ii) since January 1, 2002 and are still in
effect:
1. The Bluefish Sale Agreement referred to under "Con Mine".
2. The First Con Mine Trust referred to under "Con Mine".
3. The NERCO Indemnity referred to under "Con Mine".
4. The Second Con Mine Trust referred to under "Con Mine".
5. The DPM Assignment Agreement referred to under "Back River Projects"
(i.e. George and Goose Lake)
6. On June 30, 2005 the Corporation transferred all of its shares of
Miramar Giant Mine Ltd. ("MGM"), the company which held the Giant Mine
located in Yellowknife, NT, to a reclamation security trust
established by MGM and Indian and Northern Affairs Canada ("INAC").
INAC assumed control over the Giant Mine and the Corporation has no
further involvement or liability in relation to the Giant Mine.
7. Pursuant to a subscription agreement dated November 17, 2005, on
November 22, 2005 the Corporation completed the sale to Newmont Mining
Corporation of Canada ltmed ("Newmont Canada") an affiliate of Newmont
Capital Corporation by private placement of 18.5 million units at
$2.35 per unit for gross proceeds of $43.5 million to Newmont Mining
Corporation of Canada Limited, an affiliate of Newmont Capital
Corporation. Each unit consisted of one Common Share and one warrant
exercisable to purchase one Common Share for $2.75 for a period of 48
months. The Common Shares included in the units represented
approximately 9.9% of the Corporation's issued and outstanding Common
Shares.
The Subscription Agreement also provides, among other things:
45
a) so long as Newmont Canada holds at least 10% of the issued and
outstanding Common Shares (calculated after giving effect to the
exercise of the warrants), it will have the right to participate in
the Corporation's financings up to 19.9%;
b) for four years Newmont Canada's ownership of the Corporation will not
exceed 19.99% unless there is a public bid for over 50% of the
Corporation or Newmont Canada proposes a take-over bid or other
business combination whereby Newmont Canada would acquire 100% of the
Corporation; and
c) for four years Newmont Canada may only sell its Common Shares,
warrants and Common Shares acquired upon the exercise of warrants via
a broad distribution, bought deal or institutional private placement,
and if Newmont Canada elects to sell its Common Shares, the
Corporation will have the right to acquire the Common Shares or
designate the purchasers of the Common Shares for a period of 10
business days.
INTERESTS OF EXPERTS
The Corporation's auditor is KPMG, LLP, independent chartered accountants, which
has audited the Corporation's consolidated financial statements as at December
31, 2005 and 2004 and for the years ended December 31, 2005 and 2004 and
expressed their opinion on the Corporation's year end financial statements.
The estimates for the Madrid area (except South Patch 14) resources were
reviewed by Roscoe Postle Associates Inc. ("RPA") an independent engineering
firm, in 2003-5. The resource estimates for Doris Hinge, Doris North and South
Patch were audited by independent resource consultant SRK Engineering ("SRK") of
Toronto in 2002. All work reviewed was in accordance with NI 43-101.
ADDITIONAL INFORMATION
All information incorporated by reference in this document is available on the
Corporations website at www.miramarmining.com and on the System for Electronic
Disclosure and Retrieval ("SEDAR") at www.sedar.com.
Additional financial information is contained in the Corporation's financial
statements and MD&A for the year ended December 31, 2005 and may be retrieved
from the Corporation's website at www.miramarmining.com or from SEDAR at
www.sedar.com.
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
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 to be mailed to shareholders and filed on SEDAR on or
around April 7, 2006.
46
AUDIT & RISK MANAGEMENT COMMITTEE MANDATE
Purpose
The purpose of the Audit and Risk Management Committee (the "Committee") is to
provide assistance to the Board of Directors of the Corporation in fulfilling
its responsibility to the shareholders, potential shareholders and the
investment community relating to corporate accounting, the reporting practices
of the Corporation, the quality and the integrity of the Corporation's financial
reporting practices, and the audit process. In so doing, it is the
responsibility of the Committee to ensure free and open communication between
the directors of the Corporation, the independent auditors and the financial
management of the Corporation.
Management is responsible for the preparation, presentation and integrity of the
Corporation's financial statements and for the appropriateness of the accounting
principles and reporting policies that are used by the Corporation. The
independent auditors are responsible for auditing the Corporation's annual
financial statements and for reviewing the Corporation's interim financial
statements.
Organization
The Committee is to 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 committee members. The Committee will ensure that it's
Chairperson and members be financially literate and that at least one member
have expertise in financial reporting. The Committee will meet at least four
times a year, with the authority to convene additional meetings as circumstances
require.
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 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
47
thereof review such audit, including any comments or recommendations
of the independent auditors;
o Review with the independent auditors, the Corporation'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 controls
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
the Corporation's policy statements to determine their
appropriateness;
o Review the Corporation'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 policy should be reviewed;
o Review the interim and annual financial statements and disclosures
under management's discussion and analysis of financial condition and
results of Operations with both management and external auditors prior
to the release of all such reports;
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 Corporations financial,
accounting personnel, and the cooperation that the independent
auditors received during the course of the audit;
o Review accounting and financial human resources succession planning
within the Corporation;
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 advisors, including legal
counsel for this purpose if, in its judgment, that is appropriate,
after providing notice to either the Chairman of the Board or the
Chairman of the Corporate Governance and Nominating Committee;
o The Committee will review their own performance on a continual basis
and make recommendations to the Board for changes to this Audit and
Risk Mangement Committee Mandate and the composition of the Committee;
o Have the right for the purpose of performing its duties to inspect all
the books and records and any matters relating to the financial
position of the Corporation with the officers, employers or external
parties, including the external auditor, all of whom are expected to
cooperate.
o Receive and handle complaints under the Corporation's Whistleblower
Policy.
o Review and pre-approve amounts paid to the Corporation's auditors for
non-audit work.
48
Audit and Risk Management Committee composition
The Audit and Risk Management Committee consists of four outside and unrelated
directors: Lawrence Bell (Audit Committee Expert and Chair), Peter Nixon,
Christopher Pollard and William Stanley. Each of these members has the following
experience relevant to his responsibilities as a member of the Audit and Risk
Management Committee:
Lawrence Bell, Chairman - Mr. Bell is the Chair of BC Hydro & Power Authority.
Mr. Bell has extensive experience dealing with financial matters, including
serving in the British Columbia province's public sector as Deputy Minister of
Finance; Secretary to the Treasury Board; Deputy Minister of Housing, Lands and
Parks; and Deputy Minister responsible for Transit. Mr. Bell serves and has
served on the board of many private and public companies and charitable
organizations, including public mining companies and financial organizations
such as currently serving at the Chair of the University of British Columbia
Investment Management Trust and formerly serving as the Chief Executive Officer
of Vancouver City Savings Credit Union.
Peter Nixon - Mr. Nixon has over 30 years experience in the investment business
relating to selling securities and raising capital for issuers. Mr. Nixon has
experience working in the research department of a brokerage firm, has taken a
one year accounting course at McGill University and a course on financial
reporting with the Canadian Securities Institute.
Christopher Pollard - Mr. Pollard has obtained experience dealing with financial
statement issues as a member of the Corporation's Audit and Risk Management
Committee for nine years and a director and member of the audit committees of
other public companies. Mr. Pollard has also served as the managing partner of a
mid-sized Vancouver law firm.
William Stanley - Mr. Stanley worked for 25 years with Coopers & Lybrand, now
PriceWaterhouseCoopers, as a partner in charge of management consulting services
for the Canadian and international mining industry. Mr. Stanley served as
Chairman of the Audit Committee of Luscar Coal Ltd. for five years, has taken
courses on finance and financial statements, has served as Chairman and a
director for a number of charitable organizations and has served on the
Corporation's Audit and Risk Management Committee for nine years.
All of the members of the Audit and Risk Management Committee are independent of
the Corporation and accordingly the Corporation has not relied on any
independence exemption provided in Multilateral Instrument 52-110 adopted by the
Canadian Securities Administrators.
At no time in the Corporation's most recently completed financial year was a
recommendation of the Audit and Risk Management Committee to nominate or
compensate an external auditor not adopted by Board of Directors of the
Corporation.
Pre-Approval Policies and Procedures
The policy of the Audit and Risk Management Committee is that the Corporation
may not retain the Corporation's Auditors to conduct non audit services without
the prior approval of the Audit and Risk Management Committee. The Audit and
Risk Management Committee procedure for granting such approval is to review with
management the proposed services and estimated budget and, where the Audit and
Risk Management Committee is satisfied that to permit the Auditor to perform the
specified non audit services would not prejudice the Auditor's independence, to
permit the Corporation to have the Auditor perform the non audit services with a
49
maximum permitted fee. During the past two financial years the Audit and Risk
Management Committee has approved the Corporation retaining the Auditor to
perform non audit services relating to: providing guidance with respect to
documentation and testing of internal controls; reviewing quarterly unaudited
financial statements; consulting as to accounting or disclosure treatment of
transactions; performing due diligence assistance on potential acquisitions;
reviewing disclosure in public offering documents; providing information risk
management services associated with the implementation of computer system
software; providing Canadian tax compliance services and tax planning and
advisory services.
External Auditor Service Fees
During the past two financial years the Corporation paid fees to the
Corporation's auditors as set out below.
--------------------------- -------------- ----------------
2005 2004
--------------------------- -------------- ----------------
Audit Fees $139,000 $ 144,150
--------------------------- -------------- ----------------
Audit Related Fees $ 79,950 78,175
--------------------------- -------------- ----------------
Tax Fees $ 82,430 69,250
--------------------------- -------------- ----------------
All Other Fees $ - -
--------------------------- -------------- ----------------
Audit related fees included principally fees for consulting in relation to
compliance with Sarbanes Oxley requirements and financial statement translation.
Tax fees included principally fees for flow-through and income tax return
filings.
50
2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF MIRAMAR MINING CORPORATION
51
Consolidated Financial Statements
(Expressed in Canadian dollars)
MIRAMAR MINING CORPORATION
Years ended December 31, 2005 and 2004
52
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Miramar Mining Corporation as
at December 31, 2005 and 2004 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, 2005
and 2004 and the results of its operations and its cash flows for the year then
ended in accordance with Canadian generally accepted accounting principles.
