UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of MARCH, 2006.
Commission File Number: 001-32558
IMA EXPLORATION INC.
--------------------------------------------------------------------------------
(Translation of registrant's name into English)
#709 - 837 West Hastings Street, Vancouver, British Columbia, V6C 3N6, Canada
--------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing 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.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
IMA EXPLORATION INC.
-------------------------------------
Date: March 29, 2006 /s/ Joseph Grosso
------------------------------ -------------------------------------
Joseph Grosso,
President & CEO
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of the Company have been
prepared by management in accordance with accounting principles generally
accepted in Canada and reconciled to accounting principles generally accepted in
the United States as set out in Note 10 and contain estimates based on
management's judgement. Management maintains an appropriate system of internal
controls to provide reasonable assurance that transactions are authorized,
assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors has met with the Company's
independent auditors to review the scope and results of the annual audit, and to
review the financial statements and related financial reporting matters prior to
submitting the financial statements to the Board for approval.
The Company's independent auditors, PricewaterhouseCoopers LLP, are appointed by
the shareholders to conduct an audit in accordance with generally accepted
auditing standards in Canada and the Public Company Accounting Oversight Board
(United States), and their report follows.
/s/ JOSEPH GROSSO /s/ ART LANG
----------------- -----------------------
Joseph Grosso Art Lang
President Chief Financial Officer
March 24, 2006
PRICEWATERHOUSECOOPERS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone 1 604 806 7000
Facsimile 1 604 806 7806
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
IMA EXPLORATION INC.
We have audited the consolidated balance sheets of IMA EXPLORATION INC. as at
December 31, 2005 and December 31, 2004 and the consolidated statements of
operations and deficit and cash flows for the years ended December 31, 2005,
2004 and 2003. 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 and the standards of the Public Company Accounting Oversight Board
(United States). 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 years
ended December 31, 2005, 2004 and 2003 in accordance with Canadian generally
accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
March 24, 2006
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and the other memeber firms of PricewaterhouseCoopers International Limited,
each of which is a seperate and independent legal entity.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 7,731,395 5,227,354
Accounts receivable, prepaids and
deposits (Note 5 and 7) 548,492 162,802
Marketable securities (Note 4) 186,000 186,000
------------ ------------
8,465,887 5,576,156
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 5) - 94,102
MINERAL PROPERTIES AND
DEFERRED COSTS (Notes 2 and 8) 15,032,107 6,551,598
------------ ------------
23,497,994 12,221,856
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 976,811 523,378
FUTURE INCOME TAX LIABILITIES (Note 8) 1,760,110 885,093
------------ ------------
2,736,921 1,408,471
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 50,414,672 36,982,307
CONTRIBUTED SURPLUS (Note 6) 5,854,445 3,428,382
DEFICIT (35,508,044) (29,597,304)
------------ ------------
20,761,073 10,813,385
------------ ------------
23,497,994 12,221,856
============ ============
NATURE OF OPERATIONS AND CONTINGENCY (Note 1)
COMMITMENTS (Note 7)
SUBSEQUENT EVENTS (Note 12)
APPROVED BY THE BOARD
/s/ DAVID HORTON , Director
------------------------
/s/ ROBERT STUART ANGUS , Director
------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2005 2004 2003
$ $ $
EXPENSES
Administrative and management services 150,340 240,084 119,921
Corporate development and investor relations 525,938 317,987 196,537
General exploration 55,914 228,961 226,956
Office and sundry 148,015 107,678 52,118
Professional fees 2,327,278 894,780 198,876
Rent, parking and storage 72,791 90,629 35,552
Salaries and employee benefits 585,560 313,409 98,202
Stock based compensation (Note 6) 1,800,000 1,972,860 1,487,235
Telephone and utilities 26,648 34,165 18,681
Transfer agent and regulatory fees 199,715 57,743 34,078
Travel and accommodation 256,035 203,591 52,175
Cost recoveries (Note 7) - (149,271) (17,290)
------------ ------------ ------------
6,148,234 4,312,616 2,503,041
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (6,148,234) (4,312,616) (2,503,041)
------------ ------------ ------------
OTHER EXPENSE (INCOME)
Foreign exchange (232,954) 195,285 12,763
Reorganization costs - 346,103 -
Interest and other income (150,406) (101,589) (66,561)
Gain on options and disposition of
mineral properties - (328,346) -
Write-down of marketable securities - 99,762 -
------------ ------------ ------------
(383,360) 211,215 (53,798)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (5,764,874) (4,523,831) (2,449,243)
Loss allocated to spin-off assets (Note 2) - 131,232 969,175
------------ ------------ ------------
LOSS FOR THE YEAR (5,764,874) (4,655,063) (3,418,418)
DEFICIT - BEGINNING OF YEAR (29,597,304) (17,577,363) (14,158,945)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF ASSETS
TO GOLDEN ARROW (Note 2) (145,866) (7,364,878) -
------------ ------------ ------------
DEFICIT - END OF YEAR (35,508,044) (29,597,304) (17,577,363)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUNG OPERATIONS $(0.12) $(0.11) $(0.08)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.12) $(0.11) $(0.11)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 46,197,029 40,939,580 32,251,753
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2005 2004 2003
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (5,764,874) (4,655,063) (3,418,418)
Net loss allocated to spin-off assets - 131,232 969,175
------------ ------------ ------------
Net loss from continuing operations (5,764,874) (4,523,831) (2,449,243)
Items not affecting cash
Depreciation - 26,665 13,257
Stock based compensation 1,800,000 1,972,860 1,487,235
Gain on options and disposition of
mineral properties - (328,346) -
Write-down of marketable securities - 99,762 -
------------ ------------ ------------
(3,964,874) (2,752,890) (948,751)
Change in non-cash working capital balances 115,256 74,785 182,698
------------ ------------ ------------
(3,849,618) (2,678,105) (766,053)
Cash used in spin-off operations - (283,629) (653,496)
------------ ------------ ------------
(3,849,618) (2,961,734) (1,419,549)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties
and deferred costs (7,025,492) (4,448,659) (1,069,228)
Net mineral properties and marketable securities
cash flow related to spin-off assets - 32,592 (781,533)
Proceeds from sale/(purchase) of equipment 46,589 (93,650) (21,875)
------------ ------------ ------------
(6,978,903) (4,509,717) (1,872,636)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 14,215,165 9,707,897 6,467,245
Share issuance costs (736,737) (411,237) (188,850)
------------ ------------ ------------
13,478,428 9,296,660 6,278,395
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,649,907 1,825,209 2,986,210
CASH TRANSFERRED TO GOLDEN ARROW (Note 2) (145,866) (1,020,189) -
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,504,041 805,020 2,986,210
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 5,227,354 4,422,334 1,436,124
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR 7,731,395 5,227,354 4,422,334
============ ============ ============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
Cash 151,395 927,354 1,622,334
Term Deposits 7,580,000 4,300,000 2,800,000
------------ ------------ ------------
7,731,395 5,227,354 4,422,334
============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION (Note 11)
The accompanying notes are an integral part of these
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(EXPRESSED IN CANADIAN DOLLARS)
NAVIDAD
NAVIDAD AREAS IVA TAX TOTAL
$ $ $ $
Balance, beginning of year 5,770,968 112,694 667,936 6,551,598
------------ ------------ ------------ ------------
Expenditures during the year
Assays 316,220 - - 316,220
Communications 28,100 51 - 28,151
Drilling 2,188,346 - - 2,188,346
Engineering 53,340 - - 53,340
Environmental 391,816 - - 391,816
Geophysics 176,036 - - 176,036
Metallurgy 501,070 - - 501,070
Office and other 95,310 640 - 95,950
Petrography 13,563 - - 13,563
Salaries and Contractors (Note 6 (d)) 1,539,569 - - 1,539,569
Supplies and Equipment 441,012 41 - 441,053
Transportation 248,554 - - 248,554
Project Development 828,036 - - 828,036
IVA Tax - - 783,788 783,788
------------ ------------ ------------ ------------
6,820,972 732 783,788 7,605,492
------------ ------------ ------------ ------------
Future income tax (Note 8) 875,017 - - 875,017
------------ ------------ ------------ ------------
Balance, end of year 13,466,957 113,426 1,451,724 15,032,107
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2004
(EXPRESSED IN CANADIAN DOLLARS)
GOLDEN ARROW
NAVIDAD SUBTOTAL RELATED
NAVIDAD AREAS IVA TAX NAVIDAD PROPERTIES TOTAL
$ $ $ $ $ $
Balance, beginning of year 1,253,391 16,178 199,457 1,469,026 6,744,907 8,213,933
------------ ------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays 567,364 - - 567,364 1,702 569,066
Communications 13,729 - - 13,729 - 13,729
Drilling 1,663,984 - - 1,663,984 - 1,663,984
Environmental 252,201 - - 252,201 65,166 317,367
Office and other 172,874 22,786 - 195,660 48,798 244,458
Salaries and Contractors 994,912 2,949 - 997,861 2,339 1,000,200
Supplies and Equipment 147,422 529 - 147,951 - 147,951
Transportation 51,583 - - 51,583 - 51,583
Option payments 19,595 70,252 - 89,847 12,048 101,895
IVA Tax - - 468,479 468,479 - 468,479
------------ ------------ ------------ ------------ ------------ ------------
3,883,664 96,516 468,479 4,448,659 130,053 4,578,712
------------ ------------ ------------ ------------ ------------ ------------
Balance, before transfer 5,137,055 112,694 667,936 5,917,685 6,874,960 12,792,645
Future income tax (Note 8) 633,913 - - 633,913 - 633,913
Property transfer to Golden Arrow - - - - (6,874,960) (6,874,960)
------------ ------------ ------------ ------------ ------------ ------------
Balance, end of year 5,770,968 112,694 667,936 6,551,598 - 6,551,598
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS AND CONTINGENCY
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in
Argentina. The Company presently has no proven or probable reserves and
on the basis of information to date, it has not yet determined whether
these properties contain economically recoverable ore reserves.
Consequently the Company considers itself to be an exploration stage
company. The amounts shown as mineral properties and deferred costs
represent costs incurred to date, less amounts amortized and/or written
off, and do not necessarily represent present or future values. The
underlying value of the mineral properties and deferred costs is
entirely dependent on the existence of economically recoverable
reserves, securing and maintaining title and beneficial interest in the
properties, the ability of the Company to obtain the necessary
financing to complete development, and future profitable production.
The Company considers that it has adequate resources to maintain its
core operations for the next fiscal year but currently does not have
sufficient working capital to fund all of its planned exploration and
development work. The Company will continue to rely on successfully
completing additional equity financing.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action
against the Company seeking a constructive trust over the Navidad
properties and damages. On September 29, 2005 the Company made an offer
to Aquiline to settle the litigation. The Board of Directors decided to
make the offer due to the inherent risks of litigation, to minimize the
significant legal costs and most importantly to allow the Company to
continue with its business plan to develop Navidad. The offer was
rejected and the action continued on to trial. The trial commenced on
October 11, 2005 and ended on December 12, 2005. The Court's decision
is expected in the first half of 2006. At this date the outcome is not
determinable. The Company has not made any provision for costs for
which it might become liable in what management considers the unlikely
event of an adverse judgment. However, in the event of an adverse
judgment the Company may suffer loss and such loss could be material;
the Company might not be able to proceed with its plans for the
development of Navidad and could lose the ownership rights it currently
has over the project. The Company continues to expense the legal and
related costs of defending the action as they are incurred and has not
made a provision for the future costs that will be incurred or their
potential recovery from the plaintiff.
