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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 30, 2019
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
OR
| ☐ | SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report _____________
For the transition period from ____________ to ____________
Commission file number 000-50922
STARCORE INTERNATIONAL MINES LTD.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 750 – 580 Hornby Street, Box 113
Vancouver, British Columbia, Canada V6C 3B6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of Class |
Name of each exchange on which registered | |
| Not Applicable | Not Applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not Applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
49,646,851 common shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES ☒ NO
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ YES ☐ NO
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ YES ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ |
Indicate by check mark which financial statement item the registrant has elected to follow. ☐ ITEM 17 ☒ ITEM 18
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES ☒ NO
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
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| Item 11 Quantitative and Qualitative Disclosures About Market Risk |
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| Item 12 Description of Securities Other than Equity Securities |
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| Item 14 Material Modifications to the rights of Security Holders and Use of Proceeds |
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All currency amounts in this Annual Report are stated in Canadian Dollars unless otherwise indicated.
Approximate conversion of metric units into imperial equivalents is as follows:
| Metric Units |
Multiply by | Imperial Units | ||||
| hectares |
2.471 | = acres | ||||
| meters |
3.281 | = feet | ||||
| kilometers |
3281 | = feet | ||||
| kilometers |
0.621 | = miles | ||||
| grams |
0.032 | = ounces (troy) | ||||
| tonnes |
1.102 | = tons (short) (2,000 lbs) | ||||
| grams/tonne |
0.029 | = ounces (troy)/ton | ||||
RESOURCE CATEGORY (CLASSIFICATION) DEFINITIONS
The discussion of mineral deposit classifications in this Annual Report adheres to the mineral resource and mineral reserve definitions and classification criteria developed by the Canadian Institute of Mining (“CIM”) 2014. Estimated mineral resources fall into two broad categories dependent on whether the economic viability of them has been established and these are namely “resources” (potential for economic viability) and “reserves” (viable economic production is feasible). Resources are sub-divided into categories depending on the confidence level of the estimate based on level of detail of sampling and geological understanding of the deposit. The categories, from lowest confidence to highest confidence, are inferred resource, indicated resource and measured resource. Reserves are similarly sub-divided by order of confidence into probable (lowest) and proven (highest). These classifications can be more particularly described as follows:
| Mineral Resource | A concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. | |
| Inferred Mineral Resource | That part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. It has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration. | |
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| Indicated Mineral Resource | That part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of modifying factors—including, but not limited to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors (collectively, “Modifying Factors”) in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. It has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve. | |
| Measured Mineral Resource | That part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. It has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve. | |
| Mineral Reserve | The economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors, which are considerations used to convert Mineral Resources to Mineral Reserves and include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at which Mineral Reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a Mineral Reserve must be demonstrated by a Pre-Feasibility Study or Feasibility Study. | |
| Probable Mineral Reserve | The economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve. | |
| Proven Mineral Reserve | The economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors. | |
CAUTIONARY NOTES TO UNITED STATES INVESTORS CONCERNING MINERAL RESERVE AND RESOURCE ESTIMATES
This Annual Report on Form 20-F uses terms that comply with reporting standards in Canada and certain estimates are made in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Unless otherwise indicated, all resource estimates contained in this Annual Report have been prepared in accordance with NI 43-101. These standards differ significantly from the requirements of the SEC, and resource information contained herein may not be comparable to similar information disclosed by companies in the United States.
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This Annual Report on Form 20-F uses the terms “probable mineral reserve” and “proven mineral reserve”, as permitted under NI 43-101. For United States reporting purposes, SEC Industry Guide 7 (under the United States Securities Exchange Act of 1934 (the “Exchange Act”)), as interpreted by Staff of the SEC, applies different standards in order to classify mineralization as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions in SEC Industry Guide 7. Under SEC standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. Accordingly, mineral reserve estimates calculated in accordance with Canadian standards may not qualify as “reserves” under SEC standards.
In addition, this Annual Report on Form 20-F uses the terms “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources” to comply with the reporting standards in Canada. We advise United States investors that while those terms are recognized and required by Canadian regulations, the SEC does not recognize them. United States investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral reserves. These terms have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility.
Further, “inferred resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, United States investors are also cautioned not to assume that all or any part of the inferred resources exist. In accordance with Canadian rules, estimates of “inferred mineral resources” cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43-101.
It cannot be assumed that all or any part of “measured mineral resources”, “indicated mineral resources”, or “inferred mineral resources” will ever be upgraded to a higher category. Investors are cautioned not to assume that any part of the reported “measured mineral resources”, “indicated mineral resources”, or “inferred mineral resources” in this Annual Report is economically or legally mineable.
In addition, disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report mineralization as in place tonnage and grade without reference to unit measures.
Except for the statements of historical fact contained herein, some information presented in this Annual Report constitutes forward-looking statements. When used in this Annual Report, the words “estimate”, “project”, “believe”, “anticipate”, “intend”, “expect”, “predict”, “may”, “should”, the negative thereof or other variations thereon or comparable terminology are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, lack of commercially exploitable mineral reserves, future prices of precious metals and minerals, as well as those factors discussed in the section entitled “Risk Factors” beginning on page 7, below. Although our Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Annual Report speak only as to the date hereof. Except as required by applicable law, including the securities laws of the United States, we do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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As used in this Annual Report, the terms “we”, “us” and “our” mean Starcore International Mines Ltd. and all of our wholly owned subsidiaries, unless otherwise indicated.
STATUS AS AN EMERGING GROWTH COMPANY
Our Company is an “emerging growth company” as defined in section 3(a) of the Exchange Act, and we will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which our Company has total annual gross revenues of US$1,000,000,000 (as such amount is indexed for inflation every 5 years by the SEC) or more; (b) the last day of our Company’s fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective Registration Statement under the Securities Act; (c) the date on which our Company has, during the previous 3-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which our Company is deemed to be a “large accelerated filer”, as defined in Exchange Act Rule 12b–2. Therefore, we expect to continue to be an emerging growth company for the foreseeable future.
Generally, a company that registers any class of its securities under section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to companies that meet the definition of a “smaller reporting company” in Exchange Act Rule 12b-2, an auditor attestation report on management’s assessment of internal controls over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report in our annual reports filed under the Exchange Act, even if we do not qualify as a “smaller reporting company”. In addition, auditors of an emerging growth company are exempt from the rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the registrant company (auditor discussion and analysis).
As a reporting issuer under the securities legislation of the Canadian provinces of Ontario, British Columbia, and Alberta, we are required to comply with all new or revised accounting standards that apply to Canadian public companies. Pursuant to Section 107(b) of the Jumpstart Our Business Startups Act (commonly referred to as the “JOBS Act”), an emerging growth company may elect to utilize an extended transition period for complying with new or revised accounting standards for public companies until such standards apply to private companies. We have elected to utilize this extended transition period. However, while we have elected to utilize this extended transition period, our audited consolidated financial statements as of April 30, 2018 reflect the adoption of all required accounting standards for Canadian public companies.
FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES
The financial statements and summaries of financial information contained in this document are reported in Canadian dollars (“$”) unless otherwise stated. All such financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”).
On December 14, 2015, the Company consolidated its share capital on the basis of every four shares being consolidated to one share. Unless otherwise noted, where the Company reports on share capital and securities issued or issuable, the information herein should be read on the basis of pre-consolidated numbers if the information is prior to December 14, 2015, or post-consolidated numbers if after December 14, 2015.
In May 2016, our Board of Directors resolved to change our financial year end from July 31 to April 30, with the result that our transition financial year ended on April 30, 2016 covered a period of nine months. Our financial statements for the year ended April 30, 2019 have been reported on by Davidson & Company LLP, Chartered Professional Accountants, of 1200-609 Granville Street, P.O. Box 10372, Pacific Centre Vancouver, BC, Canada V7Y 1G6, a registered public accounting firm.
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Item 1 Identity of Directors, Senior Management and Advisers
Not Applicable for Annual Reports
Item 2 Offer Statistics and Expected Timetable
Not Applicable for Annual Reports
The following tables summarize selected financial data for our Company for the year ended April 30, 2018 and the past four years before
that. As indicated elsewhere in this Annual Report, in May 2016, our Board of Directors resolved to change our financial year end from July 31 to April 30, with the result that our transition financial year ended on April 30, 2016
covered a period of nine months. The information in the tables for the years ended April 30, 2019, April 30, 2018, April 30, 2017, April 30, 2016 and July 31, 2015 was extracted from the detailed audited financial statements
and related notes included in this Annual Report and should be read in conjunction with those financial statements and the other information appearing under the heading “Item 5 – Operating and Financial Review and Prospects” beginning
at page 50, below.