(signed) KPMG LLP
Chartered Accountants
Vancouver, Canada
March 1, 2006
53
MIRAMAR MINING CORPORATION
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
December 31, 2005 and 2004
================================================================================
-----------------------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 48,723 $ 30,215
Short term investments 20,000 -
Accounts receivables 1,135 2,340
Inventory (note 5) 4,782 7,178
Prepaid expenses 355 267
---------------------------------------------------------------------------------------------
74,995 40,000
Power credits receivable 1,557 1,945
Property, plant and equipment (note 6) 5,569 5,766
Mineral properties (note 7) 170,817 160,003
Cash collateral deposits (note 8) 14,980 14,674
Investment in Northern Orion Explorations Ltd. (note 3) 8,505 9,182
Other assets (note 9) 1,574 707
-----------------------------------------------------------------------------------------------------
$ 277,997 $ 232,277
-----------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 4,748 $ 7,131
Current portion of site reclamation and closure costs (note 10) 5,947 7,485
---------------------------------------------------------------------------------------------
10,695 14,616
Deferred gain (note 2(p)) 1,557 1,945
Provision for site reclamation and closure costs (note 10) 14,536 12,274
Future income tax liability (note 12) 22,801 19,120
-----------------------------------------------------------------------------------------------------
49,589 47,955
Shareholders' deficiency:
Share capital (note 11) 433,990 380,734
Contributed surplus 6,846 5,025
Deficit (212,428) (201,437)
---------------------------------------------------------------------------------------------
228,408 184,322
-----------------------------------------------------------------------------------------------------
$ 277,997 $ 232,277
-----------------------------------------------------------------------------------------------------
Nature of operations (note 1)
Commitments and contingencies (notes 11 and 15)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
/s/ Anthony Walsh Director /s/ David Fennell Director
---------------------------- -------------------------
54
MIRAMAR MINING CORPORATION
Consolidated Statements of Operations and Deficit
(Expressed in thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2005 and 2004
================================================================================
-------------------------------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------------------------------
Revenue:
Sales $ 407 $ 7,567
Interest 1,156 1,562
Other income 1,003 3,136
-----------------------------------------------------------------------------------------
2,566 12,265
Expenses:
Cost of sales 535 22,872
Depreciation, depletion and accretion 1,088 1,979
General and administration 1,520 1,748
Salaries 1,217 1,486
Professional services 592 707
Investor relations 119 171
Interest 241 133
Stock-based compensation 985 2,250
Foreign exchange 2 39
Severances and closure 264 1,583
Write-down of assets 108 4,515
Write-down of capitalized value assigned by asset retirement
obligation (note 10) 8,085 10,508
-----------------------------------------------------------------------------------------
14,756 47,991
-------------------------------------------------------------------------------------------------
Loss from operations before undernoted (12,190) (35,726)
Equity loss (227) (294)
-------------------------------------------------------------------------------------------------
Loss before income taxes (12,417) (36,020)
Income tax recovery (expense) (note 12):
Current (34) (298)
Future 1,460 3,859
-----------------------------------------------------------------------------------------
1,426 3,561
-------------------------------------------------------------------------------------------------
Loss for the year (10,991) (32,459)
Deficit, beginning of year (201,437) (168,978)
-------------------------------------------------------------------------------------------------
Deficit, end of year $(212,428) $(201,437)
-------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.07) $ (0.21)
Weighted average number of common shares outstanding 163,744,437 153,524,708
-------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
55
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
--------------------------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the year $ (10,991) $ (32,459)
Items not involving cash:
Depreciation, depletion and accretion 1,088 1,979
Stock-based compensation 985 2,250
Write-down of assets 8,193 15,023
Equity loss 227 294
Future income taxes (1,460) (3,859)
Other 18 (408)
Changes in non-cash working capital:
Accounts receivable 1,205 (763)
Inventory 595 (2,225)
Prepaid expenses (88) 287
Accounts payable and accrued liabilities (3,165) (3,063)
Payments made on site reclamation (note 10) (8,138) -
------------------------------------------------------------------------------------------
(11,531) (22,944)
Investments:
Expenditures on plant, equipment and deferred exploration, net (18,413) (34,295)
Purchase of securities (300) -
Proceeds on sale of assets (notes 3 and 7) 10,769 900
Purchase of collateral deposits, net (306) (8,400)
Purchase of short-term investments (20,000) -
------------------------------------------------------------------------------------------
(28,250) (41,795)
Financing:
Issue of common shares for cash 58,289 15,033
Proceeds from note receivable (note 2(p)) - 10,000
------------------------------------------------------------------------------------------
58,289 25,033
--------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 18,508 (39,706)
Cash and cash equivalents, beginning of year 30,215 69,921
--------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 48,723 $ 30,215
--------------------------------------------------------------------------------------------------
Supplementary information:
Income taxes paid $ 34 $ 431
Non-cash investing and financing activities:
Fair value of stock options allocated to shares
issued on exercise 107 89
Stock-based compensation included in deferred exploration 944 1,087
Asset retirement obligations capitalized to property, plant 8,085 10,508
and equipment and subsequently written off
--------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
56
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
1. Nature of operations:
Miramar Mining Corporation (the "Company") was incorporated under the laws
of the Province of British Columbia. In December 2004, the Company made the
decisions to terminate all mining activities at its Con Mine and Giant mine
operations and to commence planned reclamation activities. At December 31,
2005 the Company's principal business activity is the exploration and
development of mineral property interests. The Company's principal mineral
property interest is the Hope Bay Project located in Nunavut, Canada.
The Company is in the process of exploring its mineral property interest
and has not yet determined whether its mineral property interest contains
economically recoverable mineral reserves. The underlying value and the
recoverability of the amounts shown for mineral property is entirely
dependent upon the existence of economically recoverable mineral reserves,
the ability of the Company to obtain the necessary financing to complete
the exploration and development of the mineral property, and future
profitable production or proceeds from the disposition of the mineral
property interest.
2. Significant accounting policies:
(a) Basis of presentation:
These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). These
consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material inter-company balances
and transactions have been eliminated.
(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 from sale of the Company's product is recorded when pervasive
evidence of an arrangement exists, title and risk passes to the buyer
and the sales price is fixed and determinable. Gold and silver
inventory are valued at the lower of net realizable value and cost.
Materials and supplies inventory are valued at average cost less
appropriate allowances for obsolescence.
57
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(e) Property, plant and equipment and mineral properties:
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 on a
straight-line basis over their estimated useful lives, not to exceed
the period of anticipated recovery of 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.
Office furniture and computer equipment are depreciated using the
declining balance method at 20% and 30%, respectively. Leasehold
improvements are amortized straight-line over their estimated useful
life.
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.
(f) Impairment of long-lived assets:
Long-lived assets, which consist primarily of property, plant and
equipment and mineral properties, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. Recoverability of assets to be held
and used are measured by a comparison of the carrying value of the
asset to future undiscounted net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the amount
of the impairment is measured by the amount by which the carrying
amount of the asset exceeds its fair value.
(g) Provision for site reclamation and closure costs:
The Company recognizes the fair value of a future 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 results from the acquisition, construction, development
and/or normal use of the assets. The Company concurrently recognizes a
corresponding increase in the carrying amount of the related
long-lived asset and is amortized over the life of the asset. The fair
value of the asset retirement obligation is estimated using the
expected cash flow approach that reflects a range of possible outcomes
discounted at a credit-adjusted risk-free interest rate. Subsequent to
the initial measurement, the asset retirement obligation is adjusted
at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. Changes
in the obligation due to the passage of time are recognized in income
as an operating expense using the interest method. Changes in the
obligation due to changes in estimated cash flows are recognized as an
adjustment of the carrying amount of the related long-lived asset and
is amortized over the remaining life of the asset.
58
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(h) 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
operations 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, curtailments, 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.
(i) Stock-based compensation:
The Company has a stock option plan which is described in note 11(c).
The Company records all stock-based payments using the fair value
method.
Under the fair value method, stock-based payments 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, and are charged to operations over the vesting
period. The offset is credited to contributed surplus. Consideration
received on the exercise of stock options is recorded as share capital
and the related contributed surplus is transferred to share capital.
(j) Translation of foreign currency:
The accounts of foreign operations are translated into Canadian
dollars as follows:
o monetary assets and liabilities at the rates of exchange
prevailing at the balance sheet date
o other assets and liabilities at applicable historical exchange
rates
o revenue 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 the statement of
operations.
59
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(k) Derivative financial instruments:
The Company has used 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
hedging 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 changes in ineffective hedges are
recognized in the statement of operations.
(l) 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 carry forwards. Future income tax assets and
liabilities are measured using substantively enacted or 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.
(m) Loss per share:
Basic loss per share is calculated by dividing loss available to
common shareholders by the weighted average number of common shares
outstanding in the period. For all periods presented loss available to
common shareholders equals the reported loss. Diluted 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 loss per share assumes that the proceeds to
be received on the exercise of dilutive stock options are applied to
repurchase common shares at the average market price for the period.
For the years ended December 31, 2005 and 2004, diluted loss per share
is the same as basic loss per share as the affect of all outstanding
options and warrants would be anti-dilutive.
60
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(n) Use of estimates:
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 revenue and
expenses during the reporting period. Significant areas requiring the
use of management estimates relate to the determination of impairment
of assets, site 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.
(o) Variable interest entities:
Effective January 1, 2005, the Company adopted the Canadian Institute
of Chartered Accountants ("CICA") Accounting Guideline 15,
"Consolidation of Variable Interest Entities" ("AcG-15") on a
prospective basis. AcG-15 prescribes the application of consolidation
principles for entities that meet the definition of a variable
interest entity ("VIE"). An enterprise holding other than a voting
interest in a VIE could, subject to certain conditions, be required to
consolidate the VIE if it is considered its primary beneficiary
whereby it would absorb the majority of the VIE's expected losses,
receive the majority of its expected residual returns, or both. The
adoption of this new standard had no effect on the consolidated
financial statements as management has determined the Company does not
have variable interests in any VIE's.