2. SPIN-OFF OF ASSETS
On July 7, 2004, the Company completed a corporate restructuring plan
(the "Reorganization") which resulted in dividing the Company's assets
and liabilities into two separate companies. Following the
Reorganization the Company continued to hold the Navidad Area
properties, while all other mineral property interests, certain
marketable securities and cash were spun-off to Golden Arrow Resources
Corporation ("Golden Arrow"), a newly created company. The Navidad
project, located in the province of Chubut Argentina, was staked by the
Company in late 2002 and continues to be the focus of the Company's
activities. The Reorganization of the Company was accomplished by way
of a statutory plan of arrangement. The shareholders of the Company
were issued shares in Golden Arrow on the basis of one Golden Arrow
share for ten shares of the Company. On completion of the
Reorganization, the Company transferred to Golden Arrow:
i) all of the Company's investment in its mineral properties,
excluding the Navidad project and Navidad Area properties and
related future income tax liabilities;
ii) the assets and liabilities of IMPSA Resources (BVI) Inc.,
Inversiones Mineras Argentinas Holdings (BVI) Inc., both
wholly-owned subsidiaries of the Company, and IMPSA Resources
Corporation, an 80.69% owned subsidiary of the Company;
iii) certain marketable securities at their recorded values;
iv) cash and cash equivalents
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2. SPIN-OFF OF ASSETS (continued)
The aggregate carrying amount of the net assets transferred from the
Company to Golden Arrow during 2004 is as follows:
2004
$
Cash and cash equivalents 1,020,189
Marketable securities and other current
assets and liabilities 548,841
Mineral properties and deferred cost and equipment 6,874,960
Future income tax liabilities (1,079,112)
------------
7,364,878
=============
During 2005 the Company paid $145,866 to Golden Arrow from the exercise
of warrants of the Company that resulted in the issue of Golden Arrow
shares as required by the terms of the Reorganization. As all warrants
that were outstanding as of the effective date of the reorganization
have been exercised the Company has no further obligation to pay
amounts to Golden Arrow for the issue of its shares on the exercise of
the Company's warrants.
The Company's comparative amounts in the Statement of Operations and
Deficit include an allocation of general and administrative expenses as
Loss allocated to spin-off assets. The allocation was calculated on the
basis of the ratio of the specific assets transferred to assets
retained. Certain "Other Income and Expense" items have been allocated
to spin-off assets on a cost specific basis.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The significant measurement differences between
those principles and those that would be applied under United States
generally accepted accounting principles ("US GAAP") as they affect the
Company are disclosed in Note 10.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
period. Significant areas requiring the use of management estimates
include the determination of environmental obligations, the
recoverability of mineral properties, and the assumptions used in the
determination of the fair value of stock based compensation. Actual
results may differ from these estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. The
Company's principal subsidiary is Inversiones Mineras Argentinas S.A..
All inter-company transactions and balances have been eliminated.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
maturing within 90 days of initial investment.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost and market.
MINERAL PROPERTIES AND DEFERRED COSTS
Direct costs related to the acquisition and exploration of mineral
properties held or controlled by the Company are deferred on an
individual property basis until the viability of a property is
determined. Administration costs and general exploration costs are
expensed as incurred. When a property is placed in commercial
production, deferred costs will be depleted using the
units-of-production method. Management of the Company periodically
reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but
not limited to, results of exploration activities conducted to date,
estimated future metal prices, and reports and opinions of outside
geologists, mine engineers and consultants. When it is determined that
a project or property will be abandoned then the costs are written-off,
or if its carrying value has been impaired, then the mineral properties
and deferred costs are written down to fair value.
The Company accounts for foreign value added taxes paid as part of
mineral properties and deferred costs. The recovery of these taxes will
commence on the beginning of foreign commercial operations. Should
these amounts be recovered they would be treated as a reduction in
carrying costs of mineral properties and deferred costs.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected
defects.
From time to time, the Company acquires or disposes of properties
pursuant to the terms of option agreements. Options are exercisable
entirely at the discretion of the optionee and, accordingly, are
recorded as mineral property costs or recoveries when the payments are
made or received. After costs are recovered, the balance of the
payments received are recorded as a gain on option or disposition of
mineral property.
EQUIPMENT
Equipment, which comprises leasehold improvements and office furniture
and equipment, is recorded at cost less accumulated amortization
calculated using the straight-line method over their estimated useful
lives of five years.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are recognized when a legal or
constructive obligation arises. This liability is recognized at the
fair value of the asset retirement obligation. When the liability is
initially recorded the Company capitalizes the cost by increasing the
carrying amount of the related long-lived assets. Over time the
liability is accreted to its present value each period, and the
capitalized cost is amortized over the useful life of the related
asset. Upon settlement of the liability, the Company may incur a gain
or loss. As at December 31, 2005 the Company does not have any asset
retirement obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when events or
circumstances suggest their carrying value has become impaired.
Management considers assets to be impaired if the carrying value
exceeds the estimated undiscounted future projected cash flows to
result from the use of the asset and its eventual disposition. If
impairment is deemed to exist, the assets will be written down to fair
value. Fair value is generally determined using a discounted cash flow
analysis.
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign operations are integrated and are translated
using the temporal method. Under this method, the Company translates
monetary assets and liabilities denominated in foreign currencies at
period-end rates. Non-monetary assets and liabilities are translated at
historical rates. Revenues and expenses are translated at average rates
in effect during the period except for depreciation and amortization
which are translated at historical rates. The resulting gains or losses
are reflected in operating results in the period of translation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents and amounts receivable. The Company limits its
exposure to credit loss by placing its cash and cash-equivalents with
major financial institutions.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting of
cash and cash equivalents, amounts receivable and accounts payable and
accrued liabilities approximate their carrying values due to the
short-term nature of those instruments. As of December 31, 2005, the
market value of marketable securities was $270,000 (2004 - $270,000).
INCOME TAXES
The Company uses the liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax
liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax
bases, using substantively enacted tax rates and laws that are expected
to be in effect in the periods in which the future income tax assets or
liabilities are expected to be settled or realized. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change occurs. Potential
future income tax assets are not recognized to the extent that they are
not considered likely to be realized.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
LOSS PER SHARE
Loss per share is calculated based on the weighted average number of
common shares issued and outstanding during the year. The effect of
potential issuances of shares under options and warrants would be
anti-dilutive and therefore basic and diluted losses per share are the
same. Information regarding securities that could potentially dilute
basic earnings per share in the future is presented in Note 6.
STOCK BASED COMPENSATION
The Company has an employee stock option plan. The Company recognizes
an expense or addition to exploration properties and deferred
exploration expenditures arising from stock options granted to both
employees and non-employees using the fair value method. The fair value
of option grants is generally established at the date of grant using a
Black Scholes option pricing model and the expense or addition to
mineral properties is recognized over the vesting period.
VARIABLE INTEREST ENTITIES
Effective January 1, 2005, the Company adopted Accounting Guideline
AcG-15, Consolidation of Variable Interest Entities, which requires
consolidation of entities in which the Company expects to receive or
absorb the majority of the entity's expected losses, expected residual
returns or both. The Company has determined that it has no variable
interest entities.
COMPARATIVE FIGURES
Certain of the prior year comparatives have been reclassified to
conform with the current year's presentation.
4. MARKETABLE SECURITIES
---------------------------- ----------------------------
2005 2004
---------------------------- ----------------------------
QUOTED QUOTED
RECORDED MARKET RECORDED MARKET
VALUE VALUE VALUE VALUE
$ $ $ $
Tinka Resources Limited
- 300,000 common shares 96,000 126,000 96,000 180,000
Consolidated Pacific Bay Minerals Ltd.
- 900,000 common shares 90,000 144,000 90,000 90,000
------------ ------------ ------------ ------------
186,000 270,000 186,000 270,000
============ ============ ============ ============
The Company has entered into option and sale agreements on certain of
its non-core mineral property holdings in which the Company received
common shares of publicly-traded companies as partial consideration.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
5. EQUIPMENT AND LEASHOLD IMPROVEMENTS
2005 2004
$ $
Office equipment and computers - 231,724
Leasehold improvements - 96,634
------------ ------------
- 328,358
Less: Accumulated depreciation - (234,256)
------------ ------------
- 94,102
============ ============
On May 6, 2005, on the signing of an Administration Services Agreement,
the Company transferred its corporate equipment and leasehold
improvements to Grosso Group Management Ltd. (the "Grosso Group") at
their carrying values of $93,177 as of December 31, 2004. As of
December 31, 2005 the Company has received $46,589 from the Grosso
Group for these assets. The remaining balance due from the Grosso Group
is included in Accounts Receivable.
6. SHARE CAPITAL
Authorized - unlimited common shares without par value
- 100,000,000 preferred shares without par value
NUMBER $
Issued - common shares
Balance, December 31, 2002 26,550,606 21,354,823
Private placement 2,900,000 2,610,000
Exercise of options 1,855,850 895,859
Exercise of warrants 4,969,066 2,940,428
Exercise of agent's options 105,930 95,337
Less share issue costs - (188,850)
------------ ------------
Balance, December 31, 2003 36,381,452 27,707,597
Private placement 1,500,000 4,650,000
Exercise of options 441,650 597,910
Exercise of agents' options 121,820 184,838
Contributed surplus reallocated on
exercise of options - 226,630
Exercise of warrants 5,371,285 4,275,149
Proceeds collected and paid on behalf
of Golden Arrow shares - (107,544)
Less share issue costs - (552,273)
------------ ------------
Balance, December 31, 2004 43,816,207 36,982,307
Private placement 3,333,340 10,000,020
Exercise of options 10,000 31,000
Exercise of agents' options 168,000 546,000
Contributed surplus reallocated
on exercise of options - 131,270
Exercise of warrants 1,485,517 3,784,011
Proceeds collected and paid on behalf
of Golden Arrow shares - (145,866)
Less share issue costs - (914,070)
------------ ------------
Balance, December 31, 2005 48,813,064 50,414,672
============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
(a) During fiscal 2005, the Company completed a brokered private
placement for 3,333,340 units at $3.00 per unit, for proceeds
of $9,263,283 net of $600,001 agent's commission and $136,736
of related issue costs. Each unit consisted of one common
share and one half common share purchase warrant. Each full
warrant entitles the holder thereof to purchase one additional
common share at a price of $3.45 per share until September 14,
2009. In addition to the cash commission the underwriters were
granted as commission 233,334 underwriter's warrants,
representing 7% of the number of units issued. Each
underwriter's warrant is exercisable for one share at a price
of $3.25, for a period of twenty four months, expiring on
September 12, 2007. The underwriter's warrants were valued
using the Black-Sholes Pricing Model. The warrants were valued
at $0.76 per warrant for a total value of $177,333 and have
been recorded as share issue costs with a corresponding
increase to contributed surplus. At December 31, 2005, no
underwriter's warrants had been exercised.
(b) During fiscal 2004, the Company completed a brokered private
placement of 1,500,000 units at $3.10 per unit for proceeds of
$4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs. Each unit consisted of one common share
and one half non-transferable share purchase warrant. Each
whole warrant entitles the holder to purchase a common share
for $3.70 per share on or before February 23, 2005. The
Company also issued 200,000 compensation options to the agent
to acquire 200,000 shares at $3.25 per share and 100,000
warrants at $3.70 per share on or before February 23, 2005.