Selected Financial Data
(Stated in thousands of Canadian Dollars)
| IFRS as issued by the IASB | At July 31, 2015 |
At April 30, 2016 |
At April 30, 2017 |
At April 30, 2018 |
At April 30, 2019 |
|||||||||||||||
| Total Revenues |
28,405 | 20,326 | 27,228 | 27,807 | 32,795 | |||||||||||||||
| Earnings from Mining Operations |
645 | 1,519 | 826 | (4,928 | ) | 36 | ||||||||||||||
| Earnings for the Year |
210 | 195 | 7,222 | (17,945 | ) | (11,804 | ) | |||||||||||||
| Basic and Diluted Earnings per Share |
0.00 | 0.00 | 0.15 | (0.24 | ) | (0.24 | ) | |||||||||||||
| Total Assets |
69,197 | 78,907 | 82,096 | 64,451 | 57,005 | |||||||||||||||
| Total Liabilities |
17,091 | 21,034 | 17,178 | 15,383 | 17,969 | |||||||||||||||
| Net Assets |
52,106 | 57,873 | 64,918 | 49,068 | 39,036 | |||||||||||||||
| Share Capital |
45,354 | 50,605 | 50,605 | 50,725 | 50,725 | |||||||||||||||
| Common Stock |
151,946,847 | 49,146,851 | 49,146,851 | 49,646,851 | 49,646,851 | |||||||||||||||
| Cash Dividends per Common Share |
0.02 | NIL | NIL | NIL | NIL | |||||||||||||||
Disclosure of Exchange Rate History
On July •, 2019 the noon rate of exchange as set forth in the H.10 statistical release of the Federal Reserve Board, for the conversion of United States dollars into Canadian dollars was US$1.00 = $•.
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The following table sets forth the high and low rates of exchange for the Canadian dollar, expressed as Canadian dollars per U.S. dollar, for each month during the previous six months:
| Month Ended |
Exchange Rate U.S. Dollars into Canadian Dollars |
|||||||
| High | Low | |||||||
| June 30, 2019 |
1.3543 | 1.3089 | ||||||
| May 31, 2019 |
1.3520 | 1.3417 | ||||||
| April 30, 2019 |
1.3495 | 1.3312 | ||||||
| March 31, 2019 |
1.3446 | 1.3277 | ||||||
| February 28, 2019 |
1.3314 | 1.3102 | ||||||
| January 31, 2019 |
1.3584 | 1.3142 | ||||||
The following table sets forth the average rates of exchange for the Canadian dollar, expressed as Canadian dollars per U.S. dollar, during the year ended April 30, 2019 and during each of the preceding four financial years ended April 30 and July 31, calculated by using the average of the exchange rates on the last day of each month during the period:
| Year Ended |
Average Exchange Rate U.S. Dollars into Canadian Dollars |
|||
| April 30, 2019 |
1.3179 | |||
| April 30, 2018 |
1.2774 | |||
| April 30, 2017 |
1.3179 | |||
| April 30, 2016* |
1.3331 | |||
| July 31, 2015 |
1.2030 | |||
| * | Nine-month transition year. |
B. Capitalization and Indebtedness
Not Applicable for Annual Reports
C. Reasons for the Offer and Use of Proceeds
Not Applicable
D. Risk Factors
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this Annual Report in evaluating our Company and our business before purchasing shares of our Company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are not the only ones facing our Company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
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Risks Associated with our Mining Operations
Our operations are subject to risk. Our Company’s ability to generate sufficient cash flows to continue operations is dependent on many factors and cannot be assured.
During the year ended April 30, 2019, the cash flow generated from operating, investing and financing activities resulted in a net cash inflow of $591,000 (2018 –($3,731,000)) bringing the Company’s cash balance to $2,549,000 (2018—$2,321,000) with a working capital of $2,606,000 (2018 -$4,749,000) and an accumulated income (deficit) of $25,873,000 (2018—$14,069,000). The ability of the Company to generate sufficient cash flows to continue operations is dependent upon many factors including, but not limited to, sufficient ore grade, ore production at the San Martin mine, control of mine production costs, administrative costs and tax costs and upon the market price of metals. Cash flows may also be affected by the ability of the Company to reduce capital expenditures, including mine development.
Exploration, development and mining involve a high degree of risk.
Our operations will be subject to all the hazards and risks normally encountered in the exploration, development and production of gold and other base or precious metals, including, without limitation, unusual and unexpected geologic formations, seismic activity, rock bursts, pit-wall failures, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and legal liability. Milling operations are subject to various hazards, including, without limitation, equipment failure and failure of retaining dams around tailings disposal areas, which may result in environmental pollution and legal liability.
Mining risks.
The business of mining involves many risks and hazards, including environmental hazards, industrial accidents, labour force disruptions, the unavailability of materials and equipment, unusual or unexpected rock formations, pit slope failures, changes in the regulatory environment, weather conditions, cave-ins, rock bursts, water conditions and gold bullion losses. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. As a result, we may incur significant costs that could have a material adverse effect upon our financial performance, liquidity and results of operations.
Mine development is subject to a number of risks.
Our ability to sustain or increase our present levels of gold production is dependent upon the successful development of new producing mines and/or identification of additional reserves at existing mining operations. If we are unable to develop new ore bodies, we will not be able to sustain present production levels. Reduced production could have a material and adverse impact on future cash flows, results of operations and financial condition. Many factors are involved in the determination of the economic viability of a deposit, including the achievement of satisfactory mineral reserve estimates, the level of estimated metallurgical recoveries, capital and operating cost estimates and the estimate of future gold prices. Capital and operating cost estimates are based upon many factors, including anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, ground and mining conditions, expected recovery rates of the gold from the ore, and anticipated environmental and regulatory compliance costs. Each of these factors involves uncertainties and as a result, we cannot give any assurance that our exploration and development activities will result in economically viable deposits. If a deposit is developed, actual operating results may differ from those anticipated.
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We may be adversely affected by fluctuations in gold prices.
The value and price of our securities, our financial results, and our exploration, development and mining activities may be significantly adversely affected by declines in the price of gold and other precious metals. Gold prices fluctuate widely and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of gold producing countries throughout the world. The price for gold fluctuates in response to many factors beyond anyone’s ability to predict. The prices used in making the resource estimates are disclosed and differ from daily prices quoted in the news media. The percentage change in the price of a metal cannot be directly related to the estimated resource quantities, which are affected by a number of additional factors. For example, a 10 percent change in price may have little impact on the estimated resource quantities and affect only the resultant positive cash flow, or it may result in a significant change in the amount of resources. Because mining occurs over a number of years, it may be prudent to continue mining for some periods during which cash flows are temporarily negative for a variety of reasons including a belief that the low price is temporary and/or the greater expense incurred is in closing a property permanently.
Mineralized material calculations and life-of-mine plans using significantly lower gold and precious metal prices could result in material write-downs of our investments in mining properties and increased amortization, reclamation and closure charges.
In addition to adversely affecting our mineralized material estimates and our financial condition, declining metal prices can impact operations by requiring a reassessment of the commercial feasibility of a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays in development or may interrupt operations, if any, until the reassessment can be completed.
Further, if revenue from gold sales declines, we may experience liquidity difficulties. This may reduce our ability to invest in exploration and development and making necessary capital expenditures, which would materially and adversely affect future production, earnings and our financial position.
Our estimates of future production may not be achieved.
We prepare internal estimates of future gold production for our operations. We cannot give any assurance that we will achieve our production estimates. Our failure to achieve our production estimates could have a material and adverse effect on any or all of our future cash flows, results of operations and financial condition. These production estimates are dependent on, among other things, the accuracy of mineral reserve estimates, the accuracy of assumptions regarding ore grades and recovery rates, ground conditions and physical characteristics of ores, such as hardness and the presence or absence of particular metallurgical characteristics, and the accuracy of estimated rates and costs of mining and processing.
Our actual production may vary from our estimates for a variety of reasons, including: actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; short-term operating factors such as the need for sequential development of ore bodies and the processing of new or different ore grades from those planned; mine failures, slope failures or equipment failures; reduced metallurgical recovery rates, industrial accidents; natural phenomena such as inclement weather conditions, floods, droughts, rock slides and earthquakes; encountering unusual or unexpected geological conditions; changes in power costs and potential power shortages; shortages of principal supplies needed for operation, including explosives, fuels, chemical reagents, water, equipment parts and lubricants; labour shortages or strikes; civil disobedience and protests; and restrictions or regulations imposed by government agencies or other changes in the regulatory environments. Such occurrences could result in damage to mineral properties, interruptions in production, injury or death to persons, damage to our property or others, monetary losses and legal liabilities. These factors may cause a mineral deposit that has been mined profitably in the past to become unprofitable, forcing us to cease production. Each of these factors also applies to our sites not yet in production and to operations that are to be expanded. In these cases, we do not have the benefit of actual experience in verifying its estimates, and there is a greater likelihood that actual production results will vary from the estimates.