(p) Power credits and deferred gain:
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 of Yellowknife, which supplies
power to the Company's Con Mine. Sale consideration included a
non-interest bearing note for $10 million which was paid 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
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
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, 2005, approximately
$0.4 million (2004 - $2.4 million) of the fair value of the Power
Credits were consumed and has been recorded in site closure and
reclamation costs incurred in 2005. In 2004, the fair value of the
Power Credits consumed were recorded in cost of sales with a
corresponding gain in other income.
61
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
3. Investment in Northern Orion Explorations Ltd.:
At January 1, 2005, the Company had 200,247 shares of Northern Orion
Explorations Ltd. ("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 2005, the Company sold all
remaining shares of Northern Orion and recorded the proceeds as a reduction
of the carrying value. Recovery of the remaining carrying value of $8.5
million is dependant upon the receipt of net proceeds from eventual
production from the properties or their sale by Northern Orion.
4. Related parties:
The Company holds 7.2% of Maximus Ventures Ltd ("Maximus"), a company
related by virtue of common directors. The Company supplied services on a
cost recovery basis to Maximus totalling $1,188,680 (2004 - $516,123)
during the year ended December 31, 2005.
During the year ended December 31, 2005, the Company's investment in
Sherwood Copper Corporation ("Sherwood") was reduced from 38.3% to 13.3% as
a result of Sherwood issuing shares to outside interests. During the period
in 2005 the Company had significant influence over Sherwood, the Company
supplied services on a cost recovery basis to Sherwood totaling $122,344
(2004 - $366,769).
These transactions are recorded at their exchange amount in these
consolidated financial statements which is the amount of consideration
received as established and agreed to by the Company and, as appropriate,
Maximus or Sherwood.
5. Inventory:
-----------------------------------------------------------------
2005 2004
-----------------------------------------------------------------
Gold and silver $ 1,162 $ 1,570
Materials and supplies 3,620 5,608
-----------------------------------------------------------------
$ 4,782 $ 7,178
-----------------------------------------------------------------
62
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
6. Property, plant and equipment:
-----------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------
Accumulated
depreciation and
Cost depletion and Net book Net book
write-downs value value
-----------------------------------------------------------------------------------------
Mine plant and equipment $ 118,008 $ 115,903 $ 2,105 $ 2,261
Exploration equipment 2,060 446 1,614 1,506
Construction in progress 1,217 - 1,217 1,216
Computer equipment 1,366 861 505 566
Leasehold and office 534 406 128 123
Other 94 94 - 94
-----------------------------------------------------------------------------------------
Total $ 123,279 $ 117,710 $ 5,569 $ 5,766
-----------------------------------------------------------------------------------------
During the year ended December 31, 2005, the Company returned the Giant
Mine property back to the Department of Indian Affairs and Northern
Development.
7. Mineral properties:
The following is a summary of exploration and development costs incurred to
December 31, 2005:
-----------------------------------------------------------------------------------------
Back River Hope Bay Total
-----------------------------------------------------------------------------------------
Balance, December 31, 2004 $ 8,292 $ 151,711 $ 160,003
Additions:
Drilling - 3,997 3,997
Sample analysis - 532 532
Personnel and contracts - 3,336 3,336
Stock-based compensation - 944 944
Supplies and equipment 132 799 931
Other exploration costs - 627 627
Title and claim management - 317 317
Transportation and freight - 2,908 2,908
Camp and infrastructure - 1,531 1,531
Environmental and permitting - 3,157 3,157
Feasibility and studies - 958 958
--------------------------------------------------------------------------------------
132 19,106 19,238
Disposition of mineral property (8,424) - (8,424)
-----------------------------------------------------------------------------------------
Balance, December 31, 2005 $ - $ 170,817 $ 170,817
-----------------------------------------------------------------------------------------
On February 18, 2005, the Company assigned to Dundee Precious Metals Inc.
its option to purchase from Kinross Gold Corporation 60% of the Back River
project, including the Goose and George Lakes deposits. The Company
received proceeds of approximately $10 million for the reimbursement of
past exploration costs and inventory acquisition incurred by the Company on
the Back River Project plus 5%.
63
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
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 Company has also established
two reclamation security trusts for the reclamation of the Con Mine (note
15(c)). 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 property to which they relate.
--------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------
Con Mine reclamation security trust $ 10,506 $ 10,000
Giant Mine water license - 200
Con Mine road permit 50 50
Golden Eagle reclamation 341 341
Talapoosa reclamation 233 233
Hope Bay water licenses and land permits 3,850 3,850
--------------------------------------------------------------------------
$ 14,980 $ 14,674
--------------------------------------------------------------------------
9. Other assets:
--------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------
Investments $ 134 $ 134
Investment in Sherwood 180 -
Pension asset (note 13) 1,260 573
--------------------------------------------------------------------------
$ 1,574 $ 707
--------------------------------------------------------------------------
10. Site reclamation and closure:
The Company has recorded provisions for site reclamation and closure costs
for the estimated cost of site closure and reclamation relating to past
mining activities at the Con Mine. The following is a reconciliation of the
changes in the provision for site reclamation and closure during the year:
------------------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------------------
Balance, beginning of year $ 19,759 $ 8,528
Change in estimate for site closure and reclamation costs 8,085 10,508
Site closure and reclamation costs incurred (8,138) -
Accretion expense 777 723
------------------------------------------------------------------------------------
Balance, end of year $ 20,483 $ 19,759
------------------------------------------------------------------------------------
Allocated between:
Current portion $ 5,947 $ 7,485
Non-current portion 14,536 12,274
------------------------------------------------------------------------------------
$ 20,483 $ 19,759
------------------------------------------------------------------------------------
64
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
10. Site reclamation and closure (continued):
The Company's operations are affected by federal and local laws and
regulations concerning environmental protection. Under current regulations,
the Company is required to meet performance standards to minimize
environmental impact and to perform site restoration and other closure
activities. The Company's provisions for future site closure and
reclamation costs are based on known requirements. It is not currently
possible to estimate the impact on financial results, if any, of future
legislative or regulatory developments.
In the fourth quarter of 2005, the Company recorded an adjustment to the
liability for asset retirement obligation by $8.1 million. This adjustment
is a result of management's re-assessment of cost estimates and is
comprised of three components: (a) the impact of additional mill roaster
tailings which were excavated in 2005 and will be treated before they are
placed in the tailings ponds, which adjustment represents the majority of
the adjustment as it extends the arsenic processing phase of reclamation to
2007 rather than completion in 2006; (b) changes in site closure
activities, including the impact of a lengthened period of post-closure
water treatment and monitoring, now assumed to be 25 years rather than 12
years, and the addition of rock cover to the tailings ponds rather than
vegetation alone; and (c) the impact of an estimated one year delay in
receiving approval of the final remediation plan, which results in the
Company incurring certain holding costs to maintain personnel required for
closure activities and additional monitoring and environmental studies. The
Company has $10.5 million on deposit in Con Mine reclamation security
trusts that will be applied, in part, to offset the reclamation costs as
they are incurred. The Company is required by regulatory agencies to post
security for the site closure and reclamation activities, excluding the
arsenic processing activities, and, based on the Company's estimate for
these costs, the Company does not currently anticipate that the regulatory
agencies will require additional funds to be contributed to the reclamation
security trusts.
Although the ultimate amount to be incurred is uncertain, the liability for
site closure and reclamation for the Con Mine and the Hope Bay exploration
camps has been estimated to be $24.9 million on an undiscounted basis
($20.5 million discounted) and is to be expended from 2006 to 2033. For
purposes of determining the fair value of the obligation, a discount rate
of 9.8%, an inflation factor of 2.0% and a market risk premium of 8% have
been applied. As required by regulatory agencies and GAAP, cost estimates
include contractor markups, provision for administration and engineering
and a provision for unforeseeable circumstances. However, the Company
expects to use its employees wherever possible to complete the reclamation
activities, which could reduce actual costs below the accrued liability.
65
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
11. Share capital:
(a) Authorized:
500,000,000 common shares without par value
(b) Issued:
--------------------------------------------------------------------------------------
Common shares
------------------------------
Number
of shares Amount
--------------------------------------------------------------------------------------
Balance, December 31, 2003: 151,634,893 $ 371,309
Issued:
Common shares for cash, net of issue costs 7,600,000 14,271
Future income tax effect of flow-through shares - (5,696)
On exercise of warrants 211,437 412
On exercise of stock options 328,500 438
--------------------------------------------------------------------------------------
Balance, December 31, 2004 159,774,830 380,734
Issued:
Common shares for cash, net of issue costs 26,070,000 57,679
Future income tax effect of flow-through shares - (5,140)
On exercise of stock options 456,600 717
--------------------------------------------------------------------------------------
Balance, December 31, 2005 186,301,430 $ 433,990
--------------------------------------------------------------------------------------
On October 18, 2004, the Company completed a private placement of
7,600,000 flow-through common shares at a price of $2.00 per common
share for gross proceeds of $15.2 million. In consideration for their
services, the underwriters received commissions of $0.8 million and
brokers' warrants exercisable to purchase 375,000 common shares at
$2.00 per common share until October 18, 2005. The fair value of these
warrants at the grant date was $0.1 million and has been shown on a
net basis in share capital. Pursuant to the financing agreement, the
Company must incur Canadian exploration expenditures as defined in the
Income Tax Act (Canada) in the amount of $15.2 million by December 31,
2005, which amount has been incurred.
On September 30, 2005, the Company completed a private placement of
7,320,000 flow-through common shares at a price of $2.05 per common
share for gross proceeds of approximately $15 million. In
consideration for their services, the underwriters received
commissions of $0.8 million and brokers' warrants exercisable to
purchase 366,000 common shares at $2.05 per common share until
September 30, 2006. The fair value of these warrants at the grant date
was $0.1 million and has been shown on a net basis in share capital.
Pursuant to the financing agreement, the Company must incur Canadian
exploration expenditures as defined in the Income Tax Act (Canada) in
the amount of $15.0 million by December 31, 2006.
On October 14, 2005, the Company completed a private placement of
250,000 flow-through common shares at a price of $2.05 per common
share for gross proceeds of $512,500. Pursuant to the financing
agreement, the Company must incur Canadian exploration expenditures as
defined in the Income Tax Act (Canada) in the amount of $512,000 by
December 31, 2006.