The compensation options granted were valued at $0.705 per
option using the Black-Scholes Option Pricing Model, for a
total value of $141,036, which has been recorded as share
issue costs with a corresponding increase to contributed
surplus. At December 31, 2004, a total of 32,000 compensation
options had been exercised. The balance of 168,000
compensation options was exercised during 2005.
(c) During fiscal 2003, the Company completed a brokered private
placement for 2,900,000 units at a price of $0.90 per unit,
for cash proceeds of $2,421,150, net of share issue costs of
$188,850. Each unit consisted of one common share of the
Company and one-half non-transferable common share purchase
warrant. One whole warrant entitles the holder to purchase one
common share for the exercise price of $1.10 per share on or
before April 28, 2004. Certain officers and directors of the
Company purchased 445,000 units of the private placement.
(d) Stock options and stock based compensation
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSXV"). The stock
options granted during 2005 are subject to a four month hold
period and exercisable for a period of five years. A summary
of the Company's outstanding options at December 31, 2005,
2004 and 2003 and the changes for the years ending on those
dates is presented below:
--------------------- --------------------- ---------------------
2005 2004 2003
--------------------- --------------------- ---------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
AND EXERCISE AND EXERCISE AND EXERCISE
EXERCISABLE PRICE EXERCISABLE PRICE EXERCISABLE PRICE
$ $ $
Balance, 3,568,500 2.10 2,528,150 1.32 2,465,500 0.44
Beginning of year
Granted 1,360,000 3.74 1,512,000 3.14 1,918,500 1.60
Exercised (10,000) 3.10 (441,650) 1.14 (1,855,850) 0.44
Cancelled (37,500) 3.92 (30,000) 3.10 - -
----------- ----------- -----------
Balance, end of year 4,881,000 2.54 3,568,500 2.10 2,528,150 1.32
=========== =========== ===========
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
Stock options outstanding and exercisable at December 31, 2005
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
205,000 0.40 July 19, 2006
119,000 0.50 May 2, 2007
115,000 0.50 September 23, 2007
90,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,305,000 1.87 August 27, 2008
1,347,000 3.10 March 24, 2009
25,000 3.10 March 24, 2007
50,000 4.20 December 01, 2009
865,000 4.16 March 16, 2010
460,000 2.92 November 16, 2010
----------
4,881,000
==========
During fiscal 2005, the Company granted 1,360,000 stock
options (2004 - 1,512,000; 2003 - 1,918,500). The fair value
of stock options granted is estimated on the dates of grants
using the Black-Scholes Option Pricing Model with the
following assumptions used for the grants made during the
year:
2005 2004 2003
Risk-free interest rate 3.32% - 3.70% 2.38% 3.76% - 4.16%
Estimated volatility 70% - 77% 77% 74% - 78 %
Expected life 2.5 years 2.5 years 2.5 years
Expected dividend yield 0% 0% 0%
For 2005, stock based compensation of $2,380,000 (2004:
1,972,869; 2003: 1,487,235) was recorded by the Company, of
which $1,800,000 (2004: $1,972,860; 2003: $1,487,235) is
included in expenses and $580,000 (2004: Nil; 2003: Nil) is
included in capitalized mineral property expenditures, with a
corresponding increase in contributed surplus.
The weighted average fair value per share of stock options
granted during the year was $1.76 per share (2004 - $1.28;
2003 - $0.63). Option pricing models require the use of
estimates and assumptions including the expected volatility.
Changes in the underlying assumptions can materially affect
the fair value estimates and, therefore, existing models do
not necessarily provide reliable measure of the fair value of
the Company's stock options.
(e) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2005, 2004 and 2003 and the
changes for the years ending on those dates is as follows:
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
---------- ---------- ----------
2005 2004 2003
---------- ---------- ----------
Balance,
beginning of year 1,422,017 6,042,448 9,511,550
Issued 1,984,004 810,909 1,502,965
Exercised (1,485,517) (5,371,285) (4,969,066)
Cancelled - (38,955) -
Expired (20,500) (21,100) (3,001)
---------- ---------- ----------
Balance,
end of year 1,900,004 1,422,017 6,042,448
========== ========== ==========
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2005 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,666,670 3.45 September 14, 2009
233,334 3.25 September 13, 2007
----------
1,900,004
==========
7. RELATED PARTY TRANSACTIONS
(a) Effective January 1, 2005 the Company engaged the Grosso Group
to provide services and facilities to the Company. The Grosso
Group is a private company owned by the Company, Golden Arrow,
Amera Resources Corporation ("Amera") and Gold Point Energy
Corp., each of which owns one share. The Grosso Group provides
its shareholder companies with geological, corporate
development, administrative and management services. The
shareholder companies pay monthly fees to the Grosso Group.
The fee is based upon a reasonable pro-rating of the Grosso
Group's costs including its staff and overhead costs among
each shareholder company with regard to the mutually agreed
average annual level of services provided to each shareholder
company. During fiscal 2005, the Company incurred fees of
$730,802 to the Grosso Group: $764,012 was paid in twelve
monthly payments and $33,210 is included in accounts
receivable, prepaids and deposits as a result of a review of
the allocation of the Grosso Group costs to the member
companies for the year. In addition, included in accounts
receivable, prepaids and deposits is a $205,000 deposit to the
Grosso Group for the purchase of equipment and leasehold
improvements and for operating working capital.
(b) During fiscal 2005, the Company paid $241,088 (2004 -
$476,226; 2003 - $330,600) to directors and officers or
companies controlled by directors and officers of the Company,
for accounting, management and consulting services provided.
(c) Prior to the signing of the Administration Services Agreement
with the Grosso Group in 2005, the Company shared its office
facilities with Amera and Golden Arrow. During fiscal 2005,
the Company received $nil (2004 - $66,390; 2003 - $35,110)
from Amera and $nil (2004 - $57,000; 2003 - $Nil) from Golden
Arrow for shared rent and administration costs.
(d) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. Effective January 1, 2005 the Company subleased the
office premises to the Grosso Group.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
7. RELATED PARTY TRANSACTIONS (continued)
(e) The President of the Company provides his services on a
full-time basis under a contract with a private company
controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the
event the services are terminated without cause or upon a
change in control of the Company, a termination payment would
include a bonus of $6,500 per month, retroactive to July 1,
1999, plus an additional three years of compensation at
$15,000 per month. If the termination had occurred on December
31, 2005, the amount payable under the agreement would be
$1,047,000.
Other related party transactions are disclosed elsewhere in these
consolidated financial statements.
8. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2005 2004 2003
$ $ $
Statutory tax rate 34.12% 35.62% 37.62%
============ ============ ============
Loss for the year (5,764,874) (4,655,063) (3,418,418)
============ ============ ============
Provision for income taxes based on
statutory Canadian combined federal
and provincialincome tax rates (1,966,975) (1,658,133) (1,286,009)
Differences in foreign tax rates - (114,390) (383,116)
Losses for which an income tax benefit
has not been recognized 1,966,975 1,722,523 1,669,125
------------ ------------ ------------
- - -
============ ============ ============
The significant components of the Company's future tax assets are as
follows:
2005 2004
$ $
Future income tax assets
Financing costs 472,437 192,369
Operating loss carryforward 4,709,496 3,594,455
------------ ------------
5,181,933 3,786,824
Valuation allowance for future tax assets (5,181,933) (3,786,824)
------------ ------------
- -
============ ============
FUTURE INCOME TAX LIABILITIES
For certain acquisitions and other payments for mineral property
interests, the Company records a future income tax liability and a
corresponding adjustment to the related asset carrying amount. During
the year ended December 31, 2005, the Company recorded a future income
tax liability of $875,017 (2004 - $633,913) and a corresponding
adjustment to mineral properties.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
8. INCOME TAXES (continued)
2005 2004
$ $
Future income tax liabilities 1,760,110 885,093
============ ============
The Company has Canadian non-capital loss carryforwards of $13,684,112
that may be available for tax purposes. The losses expire as follows:
EXPIRY DATE $
2006 1,255,915
2007 1,261,932
2008 841,160
2009 1,317,729
2010 1,545,964
2014 2,752,324
2015 4,709,088
-----------
13,684,112
===========
9. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina. The Company
is in the exploration stage and, accordingly, has no reportable segment
revenues or operating results for each of fiscal 2005 and 2004.
The Company's total assets are segmented geographically as follows:
--------------------------------------------
DECEMBER 31, 2005
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
Current assets 8,331,000 134,887 8,465,887
Mineral properties
and deferred costs - 15,032,107 15,032,107
------------ ------------ ------------
8,331,000 15,166,994 23,497,994
============ ============ ============
--------------------------------------------
DECEMBER 31, 2004
--------------------------------------------
CORPORATE ARGENTINA TOTAL
$ $ $
Current assets 5,438,079 138,077 5,576,156
Equipment 93,177 925 94,102
Mineral properties
and deferred costs - 6,551,598 6,551,598
------------ ------------ ------------
5,531,256 6,690,600 12,221,856
============ ============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared
in accordance with Canadian GAAP, which differ in certain material
respects from US GAAP.
The effects of significant measurement differences between Canadian
GAAP and US GAAP for certain items on the consolidated balance sheets,
statements of operations and deficit and statements of cash flows are
as follows:
2005 2004 2003
$ $ $
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (5,764,874) (4,655,063) (3,418,418)
Mineral properties and deferred costs for the year (i) (8,480,509) (5,212,625) (2,134,757)
Reversal of Future income tax liability (i) 875,017 633,913 322,217
Write down of marketable securities - 99,762 -
Mineral properties and deferred costs written off
during the year which would have been
expensed in the year incurred (i) - - 776,626
Stock-based compensation (iii) - - (144,000)
------------ ------------ ------------
Loss for the year under US GAAP (13,370,366) (9,134,013) (4,598,332)
Unrealized gains (losses)
on available-for-sale securities (ii) - (387,160) 434,346
------------ ------------ ------------
Comprehensive loss (iv) (13,370,366) (9,521,173) (4,163,986)
============ ============ ============
Basic and diluted loss per share under US GAAP (0.29) (0.22) (0.14)
============ ============ ============
Weighted average number of common shares outstanding 46,197,029 40,939,580 32,251,753
============ ============ ============
2005 2004
$ $
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 20,761,073 10,813,385
Mineral properties and deferred costs expensed (i) (15,032,107) (6,551,598)
Reversal of Future income tax liability (i) 1,760,110 885,093
Accumulated other comprehensive income (ii) 84,000 84,000
------------ ------------
Balance per US GAAP 7,573,076 5,230,880
============ ============
2005 2004
$ $
MINERAL PROPERTIES AND DEFERRED COSTS
Balance per Canadian GAAP 15,032,107 6,551,598
Mineral properties and deferred costs
expensed under US GAAP (i) (15,032,107) (6,551,598)
------------ ------------
Balance per US GAAP - -
============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2005 2004
$ $
FUTURE INCOME TAX LIABILITY
Balance per Canadian GAAP 1,760,110 885,093
Reversal of future income tax liability(i) (1,760,110) (885,093)
------------ ------------
Balance per US GAAP - -
============ ============
2005 2004 2003
$ $ $
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (3,849,618) (2,961,734) (1,419,549)
Mineral properties and deferred costs(i) (7,025,492) (4,578,712) (1,850,761)
------------ ------------ ------------
Cash used per US GAAP (10,875,110) (7,540,446) (3,270,310)
============ ============ ============
2005 2004 2003
$ $ $
INVESTING ACTIVITIES
Cash used per Canadian GAAP (6,978,903) (4,509,717) (1,872,636)
Mineral properties and deferred costs(i) 7,025,492 4,578,712 1,850,761
------------ ------------ ------------
Cash provided by (used) per US GAAP 46,589 68,995 (21,875)
============ ============ ============
i) Mineral Properties and Deferred Costs
Mineral properties and deferred costs are accounted for in
accordance with Canadian GAAP as disclosed in Note 3. For US
GAAP purposes, the Company expenses exploration costs relating
to unproven mineral properties as incurred, and reverses any
associated future income tax liabilities. When proven and
probable reserves are determined for a property, subsequent
exploration and development costs of the property are
capitalized. The capitalized costs of such properties would
then be assessed, on a periodic basis, to determine whether
the carrying value can be recovered on an undiscounted cash
flow basis. If the carrying value cannot be recovered on this
basis, the mineral properties would be written down to fair
value determined using discounted cash flows.
ii) Investments
The Company's marketable securities are classified as
available-for-sale investments under US GAAP and carried at
the lower of cost and market value for Canadian GAAP purposes.