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Mineral reserves and resources estimates are subject to inherent uncertainty.
The figures presented for both mineral reserves and mineral resources herein are only estimates. The estimating of mineral reserves and mineral resources is a subjective process and the accuracy of reserve and resource estimates is a function of the quantity and quality of available data and the assumptions used and judgements made in interpreting engineering and geological information. There is significant uncertainty in any reserve or resource estimate, and the actual deposits encountered and the economic viability of mining a deposit may differ materially from our estimates. Estimated mineral reserves or mineral resources may have to be recalculated based on changes in gold prices, further exploration or development activity, actual production experience, other changes in the assumptions made in the estimation process, or changes in the estimation methodology. This could materially and adversely affect estimates of the volume or grade of mineralization, estimated recovery rates or other important factors that influence reserve or resource estimates. Market price fluctuations for gold, increased production costs or reduced recovery rates, or other factors may render our present proven and probable mineral reserves uneconomical or unprofitable to develop at a particular site or sites. A reduction in estimated reserves could require material write-downs in our investment in the affected mining properties and increased amortization, reclamation and closure charges.
We compete with other companies for mining claims and mining assets.
We compete with other mining companies and individuals for mining claims and leases on exploration properties and the acquisition of gold mining assets. Some of the companies with which we compete have significantly greater financial, management and technical resources than we do, and may use these resources to their advantage when competing with us for such opportunities. We cannot give any assurance that we will continue to be able to compete successfully with our competitors in acquiring attractive mineral properties and assets.
Our San Martin Mine is our primary source of operational cash flow. Accordingly, our ability to continue our operations, and our financial position, will be materially and adversely affected if we are limited by insufficient quantities of mineral reserves and resources, which is dependent on the success of our continuing exploration efforts.
Specifically, continued operations at the Mine are dependent on our ability to discover new mineral resources and to convert them into reserves in sufficient quantities to replace current production. However, mineral exploration is highly speculative in nature. Our exploration efforts involve many risks, and success in exploration is dependent upon a number of factors including, but not limited to, quality of management, quality and availability of geological expertise and availability of exploration capital. We cannot give any assurance that our exploration efforts will result in the discovery of additional mineral resources and their conversion into reserves. We cannot give any assurance that our exploration programs will be able to extend the life of our San Martin Mine, or result in the discovery of new producing mines.
We may have future capital requirements.
As of April 30, 2019, we had cash of approximately $2,549,000 (2018—$2,321,000), and working capital of approximately $2,606,000 (2018—$4,749,000). We intend to use our future cash flows to fund exploration and development work and for general corporate purposes. Capital expenditures and funds for exploration in financial year 2020 are expected to total approximately $2,400,000. The primary expenditures are planned to be mine development and equipment purchases and replacement which are anticipated to be funded out of the mine’s cash flow. We may have further capital requirements to the extent we decide to develop other properties or to take advantage of opportunities for acquisitions, joint ventures or other business opportunities that may be presented to us. In addition, we may incur major unanticipated liabilities or expenses. Failure to make required capital expenditures may impact our financial results.
We may be required to obtain additional financing in the future to fund future exploration and development activities or acquisitions of additional properties or other interests that may be appropriate to enhance our financial or operating interests. We have historically raised capital through equity financing and in the future we may raise capital through equity or additional debt financing, joint ventures, production sharing arrangements or other means. There can be no assurance that we will be able to obtain necessary financing in a timely manner or on acceptable terms, if at all.
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We need to service our current indebtedness.
We have debt of $4,588,000 (2018- $1,334,000) as of April 30, 2019 and may arrange additional loans in the future which may require scheduled payments. Our mining operations may not be able to generate sufficient cash to service our indebtedness and we may be forced to take other actions to satisfy our obligations, which actions may not be successful.
Our ability to meet the repayment obligations on our indebtedness depends on our financial condition and operating performance, which is subject to, among other factors, prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may not be able to maintain a level of cash flow from our operating activities sufficient to permit us to pay the principal and the interest on our indebtedness.
Our current indebtedness is secured by a first charge on all of our and our subsidiaries’ assets, which are primarily the San Martin Mine and the Altiplano Plant. If we are unable to meet our scheduled debt service obligations, our lenders could foreclose and take over ownership of these assets to satisfy our debt obligations.
Government regulation may adversely affect our business and planned operations.
We believe we currently comply with existing environmental and mining laws and regulations and that our proposed exploration programs will also meet those standards. Our mineral exploration and development activities, if any, are subject to various laws governing prospecting, mining, development, production, taxes, labor standards and occupational health, mine safety, toxic substances, land use, water use, land claims of local people and other matters. We can provide no assurance that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could limit or curtail our exploration, production or development activities. Amendments to current laws and regulations governing operations and activities of exploration, development mining and milling or more stringent implementation thereof could have a material adverse impact on our business and financial condition and cause increases in operating and exploration expenses, capital expenditures or production costs or reduction in levels of production or require abandonment or delays in development of new mining properties.
Government approvals and permits are currently, and may in the future be, required in connection with our operations. There can be no assurance that we will be able to obtain these permits in a timely manner.
Our Operations in Mexico are subject to Mexican Foreign Investment and Income Tax Laws
Under the Foreign Investment Law of Mexico, there is no limitation on foreign capital participation in mining operations; however, the applicable laws may change in a way which may adversely impact the Company and its ability to repatriate profits. Under Mexican Income Tax Law, dividends are subject to a withholding tax.
The VAT (IVA) is an indirect tax levied on the value added to goods and services, and it is imposed on that carry out activities within Mexican territory.
During 2013, the Mexican Congress passed tax reform legislation, effective January 1, 2014. The tax reform includes an increase in the corporate tax rate to 30% from 28%, the introduction of a special mining royalty of 7.5% on the profits derived from the sale of minerals, and, the introduction of an extraordinary mining royalty of 0.5% on the gross income derived from the sale of gold, silver and platinum. These changes may have a material impact on the Company’s future earnings and cash flows, and possibly on future capital investment decisions.
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Our operations are subject to environmental risks.
All phases of our operations, if any, will be subject to federal, state and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. We cannot be certain that future changes in environmental regulation, if any, will not adversely affect our operations, if any. Environmental hazards may exist on properties we hold that are unknown to us and that have been caused by previous or existing owners or operators of the properties.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
We do not insure against all risks.
Our insurance will not cover all the potential risks associated with a mining company’s operations. We may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, we expect that insurance against risks such as environmental pollution or other hazards as a result of exploration and production may be prohibitively expensive to obtain for a company of our size and financial means. We might also become subject to liability for pollution or other hazards which we may not be insured against or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material adverse effect upon our financial condition and results of operations.
Our directors and officers may have conflicts of interest.
Each of our directors and officers has served and continue to serve as officers and/or directors of other companies engaged in natural resource exploration and development and related industries. Consequently, there is a possibility that our directors and/or officers may be in a position of conflict now or in the future. For example, a conflict of interest might arise where one of our directors or officers becomes aware of a corporate opportunity that would be of interest not only to our Company, but also to another mining company of which he is also a director or officer; or it is foreseeable that our Company could become involved in a mineral property option or joint venture agreement in respect of a mineral exploration or mine development project in which such a company holds an interest. For a description of the directorships and/or offices held by our directors and officers in other companies engaged in natural resource exploration and development and related industries, please see “Item 6—Directors, Senior Management and Employees—A. Directors and Senior Management – Director Interlocks.”
Title to our properties may be subject to challenge.
Acquisition of title to mineral properties in all jurisdictions is a very detailed and time-consuming process. We have acquired substantially all of our mineral properties through acquisitions. Although we have investigated title to all of our mineral properties, we cannot give any assurance that title to such properties will not be challenged or impugned. The properties may have been acquired in error from parties who did not possess transferable title, may be subject to prior unregistered agreements or transfers, and title may be affected by undetected defects or aboriginal, indigenous peoples or native land claims.
In Mexico, the site of the San Martin Mine, all mineral resources are owned by the state. Title to minerals can be held separately from title to the surface. Mining rights take precedence over surface rights. Rights to explore for and to extract minerals are granted by the state through issuance of mining concessions.
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Mining operations are subject to reclamation costs, estimates of which may be uncertain.
In accordance with existing accounting standards, we have recognized a liability for future site closure and mine reclamation costs based on our estimate of the costs necessary to comply with existing reclamation standards. Site closure and mine reclamation costs for operating properties are reviewed annually. There can be no assurance that our reclamation and closure liabilities will be sufficient to cover all reclamation and closure costs. The costs of performing the decommissioning and reclamation must be funded by the Company’s operations. These costs can be significant and are subject to change. We cannot predict what level of decommissioning and reclamation may be required in the future by regulators. If we are required to comply with significant additional regulations or if the actual cost of future decommissioning and reclamation is significantly higher than current estimates, this could have an adverse impact on our future cash flows, earnings, results of operations and financial condition.