66
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
11. Share capital (continued):
(b) Issued (continued):
On November 22, 2005, the Company completed a private placement to
Newmont Mining Corporation of Canada Limited of 18.5 million common
shares at a price of $2.35 per unit for gross proceeds of
approximately $43.5 million. Each unit consists of one common share
and one warrant to purchase an additional common share at $2.75 per
common share until November 22, 2009.
(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:
-----------------------------------------------------------------------------------------
2005 2004
----------------------------- --------------------------
Average Average
Share exercise Share exercise
options price options price
-----------------------------------------------------------------------------------------
Outstanding, beginning of year 6,263,578 $ 2.18 4,107,339 $ 1.54
Granted 3,054,706 1.32 3,273,060 2.96
Exercised (456,600) 1.33 (328,500) 1.07
Forfeited or expired (1,412,000) 2.24 (788,321) 2.55
-----------------------------------------------------------------------------------------
Outstanding, end of year 7,449,684 $ 1.87 6,263,578 $ 2.18
-----------------------------------------------------------------------------------------
Exercisable 6,921,684 $ 1.83 5,483,578 $ 2.02
-----------------------------------------------------------------------------------------
The stock-based compensation costs reflected in the consolidated
financial statements were estimated using the Black-Scholes option
pricing model with the following weighted average assumptions: a
risk-free interest rate of 3.61% (2004 - 3.4%), a dividend yield of 0%
(2004 - 0%), an expected volatility of 60% (2004 - 55%) and expected
lives of stock options of 4.85 years (2003 - 4.3 years). The weighted
average fair value of options granted in 2005 was $1.38 (2004 -
$1.55).
As at December 31, 2005, 6,921,684 options were fully vested and
expire as follows:
----------------------------------------------------------
Year Number Exercise price
----------------------------------------------------------
2006 1,087,421 $ 1.19
2007 430,000 1.22
2008 1,063,997 1.96
2009 2,007,560 2.86
2010 2,332,706 1.29
----------------------------------------------------------
67
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
11. Share capital (continued):
(d) Warrants and brokers compensation options:
At December 31, the Company had warrants and brokers' compensation
options outstanding and exercisable as follows:
-----------------------------------------------------------------------------------------------------
2005 2004
----------------------------- ---------------------------
Average Average
Warrants and exercise Warrants exercise
options price and options price
-----------------------------------------------------------------------------------------------------
Outstanding, beginning of year 1,316,267 $ 2.26 1,361,204 $ 2.26
Granted 18,866,000 2.74 375,000 2.00
Exercised - (211,437) 1.95
Forfeited or expired (1,316,267) 2.26 (208,500) 2.10
-----------------------------------------------------------------------------------------------------
Outstanding, end of year 18,866,000 $ 2.74 1,316,267 $ 2.26
-----------------------------------------------------------------------------------------------------
12. Income and resource taxes:
At December 31, 2005, the Company has unused tax loss carry forwards in
Canada of $46.2 million (2004 - $42.5 million) expiring between the years
2006 and 2015 which are available to reduce taxable income and capital
losses of $68.2 million (2004 - $55.6 million) which are available
indefinitely, but can only be utilized against capital gains. The Company
has investment tax credits totaling approximately $1.8 million (2004 - $1.5
million) The tax effect of the significant components within the Company's
future tax asset (liability) at December 31 was as follows:
---------------------------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------------------------
Loss carry forwards $ 14,509 $ 15,284
Capital losses 12,752 9,896
Property, plant and equipment 19,561 16,081
Canadian resource deductions 3,745 4,458
Reclamation liabilities 7,368 6,664
Other 1,517 4,535
---------------------------------------------------------------------------------------
59,452 56,918
Valuation allowance (54,508) (54,875)
---------------------------------------------------------------------------------------
Net future tax asset 4,944 2,043
Future income tax liability of Hope Bay Gold (8,382) (8,382)
Future income tax liability on flow-through shares (19,363) (12,781)
---------------------------------------------------------------------------------------
Net future income tax liability $ (22,801) $ (19,120)
---------------------------------------------------------------------------------------
68
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
12. Income and resource taxes (continued):
The income tax expense differs from the amounts computed by applying the
combined federal and provincial income tax rate of 34.1% (2004 - 34.1%) to
pre-tax losses as a result of the following:
----------------------------------------------------------------------------------------
2005 2004
----------------------------------------------------------------------------------------
Earnings (losses) before equity loss and income taxes $ (12,190) $ (35,726)
----------------------------------------------------------------------------------------
Computed "expected" tax expense (recovery) $ (4,157) $ (12,183)
Adjustment to income taxes resulting from change in valuation
allowance (367) 7,514
Adjustment to future tax assets and liabilities for enacted
changes in tax rates 1,200 -
Permanent differences 1,158 767
Share issue costs (453) (331)
Capital taxes 34 298
Other 1,159 374
----------------------------------------------------------------------------------------
Income taxes (recovery) $ (1,426) $ (3,561)
----------------------------------------------------------------------------------------
13. 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
---------------------------- ----------------------------
2005 2004 2005 2004
------------------------------------------------------------------------------------------------
Accrued benefit obligation $ 18,880 $ 17,182 $ 176 $ 158
Fair value of plan assets 15,790 16,282 - -
------------------------------------------------------------------------------------------------
Funded status - plan deficit (3,090) (900) (176) (158)
Unamortized actuarial loss (gain) 4,350 1,681 20 (138)
Unamortized experience loss - 88 - -
------------------------------------------------------------------------------------------------
Accrued benefit asset (liability) $ 1,260 $ 869 $ (156) $ (296)
------------------------------------------------------------------------------------------------
69
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
13. Pension plan and other post-retirement benefits (continued):
Reconciliation of accrued benefit obligation:
----------------------------------------------------------------------------------------------
Pension benefit plans Other benefit plans
-------------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------------------------------------------------
Balance, beginning of year $ 17,182 $ 16,621 $ 158 $ 142
Current service cost 230 275 - -
Interest cost 998 1,024 7 7
Benefits paid (3,023) (1,243) (78) (73)
Actuarial losses 3,425 981 89 82
Loss (gain) due to curtailment 68 (476) - -
----------------------------------------------------------------------------------------------
Accrued benefit obligation,
end of year $ 18,880 $ 17,182 $ 176 $ 158
----------------------------------------------------------------------------------------------
Reconciliation of plan assets:
----------------------------------------------------------------------------------------------
Pension benefit plans Other benefit plans
-------------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------------------------------------------------
Fair value, beginning of year $ 16,282 $ 14,927 $ - $ -
Expected return on plan assets 1,063 1,109 - -
Employer contributions 847 952 - -
Benefits paid (3,023) (1,243) - -
Actuarial gains 621 537 - -
----------------------------------------------------------------------------------------------
Fair value of plan assets, end of year $ 15,790 $ 16,282 $ - $ -
----------------------------------------------------------------------------------------------
Pension expense during the year for the pension plans is $458,000 (2004 -
$469,000). Other benefit plans recovery for the year is $61,800 (2004 -
$101,300). Pension expense for the year was comprised of the following:
--------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------
Current service cost $ 230 $ 275
Interest cost 998 1,024
Expected return on plan assets (1,063) (1,109)
Amortization of experience gains 136 165
Amortization of past service costs 89 89
Loss due to curtailment 68 26
--------------------------------------------------------------------------------
$ 458 $ 470
--------------------------------------------------------------------------------
The measurement date for the plan assets and the benefit obligation was
December 31, 2005. 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,
benefits are assumed to be terminated in two years due to mine closure. In
two of the plans, the effective date of the last actuarial valuation was
January 1, 2005 and the next valuation will be January 1, 2006. In one plan
the effective date of the last actuarial valuation was June 30, 2005, and
this plan was terminated on June 30, 2005.
70
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
13. Pension plan and other post-retirement benefits (continued):
The significant actuarial assumptions used in 2005 and 2004 in the
measurement of the Company's benefit obligation are shown in the following
table:
----------------------------------------------------------------------------------------
Pension
benefits Other benefits
----------------------------------------------------------------------------------------
Discount rate used for accrued benefit obligation 6.00% 6.00%
Discount rate used for benefit costs 5.00% 5.00%
Expected long-term rate of return on plan assets 7.00% N/A
Weighted average rate of compensation increase N/A N/A
----------------------------------------------------------------------------------------
The actual allocation of plan assets is shown in the following table:
--------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------
Cash and short-term $ 139 $ 129
Bonds 5,879 5,980
Canadian Equity Pension Trust 2,478 2,967
Dividend Income Fund 7,082 6,942
Overseas equities 212 262
--------------------------------------------------------------------
$ 15,790 $ 16,280
--------------------------------------------------------------------
14. 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, in part, subjective in nature and involve
uncertainties in significant matters of judgment. Changes in assumptions
and market conditions could significantly affect these estimates. The
carrying values of all financial instruments approximate fair values,
except for investments presented in other assets. In addition, the fair
value of the investment in Northern Orion is not determinable due to the
inherent difficulty in the determination of the fair value of such an
instrument.
The fair value of other assets and the fair value based on the quoted
market value of the investment in Sherwood, Maximus and other at December
31 are as follows:
-----------------------------------------------------------------------------------------------
2005 2004
---------------------------- ----------------------------
Carrying Fair Carrying Fair value
value value value
-----------------------------------------------------------------------------------------------
Investment in Sherwood $ 180 $ 3,634 $ - $ 2,300
Other investments 134 974 134 1,730
-----------------------------------------------------------------------------------------------
71
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
15. 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.
(b) As part of the arrangement to sell a previously owned hydro electric
asset, the Company entered into an indemnity agreement with NERCO
Minerals Company ("NERCO"), the previous owner 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 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 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 hydro electric asset, as collateral for the indemnity
against environmental liability given 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 the sale of these assets will be placed in a reclamation
security trust, to be used to pay for the reclamation of the mine.
(c) 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. In 2004, the Company completed an agreement with
DIAND to fund security deposits by depositing $10 million into two
reclamation security trusts established by the Company. The
reclamation security trusts will be used to fund the reclamation of
the site on completion of operations.