Such investments are not held principally for the purpose of
selling in the near term and, for US GAAP purposes, must have
holding gains and losses reported as a separate component of
shareholders' equity until realized or until an other than
temporary impairment in value occurs.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
iii) Accounting for Stock-Based Compensation
For US GAAP purposes, the Company accounted for stock-based
employee compensation arrangements using the intrinsic value
method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES"
until December 31, 2003. Under US GAAP, when stock options are
cancelled and immediately reissued at a revised price (the
"Repricing"), these options are accounted for as variable
compensation from the date of the Repricing. As a result of a
Repricing, the Company recorded compensation cost in 2003.
During fiscal 2004, for US GAAP purposes, the Company adopted
the fair value based method of accounting for stock-based
compensation on a modified prospective basis in accordance
with FAS 148. This application is consistent with the early
application of CICA 3870 under Canadian GAAP (Note 3).
Accordingly, effective January 1, 2004, there is no difference
on accounting for stock-based compensation under Canadian and
US GAAP.
iv) Comprehensive Income
US GAAP requires disclosure of comprehensive income (loss)
which is intended to reflect all other changes in equity
except those resulting from contributions by and payments to
owners.
v) Spin-Off of Assets to Golden Arrow
Under Canadian GAAP, a spin-off of assets is accounted for and
disclosed in accordance with CICA Handbook Section 3475
"Disposal of Long-Lived Assets and Discontinued Operations".
Under US GAAP, such a spin-off would be accounted for and
disclosed as a dividend in kind and would not require separate
carve-out of results in the statements of operations and cash
flows nor separate balance sheet classification.
vi) Recent Accounting Pronouncements
ACCOUNTING CHANGES AND ERROR CORRECTIONS
SFAS 154 , effective for accounting changes and error
corrections made in fiscal years beginning after December 15,
2005, has been introduced and requires, unless impracticable,
retroactive application as the required method for reporting
changes in accounting principles in the absence of
transitional provisions specific to the newly adopted
accounting principle. The Company will apply this standard for
US GAAP purposes commencing in fiscal 2006.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
FINANCIAL INSTRUMENTS
On January 27, 2005, the CICA issued Section 3855 of the
Handbook titled "Financial Instruments - Recognition and
Measurement". It expands Handbook section 3860, "Financial
Instruments - Disclosure and Presentation" by prescribing when
a financial instrument is to be recognized on the balance
sheet and at what amount. It also specifies how financial
instrument gains and losses are to be presented. All financial
instruments will be required to be classified into various
categories. Held to maturity investments, loans and
receivables are measured at amortized cost with amortization
of premium or discounts and losses and impairment included in
current period interest income or expense. Held for trading
financial assets and liabilities are measured at fair market
value with all gains and losses included in net income in the
period in which they arise. All available for sale financial
assets are measured at fair market value with revaluation
gains and losses included in other comprehensive income until
the asset is removed from the balance sheet except that other
than temporary losses due to impairment are included in net
income. All other financial liabilities are to be carried at
amortized cost. This new Handbook section will bring Canadian
GAAP more in line with U.S. GAAP. The mandatory effective date
is for fiscal years beginning on or after October 1, 2006,
with optional early recognition for fiscal years beginning on
or after December 31, 2004. At present, the Company's most
significant financial instruments are cash and cash
equivalents, accounts receivable and accounts payable. This
new section requires little difference in accounting for these
financial instruments from current standards.
HEDGE ACCOUNTING
Handbook Section 3865, "Hedges" provides alternative
treatments to Handbook Section 3855 for entities which choose
to designate qualifying transactions as hedges for accounting
purposes. The effective date of this section is for fiscal
years beginning on or after October 1, 2006, with optional
early recognition for fiscal years beginning on or after
December 31, 2004.
The Company does not currently have any hedging relationships.
NON-MONETARY TRANSACTIONS
CICA Handbook Section 3831 "Non-Monetary Transactions" will be
applicable to the company commencing with the 2006 financial
year. Under this standard, exchanges of non-monetary assets
after January 1, 2006 would be recorded at carrying value if
they lack commercial substance.
COMPREHENSIVE INCOME
New Handbook Section 1530, "Comprehensive Income", introduces
a new requirement to temporarily present certain gains and
losses outside of income. Section 1530 defines comprehensive
income as a change in value of net assets that is not due to
owner activities. Assets that are classified as available for
sale will have revaluation gains and losses included in other
comprehensive income until the asset is removed from the
balance sheet.
At present, the Company has investments in shares of arm's
length corporations that may be classified as available for
sale investments. The Company would be required to recognize
unrealized gains and losses on these securities and include
these amounts in comprehensive income. The effective date of
this section is for fiscal years beginning on or after October
1, 2006, with optional early recognition for fiscal years
beginning on or after December 31, 2004. Implementation of
this section will more closely align Canadian GAAP with U.S.
GAAP.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
11. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
2005 2004 2003
$ $ $
Investing activities
Proceeds on disposition of mineral properties - (252,000) (272,982)
Acquisition of marketable securities - 252,000 272,982
Expenditures on mineral properties and deferred costs (580,000) - -
Stock based compensation capitalized 580,000 - -
------------ ------------ ------------
- - -
============ ============ ============
2005 2004 2003
$ $ $
Financing activities
Shares issue costs (177,333) - -
Shares issued on exercise of options - 204,070 74,379
Contributed surplus 177,333 (204,070) (74,379)
------------ ------------ ------------
- - -
============ ============ ============
12. SUBSEQUENT EVENTS
Subsequent to December 31, 2005, the Company:
a) Completed on March 21, 2006 a syndicated brokered private
placement financing of 2,865,000 special warrants at $3.50 per
warrant for gross proceeds of $10,027,500. Each special
warrant will entitle the holder to acquire one unit consisting
of one common share and one half common share purchase
warrant. Each full warrant entitles the holder thereof to
purchase one additional common share in the capital of the
Company at a price of $3.80 per share until March 21, 2010. In
addition to a cash commission of 6% the underwriters were
granted 171,900 agents' warrants, representing 6% of the
number of special warrants issued. Each agents' warrant is
exercisable for one share at a price of $3.80, for a period of
twenty four months, expiring on March 21, 2008.
b) Issued 120,000 common shares for $172,900 on the exercises of
stock options.
IMA EXPLORATION INC.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2005
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of March 29, 2006, should be read in conjunction with the Company's audited
annual consolidated financial statements and related notes for the years ended
December 31, 2005 and 2004. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). Except as otherwise disclosed all dollar figures in this
report are stated in Canadian dollars. Additional information relevant to the
Company can be found on the SEDAR website at WWW.SEDAR.COM.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flows. As of this date the Company is an exploration
stage company and has not generated any revenues. The Company is entirely
dependent on the equity market for its source of funds. There is no assurance
that a commercially viable mineral deposit exists on any of the properties.
Further evaluation and exploration will be required before the economic
viability of any of the properties is determined.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. On September 29, 2005 the Company made an offer to Aquiline to settle
the litigation. The Board of Directors decided to make the offer due to the
inherent risks of litigation, to minimize the significant legal costs and most
importantly to allow the Company to continue with its business plan to develop
Navidad. The offer was summarily rejected within 24 hours and the action
continued on to trial. The trial commenced on October 11, 2005 and ended on
December 12, 2005. The Court is currently reviewing the thousands of pages of
transcripts from the two month long trial along with testimony from numerous
witnesses and the lengthy arguments submitted by both parties. The Court's
decision is expected in the first half of 2006. At this date the outcome is not
determinable. The Company has not made any provision for costs for which it
might become liable in what management considers the unlikely event of an
adverse judgment. However, in the event of an adverse judgment the Company may
suffer loss and such loss could be material; the Company might not be able to
proceed with its plans for the development of Navidad and could lose the
ownership rights it currently has over the project. The Company continues to
expense the legal and related costs of defending the action as they are incurred
and has not made a provision for the future costs that will be incurred or their
potential recovery from the plaintiff.
During the year ended December 31, 2004 the Company completed its
reorganization, which had the effect of transferring all the non-Navidad mineral
properties and related assets to a new corporation, Golden Arrow Resources
Corporation ("Golden Arrow"). The reorganization allowed the Company to focus
all its efforts and resources on the Navidad project located in Chubut Province,
Argentina. The ongoing exploration programs have returned excellent results.
Effective January 1, 2005, the Company engaged Grosso Group Management Ltd.,
("Grosso Group") to provide services and facilities to the Company. On May 6,
2005, an administrative services agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company which is
owned by the Company, Golden Arrow, Amera Resources Corporation ("Amera") and
Gold Point Energy Corp. ("Gold Point"), each of which own one share. The Grosso
Group provides its shareholder companies with geological, corporate development,
-1-
administrative and management services. The Grosso Group staff is available to
the shareholder companies on a cost recovery basis without the expense of full
time personnel. The shareholder companies pay monthly fees to the Grosso Group.
The fee is based upon a reasonable pro-rating of the Grosso Group's costs
including its staff and overhead costs among each shareholder company with
regard to the mutually agreed average annual level of services provided to each
shareholder company.
In March 2005 the Company engaged the services of Augusto Baertl of Lima, Peru,
to determine the economic feasibility of the Navidad Project, through a contract
with Mr. Baertl's company, Gestora de Negocios e Inversiones SA. A scoping study
is in process as a first step in the determination of the economic viability of
Navidad. Mr. Baertl's mandate is a continuing one whose objective is ultimately
the achievement of commercial production.
PROPERTIES UPDATE
NAVIDAD
On February 3, 2003 the Company announced the discovery of silver-lead-copper
mineralization at its 100% owned 10,000 hectare (24,700 acres) Navidad property
in north central Chubut Province, Argentina. A Phase I drill program commenced
in November 2003 and was completed in late March 2004. A Phase II drill program
commenced in late May 2004 and was completed in September 2004. Phase III drill
program commenced in November 2004 and was completed in September 2005. The
Company commenced a Phase IV drill program in January 2006 that is ongoing at
the present time.
On May 25, 2004, just six months after the first drilling on the Navidad
Project, the Company released the first resource estimate for the Galena Hill
deposit. Since then, a number of resource estimate updates have been released,
the most recent on February 16, 2006 in which the Company reported that Navidad
Project Indicated resources are estimated at 93.4 million tonnes grading 102 g/t
silver and 1.41% lead for a total of 305.7 million ounces silver and 2.90
billion pounds of lead (1.32 million tonnes) making the Navidad discovery a
truly world class silver-lead deposit.