We have an obligation to reclaim our properties after the minerals have been mined from the site, and have estimated the costs necessary to comply with existing reclamation standards. Rehabilitation provisions have been created based on the Company’s internal estimates. Assumptions, based on the current economic environment, have been made which management believes are a reasonable basis upon which to estimate the future liability. These estimates take into account any material changes to the assumptions that occur when reviewed regularly by management. Estimates are reviewed annually and are based on current regulatory requirements. Significant changes in estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period. Actual rehabilitation costs will ultimately depend on future market prices for the rehabilitation costs, which will reflect the market condition at the time the rehabilitation costs are actually incurred. The final cost of the currently recognized rehabilitation provision may be higher or lower than currently provided for.
The inflation rate applied to estimated future rehabilitation and closure costs is 3.5% and the discount rate currently applied in the calculation of the net present value of the provision is 8.0%.
We may be subject to unforeseen litigation.
All industries, including the mining industry, are subject to legal claims, with and without merit. Although we are not currently involved in any legal proceedings, and are not aware of any threatened or pending legal proceedings, there is no guarantee that we will not become subject to such proceedings in the future. There can be no guarantee of the outcome of any such claim. In addition, defense and settlement costs for any legal proceeding can be substantial, even with respect to claims that have no merit. Due to the inherent uncertainty of the litigation process, there can be no assurance that the resolution of any particular legal proceeding will not have a material effect on our financial position or results of operations.
Estimates and assumptions employed in the preparation of financial statements.
The preparation of our Company’s consolidated financial statements requires us to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenues and expenses. Our accounting policies and our critical accounting estimates and judgements are described in notes 3 and 4 respectively to our April 30, 2019 audited annual financial statements.
Our accounting policies relating to mineral property and deferred exploration costs, asset retirement obligations, stock-based compensation and future amortization and depletion of mining interest, plant and equipment are critical accounting policies that are subject to estimates and assumptions. If these estimates or assumptions prove to be inaccurate, we could be required to change the recorded value of our assets and liabilities, which may reduce our earnings and working capital.
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We record mineral property acquisition costs and mine development costs at cost. In accordance with IFRS, we capitalize preproduction expenditures net of revenues received, until the commencement of commercial production. A significant portion of our mining interest, plant and equipment will be depreciated and amortized on a unit-of-production basis. Under the unit-of-production method, the calculation of depreciation, depletion and amortization of mining interest, plant and equipment is based on the amount of proven and probable reserves and a portion of resources expected to be converted to reserves. If these estimates of reserves prove to be inaccurate, or if we revise our mining plan for a location, due to reductions in the price of gold or otherwise, to reduce the amount of reserves expected to be recovered, we could be required to write-down the recorded value of our mining interest, plant and equipment, or to increase the amount of future depreciation, depletion and amortization expense, both of which would reduce our earnings and net assets.
In addition, IFRS requires us to consider at the end of each accounting period whether or not there has been an impairment of the capitalized mining interest, plant and equipment. For producing properties, this assessment is based on expected future cash flows to be generated from the location. For non-producing properties, this assessment is based on whether factors that may indicate the need for a write-down are present. If we determine there has been an impairment because our prior estimates of future cash flows have proven to be inaccurate, due to reductions in the price of gold, increases in the costs of production, reductions in the amount of reserves expected to be recovered or otherwise, or because we have determined that the deferred costs of non-producing properties may not be recovered based on current economics or permitting considerations, we would be required to write-down the recorded value of our mining interest, plant and equipment, which would reduce our earnings and net assets.
Our operations are subject to risks associated with currency fluctuations.
Currency fluctuations may affect the costs that we incur at our operations. Gold is sold throughout the world based principally on a U.S. dollar price, but the majority of our operating expenses are incurred in non-U.S. dollar currencies. The appreciation of non-U.S. dollar currencies in those countries where we have mining operations against the U.S. dollar would increase the costs of gold production at such mining operations which could materially and adversely affect our earnings and financial condition.
Our foreign investments and operations may be subject to political and other risks.
We conduct mining, development or exploration activities primarily in Mexico and exploration activities in the United States. Our foreign mining investments are subject to the risks normally associated with the conduct of business in foreign countries. The occurrence of one or more of these risks could have a material and adverse effect on our earnings or the viability of its affected foreign operations, which could have a material and adverse effect on our future cash flows, results of operations and financial condition.
Such risks may include, among others, labour disputes, invalidation of governmental orders and permits, corruption, uncertain political and economic environments, war, civil disturbances and terrorist actions, criminal and gang related activity, illegal mining and protests, arbitrary changes in laws or policies of particular countries, foreign taxation, delays in obtaining or the inability to obtain necessary governmental permits, opposition to mining from environmental or other non-governmental organizations, limitations on foreign ownership, limitations on the repatriation of earnings, limitations on gold exports and increased financing costs. These risks may limit or disrupt our projects, restrict the movement of funds or result in the deprivation of contract rights or the taking of property by nationalization or expropriation without fair compensation.
Certain of our projects are located in Mexico and are subject to country risks that may affect our ability to complete development work on or to operate our projects.
The Company’s primary mineral activities are conducted in Mexico and will be exposed to various levels of political, economic and other risks and uncertainties. These risks include but are not limited to, hostage taking, illegal mining, fluctuations in currency exchange rates, high rates of inflation, excessive import duties and taxes on the importation of equipment, expropriation and nationalization, possible future restrictions on foreign exchange and repatriation, changes in taxation, labour and mining regulations and policies, and changing political conditions, currency controls, and government regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ local citizens.
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Changes, if any, in mining or investment policies, or shifts in political attitude in Mexico, may adversely affect the Company’s operations or profitability. Current activities and future operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety.
Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications, and tenure, could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.
Mexico continues to undergo violent internal struggles between the government and organized crime with drug-cartel relations and other unlawful activities. The violence has increased since 2011, with over a 22% increase in crime in just the previous year. The number of kidnappings throughout Mexico is of particular concern and continues to rise. Militarized crime has not diminished, with ongoing confrontations between Mexican security forces and drug cartels. Shootouts, attacks and illegal roadblock may occur without warning. The majority of crimes include homicides, kidnapping and extortion with the most dangerous regions centralized in specific regions of Mexico: Chihuahua, Coahuila, Durango, Nuevo Leon, Sinaloa, Sonora, Temaulipas, Guerrero, Michoacan and Colima. Travel advisories continue to prohibit intercity travel at night in numerous areas due to kidnappings, carjackings and highway robberies. Queretaro for the most part remains largely unaffected and no travel advisory is currently in effect. However small incidents still occur and although the Company is vigilant in taking additional measures to increase security and protect both personnel and property, there is no absolute guarantee that such measures will provide an adequate level of protection for the Company. The occurrence of these various factors and uncertainties cannot be accurately predicted, and could have an adverse effect on the Company’s operations or future profitability.
There are risks associated with our acquisition strategy.
As part of our business strategy, the Company has made acquisitions in the past. The properties we acquired are primarily in the exploration stage. There is no assurance that a commercially viable mineral deposit exists on any of our other exploration properties and further exploration is required before we can evaluate whether any exist and, if so, whether it would be economically and legally feasible to develop or exploit those resources. Even if we complete our current exploration program and we are successful in identifying a mineral deposit, we would be required to spend substantial funds on further drilling and engineering studies before we could know whether that mineral deposit will constitute a reserve (a reserve is a commercially viable mineral deposit).
On March 26, 2018, the Company announced that it was narrowing its focus to production oriented assets in Mexico and was seeking the sale or joint venture of its non-core assets, comprised primarily of our exploration properties.
The Company cannot assure that it can complete any sale or joint venture that it pursues, or is pursuing, on favourable terms, or that any of these business arrangements will ultimately benefit the Company. If not successful or if forced into “fire-sales” in disposing of its properties, these non-core assets acquired by the Company in prior years could have a material adverse effect on the Company’s results of operations and financial condition.
We are reliant on our current management team.
The success of our operations and activities is dependent to a significant extent on the efforts and abilities of our management including Robert Eadie, Chief Executive Officer & President, Gary Arca, Chief Financial Officer and Salvador Garcia, Chief Operating Officer. Investors must be willing to rely to a significant extent on management’s discretion and judgment. We do not have in place formal programs for succession of management and training of management. We do not maintain key employee insurance on any of our employees. The loss of one or more of these key employees, if not replaced, could adversely affect our operations.