(d) 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
$2.3 million at December 31, 2005, such amounts to be payable should a
ruling denying the transfer of certain tax pools be made against the
Company. In 2004, the Company received notification that CRA had
recently reviewed the re-assessment and re-confirmed the original
re-assessment. The Company filed a notice of appeal in March 2005. The
Company subsequently received notification from the Tax Court of
Canada that this case should proceed and the discovery process is
scheduled to commence in April 2006. 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, 2005.
72
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
15. Commitments and contingencies (continued):
(e) The Company has 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 $305,000 per
annum until 2012. The Company has a number of operating leases for
mobile and other equipment used at its exploration properties, which
in aggregate result in commitments of $293,000 per annum and lease
terms ranging from one to two years.
73
3. SUPPLEMENTARY INFORMATION RECONCILIATION WITH UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
74
[GRAPHIC OMITTED]
KPMG LLP Telephone (604) 691-3000
Chartered Accountants Fax (604) 691-3031
PO Box 10426 777 Dunsmuir Street Internet www.kpmg.ca
Vancouver BC V7Y 1K3
Canada
KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.
AUDITORS' REPORT ON RECONCILIATION TO UNITED STATES GAAP
To the Board of Directors of
Miramar Mining Corporation
On March 1, 2006, we reported on the consolidated balance sheets of Miramar
Mining Corporation (the "Company") as at December 31, 2005 and 2004, and the
consolidated statements of operations and deficit and cash flows for the years
then ended, which are included in the annual report on Form 40-F. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related supplemental information entitled "Reconciliation with
United States Generally Accepted Accounting Principles". This supplemental
information is the responsibility of the Company's management. Our
responsibility is to express an opinion on this supplemental information based
on our audits.
In our opinion, such supplemental information, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
(signed) KPMG LLP
Chartered Accountants
Vancouver, Canada
March 1, 2006
75
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, 2005 and 2004
--------------------------------------------------------------------------------
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) 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, the related future income tax
liability recorded under Canadian GAAP is reversed by crediting share
capital. As such, total liabilities would be decreased by $19,363 (2004 -
$12,781) and shareholders' equity would increase by $19,363 (2004 -
$12,781).
(b) Derivative financial instruments:
For periods prior to 2004, the Company accounted for written call hedges
sold as hedges of future sales. During the year ended December 31, 2004,
the Company settled all written call options held. Pursuant to U.S. GAAP,
$854 of the loss recorded on the settlement of the written calls for the
year ended December 31, 2004 would have been recognized in prior periods.
76
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, 2005 and 2004
--------------------------------------------------------------------------------
(c) 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.
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 2005,
total flow-through share premiums received were $1,776 (2004 - $3,496), of
which $50 relates to qualified expenditures made in 2005 (2004 - $204) and,
therefore, would have been credited to earnings under U.S. GAAP as a
deferred tax benefit, and $1,726 would remain in liabilities at December
31, 2005 (2004 - $3,292) under U.S. GAAP. In addition, the $3,292 premium
liability at December 31, 2004 would be credited to earnings in 2005 as the
qualified expenditures were made in 2005.
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, 2005,
unexpended flow-through funds were $15,079 (2004 - $14,313).
(d) 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.
For Canadian GAAP purposes, proceeds received related to mineral interests
that are in the exploration or development stages are credited to the
capitalized costs incurred. For U.S. GAAP purposes, such proceeds,
attributable to the sale of available for sale securities, are recognized
in the determination of income. In prior years, the securities were
recorded at market value in the consolidated balance sheet and the
unrealized gain on such securities was included in accumulated other
comprehensive income in shareholders' equity. As a result, the sale of the
securities results in a release of the accumulated unrealized gain from
accumulated other comprehensive income. During the year ended December 31,
2005, the Company sold a mineral property that was in the exploration
stage. As a result, amounts previously written-off for U.S. GAAP purposes
would be recorded as income in the consolidated statement of operations for
the year ended December 31, 2005.
77
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, 2005 and 2004
--------------------------------------------------------------------------------
(e) Development stage company:
Pursuant to U.S. GAAP, the Company would be considered a development stage
company as the Company is devoting efforts to establishing or developing
commercially viable mineral properties. However, the identification of the
Company as such for accounting purposes does not impact the measurement
principles applied in these consolidated financial statements.
(f) Impact of recent United States accounting pronouncements:
(i) In 2004, FASB issued revised Statement of Financial Accounting
Standards 123R ("FAS 123R") "Share-Based Payment". This statement
clarifies and expands existing guidance in several areas, including
measuring fair value, classifying an award as equity or as a
liability, and attributing compensation cost to reporting periods.
This amended statement is effective for the Company on January 1,
2006. The Company is currently evaluating the implications of the
adoption of FAS 123R to this reconciliation with U.S. GAAP.
(ii) In March 2004, the Emerging Issues Task Force ("EITF") issued EITF
04-3, "Mining Assets: Impairment and Business Combinations". EITF 04-3
requires mining companies to consider cash flows related to the
economic value of mining assets (including mineral properties and
rights) beyond those assets' proven and probable reserves, as well as
anticipated market price fluctuations, when assigning value in a
business combination in accordance with SFAS 141 and when testing the
mining assets for impairment in accordance with SFAS 144. EITF 04-3 is
effective for fiscal periods beginning after March 31, 2004. The
adoption of EITF 04-3 did not have material impact on the Company's
financial position, results of operations or cash flows.
(iii) On June 1, 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections", a replacement of APB Opinion No. 20,
"Accounting Changes", and FASB Statement No. 3, "Reporting Accounting
Changes in Interim Financial Statements". SFAS 154 requires
retrospective application to prior periods' financial statements of a
change in accounting principle unless it is impracticable to do so.
This is a change from the existing practice that requires most
accounting changes to be accounted for by including in net income in
the period of the change the cumulative effect of changing to the new
accounting principle. SFAS 154 will be effective for accounting
changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The impact of SFAS 154 cannot be determined until
such time as the Company makes a change in accounting policy.
(iv) At December 31, 2004, for U.S. GAAP purposes, the Company adopted FIN
46R, "Consolidation of Variable Interest Entities". Pursuant to FIN
46R, under U.S. GAAP the Company is required to consolidate variable
interest entities (VIEs), where it is the entity's Primary
Beneficiary. VIEs are entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties.
The Primary Beneficiary is the party that has exposure to a majority
of the expected losses and/or expected residual returns of the VIE. To
December 31, 2005, there has been no impact from the adoption of FIN
46R. As disclosed in note 2(o), a similar standard was adopted in
Canada in 2005.
78
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, 2005 and 2004
--------------------------------------------------------------------------------
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 2005 2004
------------------------------------------------------------------------------
Assets, under Canadian GAAP $ 277,997 $ 232,277
Mineral property exploration and development (a) (81,207) (70,393)
Adjustment for unrealized holding gain (d) 4,295 1,120
------------------------------------------------------------------------------
Assets, under U.S. GAAP $ 201,085 $ 163,004
==============================================================================
Liabilities, under Canadian GAAP $ 49,589 $ 47,955
Future income tax liability (a) (19,363) (12,781)
Premium on unexpended flow-through funds (c) 1,726 3,292
------------------------------------------------------------------------------
Liabilities, under U.S. GAAP $ 31,952 $ 38,466
==============================================================================
Shareholders' equity, under Canadian GAAP $ 228,408 $ 184,322
Mineral property exploration and development (a) (89,499) (70,393)
Future income tax liability (a) 19,363 12,781
Premium on unexpended flow-through funds (c) (1,726) (3,292)
Adjustment for unrealized holding gain (d) 4,295 1,120
Gain on sale of mineral property (d) 8,292 -
------------------------------------------------------------------------------
Shareholders' equity, under U.S. GAAP $ 169,133 $ 124,538
==============================================================================
================================================================================
Years ended December 31,
------------------------------------
Statements of Operations 2005 2004
--------------------------------------------------------------------------------
Loss for the year, Canadian GAAP $ (10,991) $ (32,459)
Mineral property exploration costs (a) (19,106) (29,257)
Premium on flow-through shares (c) 3,342 3,239
Change in fair value of written call options (b) - 854
Adjustment for realized holding gain (d) 677 900
Gain on sale of mineral property (d) 8,292 -
--------------------------------------------------------------------------------
Loss for the year, U.S. GAAP (17,786) (56,723)
Other comprehensive income:
Adjustment for unrealized holding gain
(loss)(d) 3,175 (1,664)
--------------------------------------------------------------------------------
Comprehensive loss $ (14,611) $ (58,387)
--------------------------------------------------------------------------------
Loss per share, basic and diluted under U.S. GAAP $ (0.09) $ (0.37)
================================================================================
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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, 2005 and 2004
--------------------------------------------------------------------------------
================================================================================
Years ended December 31,
----------------------------------
Statements of Cash Flows 2005 2004
-----------------------------------------------------------------------------------------------
Cash used in operating activities, under Canadian GAAP $ (11,531) $ (22,944)
Mineral property exploration and development expenditures (a) (19,106) (28,170)
-----------------------------------------------------------------------------------------------
Cash used in operating activities, under U.S. GAAP $ (30,637) $ (51,114)
===============================================================================================
Cash used in investing activities, under Canadian GAAP $ (28,250) $ (41,795)
Mineral property exploration and development expenditures (a) 19,106 28,170
-----------------------------------------------------------------------------------------------
Cash used in investing activities, under U.S. GAAP $ (9,144) $ (13,625)
===============================================================================================
Cash used in financing activities, under Canadian GAAP $ 58,289 $ 25,033
Change in restricted cash from issue of flow-through shares (c) (766) 456
-----------------------------------------------------------------------------------------------
Cash provided by financing activities, under U.S. GAAP $ 57,523 $ 25,489
===============================================================================================
Cash and cash equivalents end of year, under Canadian GAAP $ 48,723 $ 30,215
Restricted cash from issue of flow-through shares (c) (15,079) (14,313)
-----------------------------------------------------------------------------------------------
Cash and cash equivalents end of year, under U.S. GAAP $ 33,644 $ 15,902
===============================================================================================
80
4. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
81
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") provides an analysis of the
financial results of Miramar Mining Corporation (the "Company") for the year
ended December 31, 2005 and compares them with the previous year. In order to
better understand the MD&A, it should be read in conjunction with the
Consolidated Financial Statements and related notes. The Company's consolidated
financial statements are prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") and expressed in thousands of Canadian dollars,
except share amounts. In addition, the Company files annual reports on Form 40-F
with the United States Securities and Exchange Commission, which includes the
Company's consolidated financial statements and a supplementary note reconciling
the material differences between Canadian GAAP and United States GAAP, and their
effect on the Company's financial information. This MD&A is dated as of March
30, 2006. All amounts are expressed in Canadian dollars, except as otherwise
indicated.