In December 2005 the Company released preliminary metallurgical test results and
announced that it has retained the international mining consulting firm Pincock,
Allen and Holt of Denver, Colorado, to prepare a conceptual study of the Navidad
project. This study is expected to provide preliminary technical, legal, social,
environmental and economic parameters of the Navidad project to guide the
ongoing development of the project. It will be based on the resources outlined
in the February 2006 update.
In addition to its active exploration program, the Company has made a strong
commitment to its ongoing community relations and environmental baseline data
collection programs in the project area. The Company intends to continue
expanding the silver and lead resources at Navidad by systematically drill
testing exploration targets as well as expanding and better defining areas where
resources have been defined.
INDICATED AND INFERRED RESOURCES
On February 16, 2006 the Company announced the results of an updated resource
estimation carried out by Snowden Mining Industry Consultants Inc. ("Snowden")
which included Indicated and Inferred Resources at Calcite NW. IMA has now
defined continuous silver resources over a 3.6 kilometre strike length along the
Navidad Trend in the Galena Hill, Connector Zone, Navidad Hill, Calcite Hill and
Calcite NW deposits. Inferred and indicated resources estimated to date on the
Navidad Project are presented in the table below at a range of cut-off grades:
NAVIDAD PROJECT INDICATED RESOURCES AT 50 G/T SILVER EQUIVALENT CUT-OFF(1):
--------------------------------------------------------------------------------
THOUSAND CONTAINED CONTAINED
CUT-OFF GRADE TONNES SILVER COPPER LEAD ZINC SILVER LEAD
(g/t AgEq(1)) (g/t) (%) (%) (%) (M ozs) (M lbs)
--------------------------------------------------------------------------------
50 93,393 102 0.05 1.41 0.16 305.73 2,900
--------------------------------------------------------------------------------
60 83,134 110 0.05 1.52 0.17 293.86 2,792
--------------------------------------------------------------------------------
80 74,498 118 0.05 1.64 0.18 281.83 2,690
--------------------------------------------------------------------------------
100 66,615 126 0.05 1.76 0.19 269.06 2,583
--------------------------------------------------------------------------------
200 53,715 141 0.06 2.01 0.21 243.99 2,376
--------------------------------------------------------------------------------
300 22,456 213 0.06 3.03 0.29 153.57 1,498
--------------------------------------------------------------------------------
-2-
NAVIDAD PROJECT INFERRED RESOURCES AT 50 G/T SILVER EQUIVALENT CUT-OFF(1):
--------------------------------------------------------------------------------
THOUSAND CONTAINED CONTAINED
CUT-OFF GRADE TONNES SILVER COPPER LEAD ZINC SILVER LEAD
(g/t AgEq(1)) (g/t) (%) (%) (%) (M ozs) (M lbs)
--------------------------------------------------------------------------------
50 11,063 65 0.03 0.85 0.12 23.03 207
--------------------------------------------------------------------------------
60 9,056 72 0.03 0.91 0.12 20.93 183
--------------------------------------------------------------------------------
80 5,576 92 0.04 1.02 0.13 16.44 125
--------------------------------------------------------------------------------
100 3,920 107 0.04 1.11 0.14 13.43 96
--------------------------------------------------------------------------------
200 597 145 0.06 2.50 0.26 2.77 33
--------------------------------------------------------------------------------
300 41 312 0.17 1.02 0.13 0.41 1
--------------------------------------------------------------------------------
Notes:
1. Silver equivalent calculated using US$6.00/oz silver and $0.35/lb lead.
(AgEq = Ag + (%Pb*10,000/250). No attempt has been made to adjust these
relative values by accounting for metallurgical recoveries as insufficient
information is available to do so.
2. Strict quality control and quality assurance procedures have been observed
at all stages of data collection leading to this resource. Please see IMA's
website (www.imaexploration.com) for a detailed overview of these
procedures.
3. Resource categories (Indicated and Inferred) used here and the preparation
of this resource estimate conform to National Instrument 43-101 "Standards
of disclosure for mineral projects" and those of the Canadian Institute of
Mining, Metallurgy, and Petroleum (the "CIM") "Definition Standards on
Mineral Resources and Reserves, 2004".
4. A National Instrument 43-101 Technical Report documenting the Snowden
Resource Estimate will be filed at www.sedar.com as is required by Security
Commission regulations.
5. An `INFERRED MINERAL RESOURCE' is that part of a Mineral Resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
6. 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.
Detailed review of the geological interpretation and block model shows that the
Calcite Hill deposit, the Connector Zone and Calcite NW remain open and
insufficiently drill tested in several areas.
METALLURGICAL TESTWORK
On December 1, 2005 the Company released a summary of preliminary Metallurgical
testwork carried out on samples of Galena Hill, Navidad Hill, and Calcite Hill
mineralization demonstrating that Navidad mineralization is amenable to
concentration by simple, cost effective, and environmentally benign differential
flotation processes. In addition to flotation testwork, the Company is also
currently investigating the production of silver metal through
hydrometallurgical means from low-grade, high-recovery silver concentrates. On
February 16, 2006 IMA released highly encouraging preliminary results from
alkaline pressure oxidation followed by thiosulphate leaching of silver
concentrates.
Flotation testwork has been conducted by G&T Metallurgical Services Ltd. of
Kamloops B.C. (G&T), an ISO 9001:2000 accredited firm. All work was performed
under the supervision of Tom Shouldice, P. Eng., General Manager - Operations at
G&T. Peter Taggart, P.Eng, of P. Taggart & Associates Ltd., provided overall
program direction, acting as IMA's representative. Both are considered Qualified
Persons as defined by National Instrument 43-101.
Limited flotation testwork on two composite samples (high lead-moderate silver
and high silver-low lead) from Calcite Hill yielded excellent results. Locked
cycle flotation tests performed on the lead-rich sample yielded a very high
quality lead concentrate containing 80.4% lead and 709 g/t silver at a lead
recovery of 92% and silver recovery of 86%. The silver-rich sample produced a
silver concentrate grading 10,500 g/t silver at a silver recovery of 88%.
Mineralization at Galena Hill consists predominantly of fine-grained galena and
pyrite with lesser amounts of sphalerite and chalcopyrite. Electron microprobe
studies have shown silver to be contained within the lattice of both galena and
pyrite, with the bulk of the silver present within pyrite. Flotation tests to
-3-
date have focused on producing separate lead and silver (pyrite) concentrates
through differential flotation. Fourteen rougher and 37 open circuit cleaner
tests were performed on the Galena Hill composite samples. The results of three
locked cycle tests confirm data produced in the open circuit tests. Lead
metallurgical performance at Galena Hill was generally good with 74 to 84% of
the lead reporting to the lead concentrates which grade between 62.0 and 75.3%
lead and include 386 to 968 g/t silver. Subsequent to galena flotation, a pyrite
concentrate was produced that recovered 37 to 57% of the total silver and
contains 1,083 to 3,546 g/t silver. Total locked cycle test silver recoveries
(lead concentrate plus silver concentrate) range from 54 to 82%. Silver
recoveries as high as 93.2% have been obtained with batch flotation tests
designed to maximize silver recovery at the expense of concentrate grade.
Ongoing work targeting improved silver recoveries for Galena Hill includes
additional flotation tests using alternate reagents, and mineralogical studies
to identify distinct pyrite types present in concentrates and tails.
Hydrometallurgical testwork carried out at SGS Lakefield under the direction of
Dr. David Dreisinger, P.Eng. of Dreisinger Consulting Inc. has shown that silver
concentrates from Galena Hill are amenable to pressure oxidation under neutral
to alkaline conditions followed by atmospheric leaching using calcium
thiosulphate as a lixiviant. Preliminary bench-scale testwork has produced
silver recoveries of 87% after 24 hours and 89% after 72 hours of leaching.
These tests were conducted on a very low-grade silver concentrate (235 g/t
silver), it is hoped that additional improvements in silver recovery may be
realized in future testwork on higher-grade concentrates. The company is very
encouraged by these results as they indicate that the Navidad Project could
produce silver dore on-site using an environmentally benign lixiviant rather
than the more commonly used sodium cyanide. Calcium thiosulphate is routinely
used as fertilizer in the agricultural industry.
Two distinct styles of mineralization from Navidad Hill were studied. Both
samples had high silver values (436 and 287 g/t Ag) but only one contained
significant lead (3.11% Pb) and both comprised mixed sulfide and oxide
mineralization. Flotation testwork on both samples produced a single bulk
sulphide concentrate. Silver recoveries of approximately 64 to 85% were achieved
in concentrates grading from 10,449 to 12,246 g/t silver.
While significant progress has been made in understanding the metallurgy of the
Navidad deposits, the Company is confident that with additional testwork, our
highly skilled and experienced metallurgical team will continue to unlock
additional value through improvements to metallurgical performance.
EXPLORATION PROGRAM:
The Phase I drill program at Navidad comprised 8,859.6 metres in 53 holes, 37 of
which were drilled on Galena Hill. Phase II drill program comprised 9,596.5
metres of diamond core drilling in 67 holes. Drilling in the Phase II program
focused on the Esperanza Trend, the Barite Hill target, and on the Navidad Hill
and Connector Zone targets. The Phase III drill program was completed in
September 2005 and comprised 23,732 metres in 131 holes. Results from the Phase
III drilling have been described in News Releases dated January 13, March 4 and
March 22, April 19, June 21, August 17, September 29 and October 13, 2005. The
Phase III drill program has focussed on drilling in the Calcite Hill and Calcite
Hill Northwest Extension areas and expansion and infill drilling on the Navidad
Hill and Connector Zone areas. In addition five holes were completed at the
southern end of the Loma de la Plata prospect.
The Phase IV drill program commenced in January 2006 and is ongoing with 8,252
metres of drilling in 44 holes completed as at March 19th, 2006, bringing the
project total to 50,440 metres in 294 holes. The Phase IV program to date has
focussed on infill and expansion drilling on Calcite Hill Northwest Extension,
exploratory drilling along Esperanza, infill drilling on Galena Hill and
stratigraphic drilling between the Esperanza and Argenta Trends. Results from
the Phase IV program will be released in batches as they are received and
compiled. No results have been released to date from the Phase IV drilling
program and therefore are not discussed in the following sections.
The exploration program at the Navidad Project is being carried out under the
supervision of Dr. Paul Lhotka, P.Geo., a Qualified Person as defined by
National Instrument 43-101.
GALENA HILL:
The Galena Hill Deposit is hosted primarily within gently dipping
trachyandesitic volcanic breccias with a matrix of galena, pyrite, calcite, and
barite. These breccias are interpreted to have formed primarily by multiple
hydrothermal fluid pulses. Calcareous mudstones overlie the mineralized volcanic
breccias; these generally contain significant silver, lead and zinc values
within one to five metres of the volcanic-mudstone contact. Sulphides occur in
the mudstone both as crosscutting veinlets and as strataform beds suggesting a
-4-
syn-depositional timing for the mineralization event. The Galena Hill deposit
measures approximately 450 by 500 metres in plan view (at 50 g/t silver
equivalent cut-off) and is up to 125 metres thick in its centre. A total of 39
drillholes delineate the Galena Hill resource. Highlights from Phase I drilling
on Galena Hill include 115 metres of 497 g/t silver and 5.71% lead in hole 14
and 63.0 metres of 418.4 g/t silver, including 20.6 metres of 703.0 g/t silver,
in hole 22. During Phase III, hole 175 and 197 were drilled at Galena Hill in
order to collect metallurgical samples. Hole 175 intercepted 194 metres of 188
g/t silver and 5.8% lead including 49.8 metres of 481 g/t silver and 14.2% lead.