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We compete for access to qualified employees and contractors.
At April 30, 2019, we employed or contracted the services of approximately 348 persons (384 in 2018), including staff at the minesite. We compete with other mining companies in connection with the recruitment and retention of qualified employees. At the present time, a sufficient supply of qualified workers is available for our operations. The continuation of such supply depends upon a number of factors, including, principally, the demand occasioned by other projects. There can be no assurance that we will continue to be able to retain or attract qualified employees. There is a risk that increased labour costs could have a material adverse effect on our operating costs.
Dilution of Shareholders’ Interests as a Result of Issuances of Additional Shares
Depending on the outcome of the Company’s exploration programs and mining operations, the Company may issue additional shares to finance additional programs and mining operations or to acquire additional properties. In the event that the Company is required to issue additional shares or decides to enter into joint ventures with other parties in order to raise financing through the sale of equity securities, investors’ interests in the Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold.
Risks Related to Our Company
Our Articles of Incorporation indemnify our officers and directors against all costs, charges and expenses incurred by them.
Our Articles of Incorporation contain provisions limiting the liability of our officers and directors for their acts, receipts, negligence or defaults and for any other loss, damage or expense incurred by them which occurs during the execution of their duties as officers or directors of our Company, unless they failed to act honestly and in good faith with a view to the best interests of our Company. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our Company, though such an action, if successful, might otherwise have been of benefit to our Company and our shareholders.
Risks Relating to our Securities
The prior registration of our common stock under section 12(g) of the Securities Exchange Act of 1934 was revoked pursuant to section 12(j) of that Act due to our failure to comply with our reporting obligations. If, in the future, we fail to comply with the reporting requirements of the Exchange Act, the SEC could initiate proceedings to once again revoke our registration, and broker-dealers in the United States would thereafter be unable to effect transactions in our Company’s common shares.
On December 22, 2015, the SEC initiated proceedings under section 12(j) of the Securities Exchange Act of 1934 for our Company’s failure to comply with section 13(a) of the Exchange Act because we had not filed any periodic reports with the Commission since the interim period ended April 30, 2004. On January 25, 2016, our Company executed an Offer of Settlement presented by the SEC to settle the proceedings, as our management determined that it would not be cost-effective or practicable to file with the SEC all of our outstanding annual reports on Form 20-F and to furnish to the SEC all of our outstanding reports on Form 6-K. The SEC issued its Final Order on February 1, 2016. As a result, broker-dealers in the United States were unable to effect transactions in our Company’s common shares until the registration statement became effective to register our common shares under section 12(g) of the Exchange Act, the requirements of Rule 15c2-11 under the Exchange Act have been satisfied, and a broker-dealer has completed a Form 211 filing with the Financial Industry Regulatory Authority, Inc. (commonly called “FINRA”) pursuant to FINRA Rule 6432. The registration statement became effective on October 11, 2016 and we then became subject to the reporting requirements of section 13(a) of the Exchange Act. If, in the future, we fail to comply with such reporting requirements, the SEC could initiate proceedings to once again revoke our registration under section 12(j) of the Exchange Act, and broker-dealers in the United States would thereafter be unable to effect transactions in our Company’s common shares.
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Trading in our common shares on the Toronto Stock Exchange is limited and sporadic, making it difficult for our shareholders to sell their shares or liquidate their investments.
Our common shares are currently listed on the Toronto Stock Exchange under the symbol “SAM”. The trading price of our common shares has been and may continue to be subject to wide fluctuations. Trading prices of our common shares may fluctuate in response to a number of factors, many of which are beyond our control. In addition, the stock market in general, and the market for base metal companies has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may adversely affect the market price of our shares, regardless of our operating performance. If you invest in our common shares, you could lose some or all of your investment.
In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources.
We do not expect to declare or pay any dividends in the immediate future.
Although we declared dividends in 2014, we do not anticipate paying any such dividends for the foreseeable future.
U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling persons and officers.
It may be difficult to bring and enforce suits against us. Some of our directors and officers are residents of countries other than the United States. Consequently, it may be difficult for United States investors to effect service of process in the United States upon those directors or officers who are not residents of the United States, or to realize in the United States upon judgments of any court of the United States.
Trading of our stock may be restricted by the SEC’s “Penny Stock” regulations which may limit a stockholder’s ability to buy and sell our stock.
The U.S. Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of US$5,000,000 or individuals with a net worth in excess of US$1,000,000 (exclusive of the value of a principal residence; and either individually or jointly with the indivdual’s spouse) or annual income exceeding US$200,000 or US$300,000 jointly with their spouse.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
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These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
Item 4 Information on our Company
A. History and Development of our Company
Our governing corporate legislation is the British Columbia Business Corporations Act (the “Act”). We incorporated under the former Company Act (British Columbia) on October 17, 1980, under the name Omnibus Resources Inc. On September 10, 1981, Omnibus Resources Inc. changed its name to Berle Oil Corporation. On May 31, 1983 Berle Oil Corporation changed its name to Berle Resources Ltd. On August 6, 1987 Berle Resources Ltd. changed its name to Eagle Pass Resources Ltd. On September 17, 1992 Eagle Pass Resources Ltd. changed its name to Starcore Resources Ltd. On February 2, 2004 Starcore Resources Ltd. changed its name to Starcore International Ventures Ltd. On February 1, 2008 Starcore International Ventures Ltd. changed its name to Starcore International Mines Ltd.
Our principal place of business is located at Suite 750 – 580 Hornby Street, Box 113, Vancouver, British Columbia, Canada V6C 3B6. Our telephone number at this address is: (604) 602-4935.
Our common shares are listed on the Toronto Stock Exchange under the symbol “SAM” and on the Frankfurt Stock Exchange under symbol “V4JA”.
We are in the mineral resource business. The mineral resource business generally consists of three stages: exploration, development and production. We are a mineral resource company with projects in various stages. Mineral resource companies that are engaged in the extraction of a known mineral resource are in the production stage. We fall in this category with our principal property, the San Martin Mine in Queretaro, Mexico, where we are engaged in extracting and processing gold and silver. The San Martin Mine is our primary source of operating cash flows.
In prior years, we were also engaged in acquiring exploration assets in North America directly and through corporate acquisitions. Some of our projects are in the exploration stage because our exploration activities on the project lands have not yet identified mineral resources in commercially exploitable quantities.
Acquisition of Creston Moly
On February 19, 2015, Starcore completed the acquisition of all of the shares of Creston from Deloitte Restructuring Inc., in its capacity as trustee in bankruptcy of Mercator Minerals Ltd., at a purchase price of CDN$2 million. Creston was formerly a wholly-owned subsidiary of Mercator Minerals Ltd., who acquired Creston in 2011 in a cash-and-shares deal valuing Creston at approximately CDN$194 million. Creston is a British Columbia company that owns, through its subsidiaries, a 100% interest in the following three molybdenum-copper mineral projects: (i) the El Creston Project located in Sonora, Mexico; (ii) the Ajax Project located in British Columbia, Canada; and (iii) the Molybrook Project located in Newfoundland, Canada. See “Mineral Properties”.
Acquisition of Cortez Gold Corp.
On June 12, 2015, the Company entered into an arrangement agreement (the “Cortez Arrangement Agreement”) with Cortez Gold Corp., a company then listed on the TSX Venture Exchange (TSX-V: CUT), to acquire all of the outstanding securities of Cortez Gold pursuant to a court approved plan of arrangement (the “Cortez Arrangement”) under the Act. Cortez Gold owns the Altiplano Plant located in Matehuala, Mexico. See “Mineral Properties – Other Properties – Altiplano Processing Plant”.
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Under the terms of the Cortez Arrangement Agreement, each Cortez Gold shareholder received three Starcore common shares for every one common share of Cortez Gold held. In addition, incentive stock options outstanding in Cortez Gold were cancelled and each option holder received cash consideration equal to the amount by which $0.42 exceeded the exercise price of such options.
The Cortez Arrangement closed on August 5, 2015 after receiving the final order from the Supreme Court of British Columbia and the required approval by at least 66 2/3% of the votes cast by the shareholders of Cortez Gold at a special meeting of Cortez Gold shareholders held on July 9, 2015. Starcore did not require a shareholder vote to complete the transaction.
Letter of Intent to acquire the Santa Fe project
On November 21, 2017, the Company announced that it had entered into a Letter of Intent (“LOI”) with Eduardo de la Peña Gaitan and other property owners represented by him, to acquire approximately 21,000 hectares located in the state of Sinaloa, Mexico, more commonly known as the Santa Fe Project (“Santa Fe”).
Under the terms of the LOI, Starcore would have an exclusive period to conduct its due diligence on Santa Fe. Upon satisfactory due diligence, a Definitive Agreement would be executed within 30 days in order for Starcore to complete the acquisition. Consideration for the transfer of the Santa Fe property to Starcore was a combination of cash and common shares of Starcore, staged over a period of time.