OVERVIEW
The Company's mining and exploration assets are primarily gold assets in the
Canadian Arctic. The Company has developed considerable experience in
operations, exploration and logistics in the Canadian Arctic where the Company
has focused its activities for more than ten years. In 2004, the Company
determined that gold production was no longer economically viable at its Con and
Giant mines in Yellowknife, Northwest Territories and terminated all mining
activities. Since then, the Company's business is focused on the exploration and
development of the Hope Bay gold mineral project in Nunavut. The Hope Bay
project is 100% owned by the Company, extends over 1,000 square kilometers and
we believe encompasses one the most prospective undeveloped greenstone belts in
Canada. The belt contains a number of significant gold deposits including the
Doris North Project which is anticipated to become the first new gold mine in
Nunavut.
The Company's goal is to become an intermediate gold producer through the phased
development of the Hope Bay gold project as follows:
Phase 1: Short-term: Development of a small scale, high return gold mine at
Doris North to commence production as expeditiously as possible, with
the objective of generating significant cash flow, after capital
payback, to advance the subsequent phases while minimizing equity
dilution. Doris North is anticipated to produce 155,000 ounces of gold
per year for two years.
Phase 2: Medium-term: To extend and expand production levels by developing
the higher grade, readily accessible upper portions of the Boston,
Doris Central and Madrid deposits, with a target production level of
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MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
approximately 250,000 to 300,000 ounces of gold per annum, generating
sufficient cash flow to advance to phase three.
Phase 3: Longer-term: To further expand gold level by maximizing the
potential of the very large Madrid deposit, and the remainder of the
Boston and Doris deposits, to a sustained level in the range of
350,000 to 400,000 ounces of gold per annum.
Phases 2 and 3 are based on conceptual plans which depend on future
positive mine engineering and geological, economic and mine engineering
studies as well as permitting and regulatory approval.
Internal studies have indicated that there may be opportunities for larger scale
production at the Hope Bay Project and work in 2006 will include examining the
viability of larger scale operations.
In parallel with these development oriented activities, the Company intends to
continue its exploration efforts at Hope Bay with the objective of discovering
new deposits which could contribute to a sustained intermediate production
profile, while also conducting grassroots exploration in cooperation with
strategic partners to identify longer term opportunities.
To achieve these objectives, the Company needs to successfully complete, among
other things, the current permitting process for the Doris North project,
complete a positive feasibility study in 2006 for the Phase 2 expansion,
complete financing for mine construction, successfully construct and place into
production the Doris North deposit, complete development and permitting of the
Boston, Doris and Madrid deposits and identify additional resources.
2005 Highlights
o Exploration programs in 2005 were successful in the objective to
upgrade the confidence level in resources to support a feasibility
study in 2006 on Phase 2 of the development strategy for Hope Bay.
o Exploration at Naartok resulted in resource expansion at depth and to
the north; holes drilled in this area include 05PMD328 which assayed
11.5 g/t over 66.5 meters.
o Exploration drilling totaling 33,176 meters was completed during 2005,
including 26,310 meters in the Madrid area, 5,325 meters at Doris
Central and 1,541 meters in regional belt targets.
83
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
o A Draft Environmental Impact Study ("DEIS") was submitted on the Doris
North project in June 2005 to the Nunavut Impact Review Board
("NIRB"). The Final Environmental Impact Study ("FEIS") was submitted
on October 31, 2005. NIRB held public hearings to review the project
from January 30 to February 3, 2006. On March 6, 2006, NIRB issued its
final hearing report recommending to the Minister of Indian and
Northern Affairs Canada that the Doris North Project should proceed.
o On November 22, 2005, the Company completed a private placement to
Newmont Mining Corporation of Canada Limited of 18.5 million common
shares at a price of $2.35 per unit for gross proceeds of $43.5
million. Each unit consists of one common share and one warrant to
purchase an additional common share for $2.75 until November 22, 2009.
o In September the Company completed a flow-through equity financing of
7,320,000 common shares issued at $2.05 per share for gross proceeds
of $15 million.
o In February, the sale of the Back River option to Dundee Precious
Metals Inc. was completed generating approximately $10 million of cash
proceeds.
o Consolidated net loss of $11 million or $0.07 per share; included in
the loss is an adjustment to increase the asset retirement obligation
for the Con Mine by $8.1 million. Excluding this adjustment the loss
would be $2.9 million or $0.02 per share.
EARNINGS AND CASH FLOW
For the year ended December 31, 2005, the Company had a net loss of $11 million
or $0.07 per share compared to a net loss of $32.5 million or $0.21 per share in
the same period in 2004. The loss reported in 2005 includes an adjustment of
$8.1 million to increase the asset retirement obligation for the Con Mine. In
2004, the Company had gold mining operations which were operating at a loss and
accounted for $30 million of the reported loss during the year including write
downs on assets and asset retirement obligation and closure costs totaling $16.6
million. In December 2004, the Company terminated gold operations at the Con
Mine and activities were transitioned into reclamation of the property.
84
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selected Financial Data
The following tables summarize total revenue loss and loss per share over the
last three fiscal years and the last eight fiscal quarters (in thousands of
dollars expect per share amounts).
2005 2004 2003
------------------------------------------------------------
Total Revenue $ 2,566 $ 12,265 $ 46,877
Loss $ (10,991) $ (32,459) $ (18,465)
Per Share $ (0.07) $ (0.21) $ (0.14)
Total Assets $ 277,997 $ 232,277 $ 244,482
2005 2005 2005 2005
Q4 Q3 Q2 Q1
------------------------------------------------------------
Total Revenue $ 375 $ 578 $ 614 $ 999
Loss $ (8,348) $ (1,025) $ (481) $ (1,137)
Per Share $ (0.05) $ (0.01) $ (0.00) $ (0.01)
2004 2004 2004 2004
Q4 Q3 Q2 Q1
------------------------------------------------------------
Total Revenue $ 1,670 $ 2,570 $ 4,057 $ 3,968
Loss $ (12,278) $ (6,259) $ (6,868) $ (7,054)
Per Share $ (0.07) $ (0.04) $ (0.05) $ (0.05)
Note: Loss and loss per share figures for 2004 have been restated to reflect the
changes in accounting for site reclamation and closure costs and stock-based
compensation.
OPERATIONS OVERVIEW
Revenue
Interest income for the twelve months in 2005 was $1.2 million compared to $1.6
million in the same period of 2004; interest was higher in 2004 because it
included imputed interest on a note received for the sale of the Bluefish
hydroelectric facility ("Bluefish"). Other income was $1.0 million for fiscal
2005 and includes management fees received from the Department of Indian and
Northern Affairs ("DIAND") for services provided for the Giant Mine, a fee for
services provided to Sherwood Copper Corporation and a gain on the sale of the
option on the Back River mineral property. For the same period in 2004, other
income was $3.1 million which included a gain on the utilization of power
credits which were received as part of the sale of Bluefish. Power credits
utilized in 2005 are credited to the cost of reclamation of the Con Mine which
reduces the accrued asset retirement liability for the mine rather than being
reported as other income. There are no significant amounts of gold sales revenue
reported in 2005 due to termination of mining activity at Con Mine in December
85
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
2004; however, in the third quarter of 2005, the Company had revenue on 760
ounces of residual gold recovered and sold from the process plant in the period.
Operating Costs
As noted above, mining operations ceased in December 2004, however during the
third quarter the Company sold 760 ounces of residual gold for which costs were
0.4 million. During 2005, general and administrative expenses, salaries,
professional services, investor relations and other costs totaled $3.7 million
compared to $4.2 million in 2004. Stock-based compensation of $1.0 million in
fiscal 2005 compared to $2.3 million in 2004 was lower primarily due to lower
fair value per option in 2005 compared to 2004 due to lower average market price
per share. In 2005, options to purchase 1,407,143 common shares were granted or
vested at an average fair value $0.70 per share option, compared to 1,453,480
options in 2004 at an average fair value of $1.55 per share option.
Depreciation, depletion and accretion expense in 2005 was $1.1 million compared
to $2.0 million in the same period of 2004. The decrease results from the
closure of Yellowknife operations and elimination of related equipment
depreciation. Write-down of the asset retirement obligation of $8.1 million in
2005 was recorded to increase the liability for the reclamation of the Con Mine
and is discussed in greater detail in the section below (Asset Retirement
Obligation).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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. Such estimates and assumptions affect the determination of the
potential impairment of long-lived assets, estimated costs associated with
reclamation and closure of mining properties, and assumptions in determining
stock-based compensation and future income taxes. Management re-evaluates its
estimates and assumptions on an ongoing basis; however, due to the nature of
estimates, actual amounts could differ. 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.
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 the balance sheet date
86
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 exploration and development costs. If there is persuasive
evidence of impairment, the asset is written down to its estimated net
recoverable value. Deferred acquisition, exploration and development
expenditures totaled $170.9 million for Hope Bay at December 31, 2005.
Asset Retirement Obligation
Asset retirement obligations are the estimated costs associated with mine
closure and reclamation and recorded as a liability at fair value. The liability
is accreted over time through periodic charges to earnings. In addition, the
asset retirement cost is capitalized as part of the asset's carrying value at
its initial discounted value and is amortized over the asset's useful life. In
the event the actual cost of reclamation exceeds the Company's estimates, the
additional liability for retirement and remediation costs may have an adverse
effect on the Company's future results of operations and financial condition.