Hole 197 intercepted 74.04 metres of 239 g/t silver and 1.97% lead. Results of
these two holes were incorporated into the resource estimate published on
February 16, 2006.
NAVIDAD HILL:
A total of 62 drill holes have been completed to date at Navidad Hill. In
addition to the structurally controlled mineralization located on top of Navidad
Hill, near-surface stratigraphically controlled silver mineralization has now
been identified along the southwest and southeast flanks of Navidad Hill.
Intercepts of structurally controlled, near vertical mineralized bodies on the
top of Navidad Hill include hole NV04-110 which intersected 61.5 metres of 128
grams per tonne silver, including 5.34 metres of 1,006 grams per tonne silver.
Highlights of stratigraphically-controlled mineralization on the western flank
of the Navidad volcanic dome include the exceptional intercept from hole NV04-90
that returned 35.8 metres of 2,850 grams per tonne (83.2 ounces per ton) silver
including 7.3 metres of 11,995 grams per tonne (350.3 ounces per ton) silver
starting from 16.5 metres depth. Drill hole 90 was drilled at an inclination of
-45(degree) towards the northeast on the western flank of Navidad Hill,
approximately 275 metres northwest of drill holes 1 and 2 and in an area of
little or no outcrop. Bonanza-grade mineralization in drill hole 90 contains
semi-massive silver-copper-lead sulphides and/or sulphosalts. In several
locations native silver occurs as fine veinlets and grains up to 5 millimetres
in size. Further intercepts in the area include 28.15 metres of 1,115 grams per
tonne silver (32.6 ounces per tonne) including 5.97 metres of 4,579 grams per
tonne (133.7 ounces per tonne) in hole 117 and 58.68 metres of 208 grams per
tonne silver (6.1 ounces per tonne) in hole 112.
Phase III drilling in the area of hole 90 included holes 139 to 142 which were
completed to provide more detailed information on this zone of very high-grade
silver mineralization. Of these, holes 139 (17.8 metres of 1,037 g/t silver) and
142 (34.5 metres of 1,220 g/t silver) intersected significantly higher grade
than that predicted from the wider spaced drilling and the prior resource block
model. Results of these new holes were incorporated into the resource estimate
published on February 16, 2006.
CONNECTOR ZONE:
At the Connector Zone 37 drill holes have been completed to date. Drilling has
demonstrated that both structurally and stratigraphically controlled high-grade
silver mineralization occurs in this area, as at Navidad Hill. In the
northwestern part of the Connector Zone (holes 40, 68, 105, 106, and 107), the
control on mineralization appears to be stratigraphic with the mineralization
occurring in the same stratigraphic position as at the Galena Hill deposit and
on the flank of Navidad Hill (hole 90). Highlights from this mineralization
style include 46.7 metres of 334 grams per tonne silver from hole 107 and 13.3
metres of 545 grams per tonne silver from hole 105. In the southeastern
Connector Zone (holes 32, 86, 87, 108, 131, 153, 154, 155. and 156), the
controls on mineralization and the stratigraphic correlations are less clear.
Hole 108 was drilled towards the east to cross a northerly trending structural
zone partially exposed on surface and intersected an impressive 485 grams per
tonne silver over 39.0 metres.
Phase III drilling at the Connector Zone (holes 153-156 and 228-237)), aimed at
providing additional drill density to upgrade previously defined Inferred
Resources to the Indicated Resources category, intersected moderate-grade silver
mineralization over long intervals with rare high-grade structures (e.g. 2
metres of 2,171 g/t silver in hole 234) outside of the current Indicated
Resource. Results include 88.8 metres of 107 g/t silver in hole 153 and 28.8
metres of 148 g/t silver in hole 154, 26 metres of 104 g/t silver in hole 230,
37 metres of 107 g/t silver in hole 231, 21 metres of 237 g/t silver in 234, and
32 metres of 110 g/t silver in hole 237. Much of this mineralization starts at
or very near surface.
-5-
CALCITE HILL:
Near the end of the Phase II program a single hole, NV04-88, was drilled to test
favourable stratigraphy on the edge of Calcite Hill in an area where there are
few indications of mineralization or geochemical anomalies at surface. The hole
intersected 72.3 metres averaging 202 grams per tonne silver and 3.45% lead from
70.3 to 142.6 metres depth and included a higher-grade interval containing 12.4
metres averaging 672 grams per tonne silver.
Highlights from Phase III drilling at Calcite Hill include: 122.6 metres of 195
g/t silver in hole 124, 196.1 metres of 113 g/t silver in hole 126, 123.6 metres
of 139 g/t silver in hole 138, 46.6 metres of 300 g/t silver including 10.3
metres of 1,257 g/t silver in hole 143, 83.0 metres of 209 g/t silver in hole
148, 80.2 metres of 246 g/t silver including 25.3 metres of 476 g/t silver in
hole 151, 27 metres of 407 g/t silver in hole 207 and 21 metres of 545 g/t
silver in hole 209.
Mineralization encountered to date at Calcite Hill is predominantly hosted
within trachyandesite volcanic rock and to a lesser degree within mudstone which
overlies the volcanic rock. The volumetrically most important style of
mineralization consists of calcite-barite veinlets and breccias with
argentite-acanthite, native silver and lesser galena and chalcopyrite. In
general, this style of mineralization contains high silver grades with minor
amounts of lead and copper. In the upper portions of the host volcanic unit, and
in the overlying mudstone, mineralization tends to be lead-rich and consists
predominantly of medium-grained galena with moderate silver values. A total of
60 drill holes were used in the estimate of resources published in February
2006.
CALCITE HILL NW:
Exploration drilling in Phase III along strike towards the northwest from
Calcite Hill discovered new mineralization. This new mineralization is named
Calcite NW. The mineralization at Calcite Hill NW is dominantly hosted in
sedimentary rocks that overly the volcanic rocks which host the majority of the
mineralization at Navidad Project. Within the overlying sediments strong clay
alteration is widespread and affects pelites, sandstones and conglomerates.
Mineralization can be lead-rich with silver (hole 201), or lead-poor but with
minor values in copper and higher silver grades (holes 202 and 203).
Fine-grained but visible, disseminated native silver was located within a
carbonaceous bed in hole 203. This is a new mode of occurrence of silver at
Navidad Project. At Calcite Hill NW mineralization appears to be
stratigraphically controlled and is disseminated in the host rock; veins or
feeder structures have not been recognized. The zone is nearly flat-lying, shows
good continuity from hole to hole and typically starts at shallow depths of 15
to 50 meters below surface.
Drilling at Calcite Hill NW has defined a central area of approximately 400 x
150 metres x 5 to 60 meters thick (defined by drill holes 178, 179, 202, 203 and
223-227). Highlights include: holes 178 and 179 (30.0 metres of 122 g/t silver
and 25.0 metres of 251 g/t silver, respectively), 202 (10 metres of 435 g/t
silver), and 203 (29 metres of 154 g/t silver). Results outside the core area
include intercepts from holes 199 (31.1 metres of 62 g/t silver and 1.29% lead)
and 201 (22.5 metres of 104 g/t silver and 2.79% lead). The resource estimate
released in February 16, 2006 used 23 holes.
ESPERANZA TREND:
A total of 11 drillholes have been completed to date in two areas along the 6
kilometre Esperanza Trend. Highlights include 2.7 metres of 831 grams per tonne
silver in hole 62 and 2.6 metres of 513 grams per tonne silver in hole 79.
Interestingly, hole 79 shows signs of the mineralization being stratigraphically
rather than structurally controlled as had been interpreted to date in this
area. Hole 63 intersected 45.8 metres of 94 grams per tonne silver, including
4.0 metres of 246 grams per tonne silver, 800 metres to the northwest. In the
same area, hole 82 intersected 54.6 metres of 64 grams per tonne silver,
including 26.1 metres of 106 grams per tonne silver and also 6.0 metres of 140
grams per tonne silver. These results confirm the high grades and potential for
a significant structurally and/or stratigraphically controlled zone at
Esperanza. Significantly more drilling will be required to evaluate the
6-kilometre Esperanza Trend.
BARITE HILL:
A total of 8 holes were completed at Barite Hill during Phase II. Although many
of these holes contain significant near surface intersections of galena matrix
breccia similar in style to that at Galena Hill, they have generally lower
silver and lead values. The most significant intercept was from hole NV04-76
that cut 22.1 metres of galena matrix breccia averaging 34 grams per tonne
silver and 0.63% lead in the upper part of the hole and then intersected a
-6-
different style of mineralization deeper in the hole that contained 21.7 metres
of 88 grams per tonne silver including 8.4 metres of 191 grams per tonne silver.
This deeper mineralization is associated with calcite veining within a
fine-grained muddy sedimentary rock and is characterized by high silver to base
metal ratios.
LOMA DE LA PLATA:
The surface exploration program launched September 2004 resulted in the
discovery of the Loma de la Plata Zone, approximately 4 kilometres west of the
Galena Hill deposit, through grid soil sampling. At Loma de la Plata, an area of
approximately 400 x 400 metres has been systematically sampled with twelve lines
of continuous and semi-continuous channel samples; these sample lines range in
length from 12.5 to 135.9 metres. Highlights of channel samples include:
Line LP-1: 40.1 metres of 740 g/t silver
Line LP-3: 42.9 metres of 684 g/t silver
Line LP-4: 135.9 metres of 159 g/t silver
Line LP-7: 48.5 metres of 315 g/t silver
Line LP-2: 103.3 metres of 290 g/t silver
Line LP-9: 49.5 metres of 410 g/t silver
Line LP-10: 56.0 metres of 452 g/t silver
The Loma de la Plata zone is hosted within quartz-eye phyric trachyandesite
volcanic rocks that dip to the northeast at 15 to 45 degrees. Mineralization
occurs in micro-veinlets and breccia zones and consists primarily of minor
galena and copper oxides with common native silver.
Initial drilling of five holes at Loma de la Plata has confirmed the surface
discovery but has tested only a small portion of the known surface
mineralization. Trenches 7 and 10 are located up to 275 metres from the current
drilling and returned values of 48.5 metres of 315 g/t silver and 56.0 metres of
452 g/t silver, respectively. Of the five drill holes completed at Loma de la
Plata, two (241 and 242) were drilled at angles of -45 and were collared near
trenches where high-grade silver had been defined on surface. Hole 241
intersected 31.5 metres of 562 g/t silver (grade was incorrectly stated in a
October 13, 2005 News Release as 684 g/t) and was drilled under trenches 1 and 3
that returned 40.1 metres of 740 g/t silver and 42.9 metres of 684 g/t silver,
respectively. Hole 242 intersected 28.4 metres of 236 g/t silver and was drilled
under trench 2 which returned 103.3 metres of 290 g/t silver. The strong
correlation between surface results from trenching and sub-surface results from
drilling suggests that little or no surface enrichment of silver has occurred at
Loma de la Plata. The remaining three holes were collared 40 to 90 metres
further to the east and drilled at -60 angles. These holes (243-245) appear to
have missed the better-mineralized north-south trending zone as defined by
trenches 1-3, 8, and 9 and drill holes 241 and 242.