On January 11, 2018, the Company announced that it had engaged Global Kompas to undertake a Preliminary Economic Assessment of the Santa Fe Project.
On March 26, 2018, the Company announced that it was narrowing its focus, concentrating on its assets in Mexico and seeking the sale or joint venture of its non-core assets comprised primarily of its other exploration properties. The Company also announced that in consideration of US$100,000, the Company extended the review period for its exclusive option to acquire the Santa Fe Project.
On June 11, 2018, the Company announced that it had completed its due diligence and review of the Santa Fe Project and would not be proceeding with the proposed acquisition. The Company gave notice to the property owners of its disengagement from the project and Starcore has no further obligations on Santa Fe.
Private Placement
On June 18, 2018, the Company announced that it had completed a private placement of secured bonds in the aggregate principal amount of CDN$3 million (the “Bonds”). The Bonds bear interest at 8% per annum, payable on maturity, and mature on June 18, 2020. The Bonds are secured by a charge over all of the Company’s and its subsidiaries’ assets.
Following conditional acceptance from the Toronto Stock Exchange, the Company issued 3,000,000 warrants to the bond holders, each warrant entitling the bond holders to acquire one share of Starcore at a price of $0.20, expiring on June 18, 2021.
The Bonds were sold pursuant to exemptions from the prospectus requirement of Canadian securities legislation and were subject to a statutory four month hold period which expired on October 19, 2018. The Bonds are not and will not be listed on any market or exchange. The Bonds have not been registered under the U.S. Securities Act of 1933, as amended, and were not offered or sold in the United States.
The proceeds from the sale of the Bonds were added to general working capital.
43-101 Filing
On July 18, 2018, the Company filed a technical report entitled “RESERVES AND RESOURCES IN THE SAN MARTIN MINE, QUERETARO STATE, MEXICO AS OF APRIL 30, 2018” dated June 27, 2018.
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Salary Reductions
On May 16, 2019, the Company reported that Starcore management had agreed to take a 25% reduction in salary effective May 1, 2019. The agreement to reduce the current contracts with Robert Eadie, CEO and Gary Arca, CFO, has been amended to provide for the 25% reduction and to increase the term to April 30, 2022 from July 31, 2020. The reductions to the CEO, CFO and Salvador Garcia, COO, will result in annual savings to the Company of approximately $250,000.
Revenues: See Item 5(A) “Operating Results”
Principal Market
Gold and silver doré in the form of bullion that is produced from our San Martin Mine is shipped primarily to a refinery in Europe. We also have a contract and the ability to ship to a refinery in Brampton, Ontario to mitigate the potential impact of unrelated problems that could arise using a lone refinery such as strikes or other issues. The terms of the refinery contracts provide for payment of 99.25% to 99.9% of the gold and 99.25% to 99.5% of the silver content with treatment charges of $0.30 to $0.75/troy oz of doré and refining charges of US$1.00/troy oz of gold. Payment is due 5 – 20 business days following receipt of the bullion at the refinery and based on the spot price when settled.
The San Martin doré is a clean product with few impurities. There are numerous refineries around the world available to refine the doré.
We have not yet identified any commercially viable mineral deposit on any of our exploration properties, and metal prices are currently not economically attractive for one of our projects project nearing the development stage. We expect that the principal markets for any of these other properties—should they be successful and be put into production—would consist of metals refineries and base metal traders and dealers.
Seasonality of our Business
The San Martin Mine operates year-round. In general, the mine does not operate on Sundays although at times overtime is required in the mine to meet production targets. The mine operates with 3 shifts, 8 hours each, six days a week. Administration personnel at the mine work Monday to Friday.
Exploration activities at all of our properties can be conducted year-round.
Patents and Licenses; Industrial, Commercial and Financial Contracts; and New Manufacturing Processes
We are not dependent on any patented or licensed processes or technology, or on any industrial, commercial or financial contract, or on any new manufacturing processes.
Competitive Conditions
We compete with other mining companies for the acquisition of mineral interests and for the recruitment and retention of qualified employees. Some of our competitors have greater financial resources and technical facilities than our Company. While we compete with these other exploration companies in the effort to locate and acquire mineral resource properties, we will not compete with them for the removal or sales of mineral products from our properties if we should eventually discover the presence of them in quantities sufficient to make production economically feasible. Readily available markets exist worldwide for the sale of mineral products. Therefore, we will likely be able to sell any mineral products that we identify and produce.
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Governmental Regulations
Various levels of governmental controls and regulations address, among other things, the environmental impact of mineral exploration and mineral processing operations, and establish requirements for decommissioning of mineral exploration properties after operations have ceased. With respect to the regulation of mineral exploration and processing, legislation and regulations in various jurisdictions establish performance standards, air and water quality emission standards, and other design or operational requirements for various aspects of the operations, including health and safety standards. Legislation and regulations also establish requirements for decommissioning, reclamation and rehabilitation of mineral exploration properties following the cessation of operations and may require that some former mineral properties be managed for long periods of time.
In North America, our production, processing and exploration activities are subject to various levels of federal and state laws and regulations in the countries where we have a presence. These laws and regulations relate to protection of the environment, including requirements for closure and reclamation of mineral exploration properties. In North America, these laws and regulations include the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Emergency Planning and Community Right-to-Know Act, the Endangered Species Act, the Federal Land Policy and Management Act, the National Environmental Policy Act, the Resource Conservation and Recovery Act and the equivalents of these federal laws that have been adopted by the state of Nevada.
In addition, we are subject to Mexican mining laws and their laws protecting ecological balance and the environment.
The following table sets forth all of our material subsidiaries, their jurisdictions of incorporation and the percentage of voting securities beneficially owned or controlled by the Company.
| Name of Subsidiary |
Jurisdiction of Incorporation | Percentage Ownership | ||||
| Compañia Minera Peña de Bernal, S.A. de C.V.1 |
Mexico | 100 | %2 | |||
| Creston Moly Corp. |
British Columbia | 100 | % | |||
| American Consolidated Minerals Corp. |
British Columbia | 100 | % | |||
| Cortez Gold Corp. |
British Columbia | 100 | % | |||
| 0993684 BC Ltd. |
British Columbia | 100 | % | |||
| Golden Oasis Exploration |
Nevada | 100 | % | |||
| Altiplano Goldsilver S.A. de C.V. |
Mexico | 100 | %3 | |||
| Tenajon Resources Corp. |
British Columbia | 100 | %4 | |||
| Creston Mining Corporation |
Ontario | 100 | %4 | |||
| Exploraciones Global S.A. de C.V. |
Mexico | 100 | %5 | |||
| Arco Exploraciones S.A. de C.V. |
Mexico | 100 | %6 | |||
| 1. | Bernal, a wholly-owned subsidiary of Starcore, holds the title to the San Martin Mine in Queretaro, Mexico. |
| 2. | To comply with Mexican corporate legislation, one share of Bernal is held of record by Mr. Robert Eadie, the CEO of Starcore, for the benefit of Starcore. All economic benefits of this share ownership accrue to Starcore. |
| 3. | Altiplano Goldsilver S.A. de C.V., a wholly-owned subsidiary of Cortez Gold, holds title to the Altiplano gold and silver processing plant in Matehuala, Mexico. To comply with Mexican corporate legislation, one share of Altiplano is held of record by Mr. Robert Eadie, the CEO of Starcore, for the benefit of Starcore. All economic benefits of this share ownership accrue to Starcore. |
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| 4. | Tenajon Resources Corp. and Creston Mining Corporation are wholly-owned by Creston Moly Corp., which is a wholly-owned subsidiary of Starcore. |
| 5. | Exploraciones Global S.A. de C.V. is a wholly-owned subsidiary of Creston Mining Corp. (Ontario). It holds the 100% interest in the El Creston molybdenum property located in the State of Sonora, Mexico. To comply with Mexican corporate legislation, four shares of Exploraciones are held of record by Mr. Robert Eadie, the CEO of Starcore, for the benefit of Starcore. All economic benefits of this share ownership accrue to Starcore. |
| 6. | Arco Exploraciones S.A. de C.V. is a wholly owned subsidiary of 0993684 BC Ltd. and is our leasing and projects company in Mexico. To comply with Mexican corporate legislation, one share of Arco is held of record by Mr. Robert Eadie, the CEO of Starcore, for the benefit of Starcore. All economic benefits of this share ownership accrue to Starcore. |
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D. Property, Plants and Equipment
| 1. | San Martin Mine, Queretaro, Mexico: Compañia Minera Peña de Bernal, S.A. de C.V., a wholly owned Starcore subsidiary, holds the mining concessions covering 6,236 ha at the San Martin Project in the State of Querétaro. In addition, there are 6755.6 ha held in concession Lote San Martin 4 which is north and contiguous to the mining concessions, bringing total land holdings to 12,991.7 ha. The mining concessions include seven underground mining units and four units under exploration.. Luismin (now “Goldcorp Mexico”) operated the mine from 1993 to January, 2007 when it was purchased by our Company. We have been mining at San Martin at a rate of approximately 300,000 tonnes per year. We expect to continue to operate the mine as we convert resources to reserves. Historically, the mine has typically maintained at least two years of reserves for operations. |
| 2. | Altiplano Plant, Matehuala, Mexico: The Altiplano plant is the principal asset of Cortez Gold Corp., a wholly-owned Starcore subsidiary that holds title to the land, equipment and permits for the operation of a processing plant situated on 20 hectares of land in Matehuala, Mexico. The land and the plant and equipment are owned by Altiplano Goldsilver, S.A. de C.V., a wholly-owned subsidiary of Cortez Gold. The facility is located within a historic mining district, in an area that is home to numerous medium-sized mining operations. The Altiplano Plant was designed to employ the dissolution treatment production process to recover precious metals from flotation concentrates. When compared to the alternative pyrometallurgical foundries, it is a cleaner process and more economical, enabling the facility to offer lower processing rates than those currently available to concentrate producers in the area The Company’s management has determined the commencement of commercial production to have begun on November 1, 2016. |
In November 2018, management announced that the capital requirements of the Altiplano facility for inventory and operations, despite improving cash flow to a small profit in the prior quarter, did not justify the continuation of these operations. The operations were placed on a maintenance status in the quarter and remaining inventories were processed and sold accordingly. After assessing the best use of the assets of Altiplano, management deemed the sale of the facility to be the best course of action for the Company and is currently finalizing the terms of a purchase offer.