During 2005, the Company commenced reclamation activities at the Con Mine.
Activities were focused on the reclamation of historic mill roaster tailings.
Arsenic contained within this material is rendered inert by a process which
utilizes the pressure oxidation circuit at the Con Mine. Reclamation of a
significant portion of these materials was completed as planned in the period
and costs for the reclamation activities were recorded as a reduction of the
liability.
In the fourth quarter of 2005, the Company recorded an adjustment to the
liability for asset retirement obligation of $8.1 million. This adjustment is a
result of management's re-assessment of cost estimates and is comprised of three
components; (a) the impact of additional mill roaster tailings which were
excavated in 2005 and will be treated before they are placed in the tailings
ponds, which adjustment represents the majority of the adjustment as it extends
the arsenic processing phase of reclamation to 2007 rather than completion in
2006; (b) changes in site closure activities, including the impact of a
lengthened period of post-closure water treatment and monitoring, now assumed to
be 25 years rather than 12 years, and the addition of rock cover to the tailings
ponds rather than vegetation alone; and, (c) the impact of an estimated one year
delay in receiving approval of the final remediation plan, which results in the
Company incurring certain holding costs to maintain personnel required for
closure activities and additional monitoring and environmental studies. The
Company has $10.5 million on deposit and has committed the proceeds from any
assets sales at the Con Mine to the Con Mine reclamation security trusts that
87
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
will be applied to, in part, offset the reclamation costs as they are incurred.
The Company is required by regulatory agencies to post security for the site
closure activities, excluding the arsenic processing activities. Based on the
Company's estimate for these costs; the Company does not currently anticipate
that the regulatory agencies will require additional funds to be contributed to
the reclamation security trusts (see Liabilities and Contingencies below for
additional discussion).
The asset retirement obligation for the Con Mine is comprised of two components
(1) processing of historic mill roaster tailings. Arsenic contained within this
material is rendered inert by a process which utilizes the pressure oxidation
circuit; and, (2) site closure and monitoring activities, including building
removal and capping of mine openings, restoration of tailings areas, water
treatment and post-closure monitoring. Although the ultimate amount to be
incurred is uncertain, the fair value of the liability for retirement and
remediation has been estimated to be $19.2 million. As required by regulatory
and GAAP, cost estimates include contractor markups, provision for
administration and engineering, provision for a market risk premium, and a
provision for contingencies. However, the Company expects to use its employees
wherever possible to complete the reclamation activities, which could reduce
actual costs below the accrued liability. The Company has $10.5 million on
deposit and has committed the proceeds from any assets sales at the Con Mine to
the Con Mine reclamation security trusts that will be applied to, in part offset
the reclamation costs as they are incurred. For purposes of determining the fair
value of the obligation a discount rate of 9.8%, an inflation factor of 2.0% and
a market risk premium of 8% have been applied.
Key assumptions in estimating the assets retirement obligation for the Con Mine
include: that historic mill roaster tailings are milled in 2006 and processed in
2007 and final wash down and treatment of storage pits completed in 2006; that
the final abandonment and restoration plan is approved and other site closure
activities commence in 2007; that all buildings are removed and mine openings
capped; that the site is restored to the standard acceptable for commercial-use
property; and water treatment and monitoring continues post-closure for a period
of 25 years.
Key assumptions in estimating the asset retirement obligation for the Hope Bay
exploration camps include removal of exploration camps, reclamation of site pad
and infrastructure, placement of surface stored waste rock underground at Boston
and re-vegetation as needed. The estimate of the cost, based on contractor rates
is at $1.3 million.
88
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Stock-based Compensation
Stock-based compensation is accounted for using the fair value based method.
Under the fair value based method, compensation cost is measured at fair value
of the options at the date of grant and is expensed over the vesting period of
the award. The Company estimates the fair value using the Black-Scholes option
pricing model. The key assumptions used in 2005 were: a risk-free interest rate
of 3.61%, a dividend yield of 0%, an expected volatility of 60% and expected
lives of stock options of 4.85 years. The weighted average fair value of options
granted in 2005 was $1.38 per share option.
EXPLORATION AND DEVELOPMENT ACTIVITIES
The focus for the Company continues to be on the Hope Bay project. The Company
is committed to a strategy of advancing the Hope Bay project to a production
decision while continuing to expand gold resources. The staged development
strategy will focus first on the high grade gold Doris North project, with the
goal of generating cash flow to pay for site infrastructure and to fund the
continued exploration and development of other resources on the Hope Bay belt.
The Company plans to pursue extensions and expansions to the initial phase of
production through the mining of other resources on the Hope Bay belt. The
Company's exploration strategy will focus on expanding and increasing the
confidence level of existing deposits and on continued exploration for new gold
resources in order to support a sustained intermediate production profile. The
Company will continue to conduct grassroots exploration in cooperation with
strategic partners, when possible. To achieve these objectives, the Company
needs to successfully complete the current regulatory process for the Doris
North project, complete a positive feasibility study during 2006 for the Phase 2
expansion, complete financing for mine construction, successfully construct and
place into production the Doris North deposit, complete development of the
Boston, Doris and Madrid deposits and identify additional resources.
During 2005, expenditures at Hope Bay totaled $19.2 million for exploration,
including 33,176 meters of core drilling and the advancement of permitting and
engineering for the Doris North project. Exploration programs for 2005 were
designed to upgrade resources at Boston, Doris Central and Madrid to support a
feasibility study in 2006; to expand the resource at Madrid; and, to conduct
regional exploration work as part of the Company's assessment obligations at
Hope Bay.
Drilling was focused within the Madrid system primarily around the Naartok
deposit where 22,036 meters were drilled. Activity at Naartok focused on
extending mineralization surrounding the wide, high grade interception of hole
05PMD328 which returned 66 meters grading 11.5 grams of gold per tonne. This
89
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
hole was a 105 meter step out from a 2004 hole that intercepted 9.8 grams of
gold per tonne over 64.2 meters and suggests potential for significant
dimensions and thickness. The area of the Naartok resource continues to expand
at depth and to the north and it is expected that as a result of 2005 drilling
additional ounces will be added to the reported resource in 2006. Drilling
within the upper portions of the Naartok East zone has improved continuity and
tightened drill density and is also expected to have a positive impact on
reported resources in 2006 as well as supporting the Phase 2 feasibility study.
Prior to the 2005 work, the Madrid area, which includes Naartok, contained an
indicated resource of 838,000 ounces of gold at a grade of 5.5 grams per tonne
with an additional 2.6 million ounces of gold at a grade of 5.4 grams per tonne
of inferred resources.
Exploration outside the main deposits continues to advance with improved target
selection. Though no significant intersections were recorded in the 2005
regional programs, programs were successful in providing improved understanding
of potential targets.
The Company continues to work towards obtaining permits and licences for the
Doris North project. As a result of the NIRB recommendation in August 2004 to
the Minister of DIAND that the project should not proceed on the basis of the
then existing application, the Company submitted a revised preliminary project
description on Doris North in February 2005. On March 7, 2005 NIRB recommended
to the Minister of DIAND that the project should proceed to a Part 5 review
requiring a public hearing. In April 2005, the Minister accepted NIRB's
recommendation for a Part 5 review which led the Company to submit a revised
draft environmental impact statement ("DEIS") to NIRB in June 2005. In August
2005, NIRB conducted a technical review of the DEIS and issued comments to be
addressed before submission of the final document. The Company revised the draft
document as requested and submitted the final environmental impact statement
("FEIS") on October 31, 2005. Public hearings to review the project were held
the week of January 30 - February 3. On March 6, 2006, NIRB issued its final
hearing report recommending to the Minister of Indian and Northern Affairs
Canada that the Doris North Project should proceed. The NIRB report requires
acceptance by the Minister before NIRB can issue a project certificate.
Subject to the Minister accepting NIRB's recommendation, the Company is
targeting having all required permits for production at Doris North by the end
of 2006, which would permit shipping of construction materials to site in the
summer of 2007, construction in the winter of 2007 and production commencing in
2008.
90
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
CAPITAL PROGRAMS
During fiscal 2005, the Company had capital expenditures of $19.2 million for
exploration and project activities at Hope Bay and $0.1 million for property,
plant and equipment compared to expenditures in 2004 of $34.7 million for
exploration and project activities at Hope Bay and Back River.
FINANCING AND LIQUIDITY
At December 31, 2005, the Company had consolidated working capital of $64.3
million compared to $25.4 million at the end of 2004. At December 31, 2005, the
Company had $68.7 million of cash and cash equivalents and short-term
investments compared to $30.2 million at the end of 2004. At December 31, 2005,
the Company also had $15.0 million in cash collateral deposits for reclamation
bonds which are classified outside of working capital.
On February 18, 2005, the Company assigned to Dundee Precious Metals Inc. its
option from Kinross Gold Corporation to earn a 60% interest in the Back River
project. The Company received approximately $10 million representing the
reimbursement of costs incurred by the Company on the Back River project plus
5%. Dundee is required to issue to the Company 150,000 common shares, or pay the
cash equivalent, if either (i) the total mineral resources on the Goose Lake
property are increased to 1,500,000 ounces of gold or (ii) a decision is made to
place a mine into commercial production on the Back River project. Dundee is
required to issue a further 187,500 common shares, or pay the cash equivalent,
if Dundee exercises its option to earn a 60% interest on the Back River project.
On October 18, 2004, the Company completed a private placement of 7,600,000
flow-through common shares at a price of $2.00 per common share for gross
proceeds of $15.2 million. The Company must incur Canadian exploration
expenditures as defined in the Income Tax Act (Canada) for the entire amount by
December 31, 2005, which amount has been incurred.
On September 30, 2005, the Company completed a private placement of 7,320,000
flow-through common shares at a price of $2.05 per common share for gross
proceeds of $15.0 million. In consideration for their services, the underwriters
received commissions of $0.8 million and brokers' warrants exercisable to
purchase 366,000 common shares at $2.05 per common share until September 30,
2006. The fair value of these warrants at the grant date was $0.1 million 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 $15.0 million by December 31, 2006.