Drilling at Loma de la Plata has confirmed the basic geological model of a
favourable, mineralized, upper-volcanic sequence comprised of quartz-eye bearing
trachyandesites. The units dip approximately 25 to 30 degrees towards the
northeast and the favourable unit is approximately 30 to 35 metres thick in the
area drilled to date. The form and shape of mineralized zones of veinlets and
brecciation is not yet well defined, but is hosted exclusively within the
trachyandesite upper volcanic rocks. Further drilling will be required to
confirm the orientation and ultimate size potential of this zone.
SECTOR ZETA
At Sector Zeta, approximately 5 kilometres west of the Galena Hill Deposit,
seven sample lines ranging in length from 6.7 to 60.0 metres have been completed
covering an area of approximately 80 by 100 metres (see attached figure).
Highlights of the Sector Zeta results include:
Line Z-5: 8.0 metres of 105 g/t Silver and 1.14% Copper
Line Z-6: 12.0 metres of 112 g/t Silver and 1.13% Copper
Line Z-7: 12.0 metres of 133 g/t Silver and 3.27% Copper
Mineralization at Sector Zeta predominantly consists of green copper oxides
within argillicly altered latite volcanic rocks that are often brecciated. IMA
geologists interpret that the volcanic rocks which host mineralization here are
part of the same volcanic unit that hosts mineralization at Galena and Navidad
Hills and also at Loma de la Plata. At present, the orientation of the
mineralized zone at Sector Zeta is unknown; drill data will be needed to
unambiguously define the geometry and size of the mineralization.
-7-
The possibility of leaching, or alternatively, concentration of silver and
copper values at or near surface, particularly at Sector Zeta in the case of
copper, cannot be determined from the data available to date and drilling will
be required; no drilling has been carried out in the Sector Zeta area.
ARGENTA TREND:
On January 21, 2005 the Company released the results from a large expansion to
the soil sample grid and follow-up prospecting which uncovered a series of new
mineralized zones to the southeast of Loma de la Plata. The Argenta Trend
includes Sector Zeta and Loma de la Plata and extends approximately 8 kilometres
to the southeast, parallel with the Esperanza and Navidad Trends.
The Argenta Trend is highlighted by anomalous silver, lead and zinc values in
soils with subordinate and sporadic anomalous copper. Recent surface work along
the Argenta trend has discovered high-grade lead values over significant widths.
New discoveries include the "Bajo del Plomo", "Filo del Plomo" and "Ginger"
zones where lead values of up to 10.7% lead over 10 metres, 7.3% lead over 17
metres and 4.8% lead over 21 metres respectively, have been discovered. These
new discoveries are located southeast of the Loma de la Plata zone. With the
addition of the three new zones, the Argenta Trend now consists of five named
mineralized zones along an 8 kilometre strike length. Mineralization styles vary
from silver-copper rich at the northwest end at Sector Zeta, to silver-rich at
Loma de la Plata, to lead-dominant at Bajo del Plomo, Filo del Plomo and Ginger.
Mineralization is hosted by the same trachyandesitic volcanic rocks as the
Galena, Navidad, and Calcite Hill deposits, and in some cases in adjacent
sedimentary rocks. It appears to occur at approximately the same stratigraphic
position as the known resources but with significant differences in sedimentary
facies.
The Company now has over 58 square kilometres of geophysical surveying covering
and extending beyond the Navidad and Argenta Trends. The Galena Hill deposit has
a strong geophysical signature, while other deposits such as Navidad and Calcite
Hills have much more subtle signatures. This additional geophysical coverage
provides a wealth of information about the geology and structure at Navidad in
addition to highlighting new areas prospective for mineralized zones that may be
completely buried.
NAVIDAD AREA PROPERTIES:
The Company has 18 exploration properties in Chubut Province in addition to
Navidad. The Regalo property is currently the subject of a joint venture
agreement.
REGALO:
Work by Consolidated Pacific Bay Minerals Ltd. ("Pacific Bay") on the Regalo
Property, currently under option from IMA, has identified highly anomalous gold
in soils and silt samples over a large area. In a January 12, 2005 News Release,
Pacific Bay reported that the Yastekt South zone has strong associated gold
anomalies consistent over almost one square kilometre. The Yastekt South anomaly
comprises 98 soil analyses that average 299 ppb gold. Normal, "background" gold
values in the area are less than 5 ppb. Two of the 98 soil analyses returned
values in excess of 3 grams per tonne gold. In a June 21, 2005 press release,
Pacific Bay reported that an outcrop sample on Pacific Bay's Regalo project has
returned an assay value of 205 ppm uranium. On August 22, 2005 press release
Pacific Bay reported that a total of 163 rock samples were collected from 26
backhoe trenches excavated within the large soil and stream sediment anomalies
described above. Of these, 13 rock samples had detectable gold in the 6 to 41
ppb range. The trench samples identified anomalous arsenic, molybdenum, vanadium
and zinc pathfinder elements in porous, permeable sandstones and conglomerates
with strong quartz-hematite alteration.
-8-
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
audited consolidated financial statements and notes thereto. The information has
been prepared in accordance with Canadian GAAP.
--------------------------------------------
YEARS ENDED DECEMBER 31
--------------------------------------------
2005 2004 2003
$ $ $
------------ ------------ ------------
Total Assets 23,497,994 12,221,856 13,419,876
Long Term Financial Liabilities - - -
Total Revenues - - -
General and Administrative Expenses 6,148,234 4,312,616 2,503,041
Loss from Continuing Operations (5,764,874) (4,523,831) (2,449,243)
Loss per Common Share from Continuing Operations (0.12) (0.11) (0.08)
Loss allocated to Spin-Off Assets - (131,232) (969,175)
Net Loss (5,764,874) (4,655,063) (3,418,418)
Net Loss per Common Share Basic and Diluted (0.12) (0.11) (0.11)
--------------------------------------------
Total assets increased $11,276,138 from December 31, 2004 to 2005 primarily due
to the expenditures on the Navidad project. Total assets decreased $1,198,021
from December 31, 2003 to December 31, 2004 as a result of the transfer of
assets to Golden Arrow offset by corresponding increases in the Company's cash
balance and in the Navidad property carrying value. General and adminstrative
expenses have increased mainly due to the increases in legal costs incurred in
connection with the Aquiline legal action and due to the increase in the
activity level related to continued exploration at the Navidad project and the
necessary support required.
SELECTED QUATERLY FINANCIAL INFORMATION AND FOURTH QUARTER
The following selected consolidated financial information is derived from the
unaudited consolidated interim financial statements of the Company. The
information has been prepared in accordance with Canadian GAAP.
-------------------------------------------------- --------------------------------------------------
2005 2004
-------------------------------------------------- --------------------------------------------------
DEC. 31 SEP. 30 JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 MAR. 31
$ $ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues - - - - - - - -
Loss from Continuing
Operations (1,041,118) (1,233,392) (972,894) (2,517,470) (1,164,504) (492,562) (466,021) (2,400,744)
Loss per Common Share from
Continuing Operations (0.02) (0.03) (0.02) (0.06) (0.03) (0.01) (0.01) (0.06)
Income (Loss) Allocated to
Spin-off Assets - - - - - - (355,252) 224,020
Net Loss (1,041,118) (1,233,392) (972,894) (2,517,470) (1,164,955) (492,562) (821,273) (2,176,273)
Net Loss per Common Share
Basic and Diluted (0.02) (0.03) (0.02) (0.06) (0.02) (0.01) (0.02) (0.06)
-------------------------------------------------- --------------------------------------------------
The Net Loss for the periods includes the following:
- Q1 2004 Net Loss includes $1,871,360 non-cash stock based compensation
expense for the stock options granted during the period
- Q2 2004 includes $313,801 gain on disposition of mineral property
- Q1 2005 Net Loss includes $1,800,000 non-cash stock based compensation
for the stock options granted during the period
- Q3 2005 Net Loss includes the increased legal fees related to the
Aquiline litigation
- In the quarter ended December 31, 2005, the Company's legal costs were
substantially higher compared to 2004 period as the Aquiline trial took
place during the quarter ended December 31, 2005. This increase was
offset with a foreign exchange gain recorded in the last quarter of
2005 and with a decrease in stock based compensation in the 2005 period
compared to 2004.
SUMMARY OF FINANCIAL RESULTS
For the year ended December 31, 2005, the Company reported a consolidated loss
of $5,764,874 ($0.12 per share), an increase of $1,109,811 from the loss of
$4,655,063 ($0.11 per share) for the year ended December 31, 2004. The increase
-9-
in the loss in 2005, compared to 2004 amount, was due to a number of factors of
which $1,835,618 can be attributed to increases in operating expenses and
$725,807 decrease in other items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. A loss of $131,231 was
allocated to spin-off assets in the 2004 period.
RESULTS OF OPERATIONS
The Company's operating expenses for the year ended December 31, 2005 were
$6,148,234 an increase of $1,835,618 from $4,312,616 in 2004. $339,516 of the
2004 operating expenses had been reclassified as "Loss Allocated to Spin-Off
Assets" which relate to the assets transferred to Golden Arrow. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on a cost specific basis.
Professional fees increased $1,432,498 to $2,327,278 in 2005, primarily due to
legal costs incurred in connection with the Aquiline legal action as well as
increased costs of compliance. In 2005 the Company recorded non-cash stock based
compensation of $2,380,000 compared to $1,972,860 in 2004, for stock options
granted to its employees, consultants and directors, of which $1,800,000 is
included in expenses in 2005 compared to $1,972,860 in 2004 and $580,000 in 2005
compared to Nil in 2004 is included in capitalized mineral property
expenditures. Other notable changes in the operating expenses are: (i) Salaries
increased $272,151 due to staff increases (salaries in 2005 are a portion of the
monthly fee charged for services by the Grosso Group while in 2004 the Company
directly employed its staff); (ii) Administrative and management services
decreased by $89,744 due to some of the services provided by consultants in 2004
were provided by employees of the Grosso Group during 2005 and are included in
salaries (iii) there are no cost recoveries (for shared administrative costs and
rent) from Amera or Golden Arrow in 2005; (iv) Corporate development and
investor relations increased $207,951, as the Company has made its shareholders
and others more aware of its Navidad project and its potential, (v) Office and
Sundry increased $40,337 mainly due to the increase in insurance premiums and an
increase in activity, (vi) Transfer agent and regulatory fees increased $141,972
mainly due to the costs of the Company's listing on the American Stock Exchange,
(vii) General exploration decreased by $173,047 as the Company's focus is on
Navidad property for which costs are included in capitalized mineral property
expenditures, (viii) Travel increased $52,444 due to travel related to
conferences and investor presentations as well as to South America.
In 2005 the Company recorded interest income of $150,406 compared to $101,589 in
2004, primarily as a result of increase of funds on deposit. In 2005 there were
no reorganization costs recorded by the Company, in 2004 reorganization costs of
$346,103 were recorded. There was no gain on the optioning of properties to
other mining exploration companies, in 2004 a gain of $328,346 was recognized.