| 3. | Our executive office is located at Suite 750 – 580 Hornby Street, Vancouver, British Columbia, Canada V6C 3B6. We lease a 2,264 square foot office, with total rent and common costs for this space being $108,000 per year until the lease expires on April 30, 2020. This office space accommodates all of our executive and administrative personnel and we believe that it is adequate for our current needs. Should we require additional space, we believe that such space can be secured on commercially reasonable terms. See Item 5(F) for office lease obligations. |
Mineral Properties
San Martin Mine, Queretaro, Mexico
Except as indicated below, the following description of the San Martin Mine has been extracted from the technical report entitled “Reserves and Resources in the San Martin Mine, Queretaro State, Mexico as of April 30, 2018” issued on June 27, 2018, (the “Technical Report”). The Technical Report was prepared for Starcore in accordance with National Instrument 43-101 (“NI 43-101”) by Erme Enriquez C.P.G., BSc, MSc., who is independent. The Technical Report is effective as at June 27, 2018.
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The following table is a summary of mine production statistics for the San Martin mine for the years ended April 30, 2019 and 2018. The mine continues to operate at 850 tons per day and the continued strength of the US dollar has resulted in profitable operational results even with the recently declining mill head grade. Production for the year ended April 30, 2019 was 314,347 tonnes at an average head grade of 1.62 g/t gold and 39 g/t silver.
| Unit of measure | Actual results for period ended April 30, 2019 |
Actual results for period ended April 30, 2018 |
||||||||||
| Mine production of gold in doré |
ounces | 13,652 | 11,884 | |||||||||
| Mine production of silver in doré |
ounces | 224,544 | 102,061 | |||||||||
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| Total mine production – equivalent ounces |
ounces | 16,392 | 13,189 | |||||||||
| Silver to gold equivalency ratio |
81.9 | 78.20 | ||||||||||
| Mine gold grade |
grams/tonne | 1.63 | 1.62 | |||||||||
| Mine silver grade |
grams/tonne | 39.6 | 21.3 | |||||||||
| Mine gold recovery |
percent | 86.2 | % | 84.5 | % | |||||||
| Mine silver recovery |
percent | 58.4 | % | 55.2 | % | |||||||
| Milled |
tonnes | 301,911 | 269,611 | |||||||||
| Mine development, preparation and exploration |
Meters | 8,977 | 9,089 | |||||||||
| Mine operating cash cost per tonne milled |
US dollars/tonne | 58 | 61 | |||||||||
| Mine operating cash cost per equivalent ounce |
US dollars/ounces | 1,061 | 1,237 | |||||||||
| Number of employees and contractors at minesite |
339 | 314 | ||||||||||
Location
The San
Martin mine is located 47 kilometres, in a straight line, northeast of the Queretaro City, Queretaro State, on local road No.100 and about 250 kilometres NW of Mexico City, near the towns of Tequisquiapan and Ezequiel Montes. The
San Martin underground mine has been in operation since 1993.
The San Martin Mine complex consists of 8 mining claims that cover 12,991.7805 hectares.
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.
The following table summarizes the mining concessions comprising the San Martin Mine property.
| No. on Map |
Concession Name |
Exp. | Title | Term of Concession | Hectares | 2018 Annual Taxes (Pesos) | ||||||||||||||||||||||||
| From | To | 1st Sem | 2nd Sem | |||||||||||||||||||||||||||
| 1 | San Martin 2 | 321.1/6-72 | 191134 | 29/04/1991 | 28/04/2041 | 190.7972 | $ | 30,157 | $ | 30,157 | ||||||||||||||||||||
| 2 | San Martin | 321.1/6-71 | 191423 | 19/12/1991 | 18/12/2041 | 132.0818 | $ | 20,856 | $ | 20,856 | ||||||||||||||||||||
| 3 | La Trinidad | 6/1.3/276 | 204824 | 13/05/1997 | 13/05/2047 | 2,610.7224 | $ | 412,193 | $ | 412,193 | ||||||||||||||||||||
| 4 | San Martin Fracc. A. | 6/1.3/00409 | 215262 | 14/02/2002 | 13/02/2052 | 37.1099 | $ | 5,861 | $ | 5,861 | ||||||||||||||||||||
| 5 | San Martin Fracc. B. | 6/1.3/00411 | 215263 | 14/02/2002 | 13/02/2052 | 22.8901 | $ | 3,616 | $ | 3,616 | ||||||||||||||||||||
| 6 | San Martin Fracc. C | 6/1.3/00412 | 215264 | 14/02/2002 | 13/02/2052 | 3,182.5646 | $ | 502,470 | $ | 502,470 | ||||||||||||||||||||
| 7 | San Martin 3 | 6/1.3/00410 | 215301 | 14/02/2002 | 13/02/2052 | 60.0000 | $ | 9,473 | $ | 9,473 | ||||||||||||||||||||
| 8 | San Martín Cuatro | 065/15357 | 221844 | 02/04/2004 | 01/04/2054 | 6,755.6145 | $ | 1,066,606 | $ | 1,066,606 | ||||||||||||||||||||
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Total |
12,991.7805 | $ | 2,051,232 | $ | 2,051,232 | |||||||||||||||||||||||||
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Technical Report Summary
Cautionary Note to Investors Concerning Estimates of Mineral Resources
This section uses the terms “proven mineral reserve” and “probable mineral reserve”, as permitted under Canadian reporting standards. For United States reporting purposes, SEC Industry Guide 7 applies different standards in order to classify mineralization as a reserve. As a result, the definitions of proven and probable reserves applicable under Canadian reporting standards differ from the definitions in the SEC Industry Guide 7. Accordingly, mineral reserve estimates calculated in accordance with Canadian standards may not qualify as “reserves” under SEC standards.
In addition, this section also uses the term “inferred mineral resources”. While this term is recognized and required by Canadian regulations, the SEC does not recognize it. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of a mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of economic studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred resource exists, or is economically or legally mineable.
The following has been reproduced from the Technical Report.
Since April 30, 2016, Starcore International Mines Ltd. (“Starcore”) estimates the reserves and resources for the San Martin mine effective as of April 30th of each year to match its fiscal year. This report has been prepared by Erme Enriquez C.P.G., BSc, MSc in compliance with National Instrument 43-101 (“NI 43-101”) on the San Martin Project in the State of Querétaro, Mexico and he is an independent Qualified Person (“QP”) as defined by NI 43-101.
Starcore acquired the San Martin Mine (“San Martin”) from Goldcorp Inc. (“Goldcorp”) in February 2007. Goldcorp is a Canadian mining company listed on both Canadian and United States Stock Exchanges. Goldcorp acquired the San Martin Project in February 2005 with the take-over of Wheaton River Minerals Ltd., who had acquired San Martin in the take-over in 2002 of the Mexican mining company Minas Luismin S.A. de C.V. (“Luismin”). Starcore paid US$24 million in cash and issued 4,729,000 common shares to Luismin at a deemed value of CDN$0.50 per share in consideration for the shares of Bernal.