91
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
On October 14, 2005, the Company completed a private placement of 250,000
flow-through common shares at a price of $2.05 per common share for gross
proceeds of $512,000. The Company must incur Canadian exploration expenditures
as defined in the Income Tax Act (Canada) in the amount of $512,000 by December
31, 2006.
On November 22, 2005 the Company completed a private equity placement to Newmont
Mining Corporation of Canada Limited ("Newmont") of 18,500,000 units at $2.35
per unit for gross proceeds of $43.5 million. Each unit consisted of one common
share of the Company and a warrant to purchase a common share of the Company at
$2.75 for a period of 48 months. The common shares comprised 9.9% of the
Company's then issued and outstanding shares and 18% of issued and outstanding
if all warrants were exercised. The Company has agreed to provide to Newmont
periodic access to technical data, information on permitting progress and future
work plans and site visitation rights in consideration for Newmont providing
technical guidance to the Company.
The Company believes it has sufficient cash resources and liquidity to sustain
its planned activities in 2006. The future exploration and development of the
Hope Bay project may require the Company to raise additional capital through a
combination of project debt and equity financings. The Company's strategy is to
use equity financing for exploration activities and to maximize project debt to
build mining infrastructure until sufficient cash flow is generated from mining
production.
Liabilities and Contingencies
The Company has the legal obligation to reclaim properties for which it holds
water licenses and exploration and mining agreements. The Company has estimated
these asset retirement obligations at December 31, 2005, in accordance with
accounting guidelines described above, to be an aggregate of $24.9 million on an
undiscounted basis. The properties for which these obligations have been
estimated are the Con Mine in Yellowknife and the Hope Bay properties in
Nunavut. The Company has established cash deposits 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
Company has also established two reclamation security trusts for the reclamation
of the Con Mine. The Company has cash collateral deposits totaling $15.0
million.
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MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The reclamation security trusts for the Con Mine were established on December
31, 2004. The Company deposited $9 million of the $10 million proceeds from the
sale of its Bluefish hydro electric facility into a reclamation security trust,
in accordance with an agreement with DIAND. The remaining $1 million of the
proceeds was, and the proceeds from any subsequent sale of assets will be
deposited into a second reclamation security trust. The cost of reclamation was
estimated by the Company on the basis of a draft remediation plan which had been
submitted to the McKenzie Valley Water Board in February 2003. The final plan is
currently under review by the Water Board. Based on comments received to date
from the regulatory review process, the Company has estimated the impact of the
required changes to the plan and recorded an appropriate increase to the
liability. Any further changes upon receiving final approval of the plan could
result in an increase to the estimated liability.
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. The
re-assessment does not give rise to any taxes payable by the Company. However,
as part of the original transaction, 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, (approximately $2.3 million at December
31, 2005), should a ruling denying the transfer of certain tax pools be made
against the Company. In 2004, the Company received notification that CRA has
re-confirmed the original re-assessment. As a result, the Company filed a notice
of appeal in March 2005. The Company has received notification from the Tax
Court of Canada that this case should proceed and the discovery process is
scheduled to commence in April 2006. 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,
2005.
Contractual Obligations
The following table summarizes the contractual obligations as at January 1, 2006
of the Company for each of the five years commencing with 2006 and thereafter,
in thousands of dollars.
2006 2007 2008 2009 Thereafter
--------- --------- ------- ------- -------------
Oxygen plant $822 $ 612 $ - $ - $ -
Office lease costs 306 316 316 316 1,110
Exploration equipment 293 30 - - -
Site reclamation(1) 6,240 3,059 - - 15,635
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MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) 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 the payments has not been determined with certainty and
may change depending upon future events. The Company is in the process of
finalizing its abandonment and restoration plan with regulatory agencies for the
Con Mine which will establish the extent and timing of site closure reclamation
activities. Reclamation of exploration sites will be deferred to the extent that
the Company continues to be engaged in actively exploring them.
For additional information related to the Company's obligations and commitments
see note 16 in the annual consolidated financial statements.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements other than the
pension obligations which are described in note 13 of the annual consolidated
financial statements.
OUTLOOK
The outlook for the Company is dependent on the successful exploration and
development of the Hope Bay project. The Company controls 100% of the Hope Bay
project, which has measured and indicated resources totaling 2.1 million ounces
of gold at a grade of 9.6 grams per ton and an additional 4.3 million ounces of
gold at a grade of 7.0 grams per ton in the inferred category.
The Company plans to continue to work towards making a production decision on
the Doris North project, including advancement of the permitting process. The
Company is confident that it will be successful in addressing the concerns of
the regulatory agencies and, if the permitting process is successfully
completed, the Company will make a final decision on a commitment to the
construction process. If the project is approved by the Company, production
could commence during 2008. However, there can be no assurance that the
permitting process will be completed as planned or that the Company will develop
Doris North as anticipated.
As part of the Company's development strategy for Hope Bay, programs have been
completed in 2005 designed to facilitate delivery of a feasibility study in 2006
which, if successful, could demonstrate the opportunity for the development of
significant sustained gold production following the Doris North project.
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MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
As a result of the termination of mining activities at Con and Giant mines, the
Company does not expect to generate significant operating revenue in 2006. The
Company anticipates that final approval for the Con Mine abandonment and
restoration plan will be received in 2006 which will permit the Company to
conduct final reclamation activities in subsequent periods. On June 30, 2005,
the Company returned the Giant Mine property to DIAND in accordance with the
terms of the acquisition agreement. The Company does not have any ongoing
reclamation obligations for the Giant Mine.
RISKS AND UNCERTAINITIES
The Company will require 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
ability to develop its properties as well as future profitability and cash flow.
As the gold price is denominated in U.S. dollars, the Company is also at
financial risk as the currency exchange rate between Canadian and U.S. dollars
fluctuates. If the Canadian dollar strengthens against to the U.S. dollar,
revenue from future gold sales, which is generated in U.S. dollars, would
convert to fewer Canadian dollars available to pay for operating costs that are
almost entirely incurred in Canadian dollars. Permitting mining projects such as
the Doris North project requires the approval of regulatory agencies which are
beyond the Company's control. As a result, the receipt of approvals for the
project and the timing of grants of necessary permits are inherently uncertain.
FORWARD LOOKING STATEMENTS
Statements relating to exploration work at the Hope Bay project and the expected
results of this work and strategies and plans for the development of the Hope
Bay project, statements related to analyses of financial condition, future
results of operations and other information that are based on forecasts of
future results, estimates of amounts not yet determinable and assumptions of
management are forward-looking statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995. Forward looking
statements are statements that are not historical facts and are generally, but
not always, identified by the words "expects," "plans," "anticipates,"
"believes," "intends," "estimates," "projects," "satisfies," "potential,"
"goal," "objective," "prospective," "strategy", "target," and similar
expressions, or that events or conditions "will," "would," "may," "can," "could"
or "should" occur. Information inferred from the interpretation of drilling
results and information concerning mineral resource estimates may also be deemed
to be forward looking statements, as it constitutes a prediction of what might
be found to be present when and if a project is actually developed. These
forward-looking statements are subject to a variety of risks and uncertainties
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MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
which could cause actual events or results to differ materially from those
reflected in the forward-looking statements, including, without limitation:
risks related to fluctuations in gold prices and currency exchange rates;
uncertainties related to raising sufficient financing to fund the planned work
in a timely manner and on acceptable terms; changes in planned work resulting
from weather, logistical, technical or other factors; the possibility that
results of work will not fulfill expectations and realize the perceived
potential of the Company's properties; uncertainties involved in the
interpretation of drilling results and other tests and the estimation of gold
reserves and resources; the possibility that required permits may not be
obtained on a timely manner or at all; the possibility that capital and
operating costs may be higher than currently estimated and may preclude
commercial development or render operations uneconomic; risk of accidents,
equipment breakdowns and labour disputes or other unanticipated difficulties or
interruptions; the possibility of cost overruns or unanticipated expenses in the
work program; the risk of environmental contamination or damage resulting from
Miramar's operations, risks and uncertainties described under "Risks and
Uncertainties" and elsewhere in the Management's Discussion and Analysis, and
other risks and uncertainties, including those described in the Miramar's Annual
Report on Form 40-F for the year ended December 31, 2005 and Reports on Form 6-K
filed with the Securities and Exchange Commission.
Forward-looking statements are based on the beliefs, estimates and opinions of
Miramar's management on the date the statements are made. Miramar undertakes no
obligation to update these forward-looking statements if management's beliefs,
estimates or opinions, or other factors, should change.
All resource estimates reported in this disclosure are calculated in accordance
with the National Instrument 43-101 of the Canadian securities administrators
and the Canadian Institute of Mining and Metallurgy Classification system. These
standards differ significantly from the requirements of the United States
Securities and Exchange Commission, which permits U.S. mining companies in their
SEC filings to disclose only those mineral deposits that qualify as proven or
probable "reserves" because a determination has been made based on an
appropriate feasibility study that the deposits could be economically and
legally extracted or produced, and, accordingly, resource information reported
in this disclosure may not be comparable to similar information reported by
United States companies. The term "resource(s)" does not equate to "reserves"
and normally may not be included in documents filed with the Securities and
Exchange Commission, and investors are cautioned not to assume that "resources"
will be converted into "reserves" in the future.
This disclosure uses the term "inferred resources". While this term is
recognized by Canadian securities regulations concerning disclosures by mining
companies, the U.S. Securities and Exchange Commission does not recognize it.
"Inferred resources" have a great amount of uncertainty as to their existence
and as to their economic and legal feasibility. It cannot be assumed that all or
any part of the "inferred resources" will ever be upgraded to a high category.
Under Canadian securities regulations, estimates of "inferred resources" may not
form the basis of feasibility or pre-feasibility studies except in rare cases.
Investors are cautioned not to assume that part or all of an "inferred resource"
exist or are economically or legally feasible.
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EXHIBITS
99.1(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 Financial 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 John Wakeford, P. Geol.
99.9 Consent of Steffen Robertson and Kirsten Consulting
99.10 Consent of Roscoe Postle Associates Inc.
(1) Previously filed on May 19, 2004 on the issuer's annual report on Form 40-F
for the year ended December 31, 2003.
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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: March 31, 2006
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