No write down for the carrying value of marketable securities in 2005 was
recognized while a $99,762 write down for the carrying value of marketable
securities was recorded in 2004. A gain of $232,954 for foreign exchange was
recorded in 2005 compared to loss of 195,285 in 2004. The foreign exchange
adjustment in 2005 is a result of a continued strengthening of the Canadian
dollar compared to US dollar and due to the exchange movements between expenses
being incurred in US$ and amounts exchanged to settle such payables. No gain or
loss was allocated to spin-off assets in 2005, in 2004 a loss of $131,232 was
recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2005 was $7,731,395, an increase of
$2,504,041 from December 31, 2004. Total assets increased to $23,191,738 at
December 31, 2005 from $12,221,856 at December 31, 2004. This increase is mainly
due to the increase in Navidad carrying value and in cash balance. During fiscal
2005, the Company completed a brokered private placement for 3,333,340 units at
$3.00 per unit, for proceeds of $9,263,283 net of $600,001 agent's commission
and $136,736 of related issue costs. Each unit consisted of one common share and
one half common share purchase warrant. Each full warrant entitles the holder
thereof to purchase one additional common share at a price of $3.45 per share
until September 14, 2009. In addition to the cash commission the underwriters
were granted as commission 233,334 underwriter's warrants, representing 7% of
the number of units issued. Each underwriter's warrant is exercisable for one
share at a price of $3.25, for a period of twenty four months, expiring on
-10-
September 12, 2007. The underwriter's warrants were valued using the
Black-Sholes Pricing Model. The warrants were valued at $0.76 per warrant for a
total value of $177,333 and have been recorded as share issue costs with a
corresponding increase to contributed surplus. At March 29, 2006, no
underwriter's warrants had been exercised.
On March 21, 2006 the Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per warrant for gross proceeds
of $10,027,500. Each special warrant will entitle the holder to acquire one unit
consisting of one common share and one half common share purchase warrant. Each
full warrant entitles the holder thereof to purchase one additional common share
in the capital of the Company at a price of $3.80 per share until March 21,
2010. In addition to a cash commission of 6% the underwriters were granted
171,900 agents' warrants, representing 6% of the number of special warrants
issued. Each agents' warrant is exercisable for one share at a price of $3.80,
for a period of twenty four months, expiring on March 21, 2008.
Options and warrants were exercised which resulted in cash proceeds of
$4,215,145 during 2005. The Company paid $145,866 to Golden Arrow from the
exercise of warrants that resulted in the issue of Golden Arrow's shares as
required by the terms of the reorganization. As all warrants that were
outstanding as of the effective date of the reorganization have been exercised
the Company has no further obligation to pay amounts to Golden Arrow for the
issue of its shares on the exercise of the Company's warrants.
The Company has received $172,900 from the exercise of options from January 1 to
March 29, 2006. As at March 29, 2006, the Company had working capital of
approximately $14,000,000.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently may not have sufficient working capital to fund all of
its planned exploration and development work. The Company will continue to rely
on successfully completing additional equity financing to further exploration
and development of Navidad. There can be no assurance that the Company will be
successful in obtaining the required financing. The failure to obtain such
financing could result in the loss of or substantial dilution of its interest in
its properties.
Except as disclosed the Company does not know of any trends, demand,
commitments, events or uncertainties that will result in, or that are reasonably
likely to result in, its liquidity either materially increasing or decreasing at
present or in the foreseeable future. Material increases or decreases in
liquidity are substantially determined by the success or failure of the
exploration programs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
OPERATING CASH FLOW
Cash outflow from operating activities for the year ended December 31, 2005 was
$3,849,618, compared to cash outflow for 2004 of $2,961,734 as a result of
increases in activities and changes in non-cash working capital.
FINANCING ACTIVITIES
During the year ended December 31, 2005, the Company received $14,215,165 from
the issue of common shares from a brokered private placement and on the exercise
of warrants and options less costs of $736,737, compared to $9,707,897, less
costs of $411,237, for the year ended December 31, 2004.
INVESTING ACTIVITIES
Investing activities required cash of $6,978,903 during 2005, compared to
$4,509,717 for 2004, these investing activities were primarily for additions to
the Navidad project in Argentina.
RELATED PARTY TRANSACTIONS
Effective January 1, 2005 the Company engaged the Grosso Group to provide
services and facilities to the Company. The Grosso Group is a private company
owned by the Company, Golden Arrow, Amera and Gold Point, each of which owns one
share. The Grosso Group provides its shareholder companies with geological,
corporate development, administrative and management services on a cost recovery
basis. During fiscal 2005, the Company incurred fees of $730,802 to the Grosso
Group: $764,012 was paid in twelve monthly payments and $33,210 is included in
the Accounts receivable, prepaids and deposits as a result of a review of the
-11-
allocation of the Grosso Group costs to the member companies for the year. In
addition, included in the Accounts receivable, prepaids and deposits is a
$205,000 deposit to the Grosso Group. The deposits from the member companies
were used for the purchase of equipment and leasehold improvements and for
operating working capital.
CRITICAL ACCOUNTING ESTIMATES
Reference should be made to the Company's significant accounting policies
contained in Note 3 of the Company's consolidated financial statements for the
year ended December 31, 2005. These accounting policies can have a significant
impact of the financial performance and financial position of the Company. As
disclosed previously, the Company has not made any provision for any potential
loss in the event of an adverse judgement related to the Aquiline legal action.
RECENT ACCOUNTING PRONOUNCEMENTS
Reference should be made to the recent accounting pronouncements in Canada and
in US that described in Note 10 of the Company's consolidated financial
statements for the year ended December 31, 2005.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
annual consolidated financial statements, direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company have been capitalized on an individual property basis. For certain
acquisitions and related payments for mineral property interests, the Company
records a future income tax liability and a corresponding adjustment to the
related asset carrying amount if the expenditures do not have the corresponding
tax basis. It is the Company's policy to expense any exploration associated
costs not related to specific projects or properties. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but not
limited to, results of exploration activities conducted to date, estimated
future metal prices, and reports and opinions of outside geologists, mine
engineers and consultants. When it is determined that a project or property will
be abandoned or its carrying value has been impaired, a provision is made for
any expected loss on the project or property. In 2005 and in 2004 no impairment
of long-lived assets was identified.
FINANCIAL INSTRUMENTS
The Company's financial instruments consisting of cash and cash equivalents,
accounts receivable and accounts payable and accrued liabilities approximate
their carrying values due to the short-term nature of those instruments. As of
December 31, 2005, the market value of marketable securities was $270,000 (2004
- $270,000).
RISK FACTORS
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. Exploration for mineral resources involves a high degree of risk. The
cost of conducting programs may be substantial and the likelihood of success is
difficult to assess.
METAL PRICE RISK: The Company's portfolio of properties has exposure to
predominantly silver and lead. The prices of these metals, especially silver,
greatly affect the value of the Company and the potential value of its
properties and investments.
-12-
FINANCIAL MARKETS: The Company is dependent on the equity markets as its sole
source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
POLITICAL RISK: Exploration is presently carried out in Argentina. This exposes
the Company to risks that may not otherwise be experienced if all operations
were domestic. Political risks may adversely affect the Company's existing
assets and operations. Real and perceived political risk in some countries may
also affect the Company's ability to finance exploration programs and attract
joint venture partners, and future mine development opportunities.
CURRENCY RISK: Business is transacted by the Company in a number of currencies.
Fluctuations in exchange rates may have a significant effect on the cash flows
of the Company. Future changes in exchange rates could materially affect the
Company's results in either a positive or negative direction.
ENVIRONMENTAL RISK: The Company seeks to operate within environmental protection
standards that meet or exceed existing requirements in the countries in which
the Company operates. Present or future laws and regulations, however, may
affect the Company's operations. Future environmental costs may increase due to
changing requirements or costs associated with exploration and the developing,
operating and closing of mines. Programs may also be delayed or prohibited in
some areas. Although minimal at this time, site restoration costs are a
component of exploration expenses.
TITLE RISK: Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not guarantee the
Company's title. Such properties may be subject to prior agreements or transfers
and title may be affected by undetected defects. In addition, Navidad properties
title has being challenged in Aquiline legal action as previously discussed.
DISCLOSURE CONTROL AND PROCEDURES
Disclosure controls and procedures are defined under Multilateral Instrument
52-109 - Certification of Disclosure Controls in Issuers' Annual and Interim
Filings ("MI 52-109") as "... controls and other procedures of an issuer that
are designed to provide reasonable assurance that information required to be
disclosed by the issuer in its annual filings, interim filings or other reports
filed or submitted by it under provincial and territorial securities legislation
is recorded, processed, summarized and reported within the time periods
specified in the provincial and territorial securities legislation and include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in its annual filings, interim filings or
other reports filed or submitted under provincial and territorial securities
legislation is accumulated and communicated to the issuer's management,
including its chief executive officers and chief financial officers (or persons
who perform similar functions to a chief executive officer or a chief financial
officer), as appropriate to allow timely decisions regarding required
disclosure". The Company has conducted a review and evaluation of its disclosure
controls and procedures, with the conclusion that it has an effective system of
disclosure controls, and procedures as defined under MI 52-109. In reaching this
conclusion, the Company recognizes that two key factors must be and are present:
a) the Company is very dependant upon its advisors and consultants
(principally its legal counsel) to assist in recognizing, interpreting,
understanding and complying with the various securities regulations
disclosure requirements; and
b) an active Board and management with open lines of communication.
The Company has a small staff with varying degrees of knowledge concerning the
various regulatory disclosure requirements. The Company is not of a sufficient
size to justify a separate department or one or more staff member specialists in
this area. Therefore the Company must rely upon its advisors and consultants to
assist it and as such they form part of the disclosure controls and procedures.
Proper disclosure necessitates that one not only be aware of the pertinent
disclosure requirements, but one is also sufficiently involved in the affairs of
the Company and/or receives the communication of information to assess any
necessary disclosure requirements. Accordingly, it is essential that there be
proper communication among those people who manage and govern the affairs of the
Company, this being the Board of Directors and senior management. The Company
believes this communication exists.
-13-
While the Company believes it has adequate disclosure controls and procedures in
place, lapses in the disclosure controls and procedures could occur and/or
mistakes could happen. Should such occur, the Company will take whatever steps
necessary to minimize the consequences thereof.
SHARE DATA INFORMATION
As of March 29, 2006 there were 48,933,065 common shares, 2,071,904 warrants and
4,761,000 stock options outstanding. As a result of a private placement
completed on March 21, 2006, the Company has 2,865,000 special warrants
outstanding. Each special warrant will entitle the holder to acquire one unit,
without payment of additional consideration, consisting of one common share and
one half common share purchase warrant. Each full warrant entitles the holder
thereof to purchase one additional common share in the capital of the Company at
a price of $3.80 per share until March 21, 2010.
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations
consultants. Mr. Sean Hurd is the Company's Vice-President, Investor Relations
and coordinates investor relations' activities.
-14-
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
I, Joseph Grosso, President and Chief Executive Officer of IMA Exploration Inc.,
certify that:
1. I have reviewed the annual filings (as this term is defined in
Multilateral Instrument 52-109 CERTIFICATION OF DISCLOSURE IN ISSUERS'
ANNUAL AND INTERIM FILINGS), of IMA Exploration Inc. (the issuer) for
the year ended December 31, 2005;
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the annual filings.
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures for the
issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the annual filings are being prepared; and
(b) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation.
Date: March 29, 2006
/s/ JOSEPH GROSSO
-------------------------------------
JOSEPH GROSSO
President and Chief Executive Officer
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
I, Arthur Lang, Chief Financial Officer of IMA Exploration Inc., certify that:
1. I have reviewed the annual filings (as this term is defined in
Multilateral Instrument 52-109 CERTIFICATION OF DISCLOSURE IN ISSUERS'
ANNUAL AND INTERIM FILINGS), of IMA Exploration Inc. (the issuer) for
the year ended December 31, 2005;
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the annual filings.
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures for the
issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the annual filings are being prepared; and
(b) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation.
Date: March 29, 2006
/s/ ARTHUR LANG
-------------------------------------
ARTHUR LANG
Chief Financial Officer