San Martin is owned and operated by Compañia Minera Peña de Bernal, S.A. de C.V., a wholly owned subsidiary of Starcore.
Compañía Minera Peña de Bernal S.A. de C.V., a wholly owned Starcore subsidiary, holds eight mining concessions covering 12,991.7805 ha at the San Martin Mine in the State of Querétaro. Right payments are done twice a year, every semester. The San Martin Project presently consists of two underground mines, San José and San Martin. The San Martin mine is approximately 800 m NNE of the San José mine. Minas Luismin, SA de CV commenced mining late in 1993 on the San José deposit with an open pit operation that was later abandoned and mining continued underground methods over the San José and the San Martin oreshoots.
Accessibility
The roads through which the San Martín mine is accessed are paved and they are in good condition all year long. It can be reached by highway No. 57 between the cities of Querétaro and San Luis Potosí. Access to the San Martin mine can be carried out also from Mexico City through highway 57D, for 160 kilometers, until reaching the city of San Juan del Río, Queretaro. From here, take the HW 120, for 19 km until Tequisquiapan, and continue for 16 km more until Ezequiel Montes. From here take the road to the junction with the # 100 highway, take this to the NE and 1.5 km more to enter the mine facilities.
From the City of Querétaro take Highway 45D for approximately 22 km to the SE and then take Highway # 100 to the NW for 36 kilometers until reaching the junction with the entrance to the mine in the town of San Martin. This same road leads to the magical town of Peña de Bernal, which is the company’s employee camp.
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There are constant flights from the City of Querétaro to several destinations in the United States, particularly Los Angeles, Chicago, New York and Houston; although these change from season to season.
History
Mining in the San Martín district extends back to at least 1770 when the mines were first worked by the Spanish, particularly by Don Pedro Romero de Terreros, Count of Regla. Spaniards worked in the district for 40 years, however, there is no production records available for that time. During those days, silver and gold production accounted for 80% of all exports from Nueva España (New Spain), although, by the late-eighteenth century silver production collapsed when mercury, necessary to the refining process, was diverted to the silver mines of Potosí in present day Bolivia.
The vast majority of production came prior to the 1910 Mexican Revolution with San Martin district being an important producer. The first records show the Ajuchitlán Mining and Milling Company produced an estimated 250,000 tonnes at a grade of 15 g Au/t and 100 g Ag/t during 1900 to 1924.
The first modern stake was with 1982, when the Mexican government declared a 6,300 ha National Reserve over the area surrounding the Peña de Bernal. Luismin entered into an agreement to explore in the claims of CRM in 1986 for a payment of US $ 250,000 dollars and a royalty of 5%, which latter was reduced to 3% in 1996. In1988 geological reconnaissance and exploration program initiated. Geological works concluded in 1992 and by the end of 1993 the decision was made to start the open-pit mining in the San José area, at a rate of 300 tpd.
The operation of the San José pit only lasted a couple of years, when it was discovered that the deposit was not a “Carlin type”, as had been thought, but that it was a tabular structure in vein that continued to deepen and laterally along its strike. Then it was decided to start the underground mining, on the same San Jose structure and on the oreshoot of San Martin, which ultimately turned out to be the one with the largest number of reserve and resources.
In the year 2000, the exploitation begins in the San Martín body, called “Tronco” due to its verticality. In 2001, at the same time, the exploration of high-grade gold bodies called “Mantos” began. The first of these oreshoots was the Body 28.
The mine is currently mined 850 tpd and the capacity of the mill is 1100 tpd. The mining method is cut and filled with dry backfill. The exploitation in the Body 28 is currently room and pillars filled with a mixture of backfill and 5% cement.
Mining began in 1993 at 300 tpd, and in early 1994, production began from open pit operations on the San José deposit. The table below illustrates production for the period 1993 to April 30, 2019.
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Starcore International Mines LTD
Compañía Minera Peña de Bernal, SA de CV
San Martin Mine Project
Historical Production 1993-April 30 2019
| Year |
Tonnes |
Grade |
Production | |||||||||
| Au (g/t) |
Ag (g/t) |
Oz Au |
Oz Ag |
Oz Au Eq. | ||||||||
| 1993 |
28,267 | 2.53 | 60 | 1,387 | 24,463 | 1,707 | ||||||
| 1994 |
134,118 | 3.19 | 35 | 13,179 | 81,605 | 14,298 | ||||||
| 1995 |
146,774 | 3.40 | 38 | 16,172 | 180,459 | 17,068 | ||||||
| 1996 |
187,691 | 3.40 | 44 | 19,553 | 155,160 | 21,620 | ||||||
| 1997 |
219,827 | 3.27 | 43 | 22,016 | 174,013 | 24,570 | ||||||
| 1998 |
224,279 | 3.45 | 50 | 23,680 | 210,680 | 27,539 | ||||||
| 1999 |
242,295 | 3.46 | 46 | 25,852 | 194,110 | 29,624 | ||||||
| 2000 |
284,490 | 3.61 | 54 | 31,209 | 245,310 | 35,571 | ||||||
| 2001 |
287,520 | 3.76 | 65 | 32,773 | 330,217 | 38,068 | ||||||
| 2002 |
268,451 | 4.26 | 71 | 35,634 | 370,406 | 41,124 | ||||||
| 2003 |
276,481 | 4.29 | 82 | 36,438 | 464,947 | 42,692 | ||||||
| 2004 |
272,734 | 4.47 | 83 | 36,935 | 458,681 | 44,377 | ||||||
| 2005 |
282,392 | 3.92 | 65 | 32,814 | 349,071 | 38,543 | ||||||
| 2006 |
278,914 | 2.82 | 52 | 22,004 | 235,806 | 26,529 | ||||||
| 2007 |
252,400 | 3.34 | 49 | 25,232 | 224,714 | 29,606 | ||||||
| 2008 |
266,600 | 2.50 | 33 | 18,733 | 159,877 | 21,367 | ||||||
| 2009 |
272,856 | 2.43 | 33 | 19,171 | 167,827 | 21,696 | ||||||
| 2010 |
275,290 | 2.03 | 30 | 15,492 | 163,489 | 18,156 | ||||||
| 2011 |
296,845 | 2.14 | 39 | 17,694 | 267,237 | 23,736 | ||||||
| 2012 |
309,796 | 2.09 | 25 | 16,197 | 160,678 | 19,213 | ||||||
| 2013 |
306,941 | 2.66 | 24 | 22,247 | 129,861 | 24,425 | ||||||
| 2014 |
311,210 | 2.35 | 22 | 20,062 | 112,010 | 21,755 | ||||||
| 2015 |
309,565 | 2.09 | 20 | 17,903 | 104,767 | 19,319 | ||||||
| 2016 |
286,278 | 1.94 | 16 | 14,606 | 68,463 | 15,547 | ||||||
| 2017 |
259,709 | 1.69 | 13 | 11,563 | 54,287 | 12,246 | ||||||
| April 30, 2018 |
269,611 | 1.62 | 21 | 11,884 | 102,061 | 13,189 | ||||||
| April 30, 2019 |
314,347 | 1.62 | 39 | 13,651 | 224,544 | 16,393 | ||||||
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| TOTALS |
6,865,681 | 2.86 | 42 | 574,081 | 5,414,544 | 659,978 | ||||||
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Mineralization
Mineralization occurs in Upper Cretaceous black limestone and calcareous shales of the Soyatal- Mezcala Formation as electrum, and silver selenide minerals principally associated with quartz and to a lesser degree with calcite. The deposit is an epithermal, low sulphidation precious metal (Au-Ag) type (metal ratio Ag:Au at 10:1).
Mineralization is generally made up of breccia that commonly is concordant with a limestone/shale contact (in the San Martin and San José areas) which forms the relatively steeply dipping “Tronco” and “Mantos” oreshoots, these veins contact the younger volcanic flows (dacite and ignimbrite) where they have formed the more horizontal portions of the deposit. The mineralized economic breccia grades from 30 g Ag/t to 250 g Ag/t. Exploration has been concentrated along the NE trending breccia zone however evidence of a northerly trend in area 30 and 31 leads to suspect possible other structures together with 2.0 g Au/t to 30 g Au/t over widths that vary from 1.5 to 17.0 m but average 4.0 m.
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The mineralized oreshoots show several stages of brecciation and cementation, with four major stages of hydrothermal breccias and supergene alteration that filled fractures and late cavities. The metallic mineralization is mainly formed by electrum, naumannite, tetrahedrite, pyrite and chalcopyrite as hypogene minerals, and free gold, partzite, chlorargyrite, malachite, hematite, goethite-limonite as supergene minerals. Gangue minerals are mainly quartz, chalcedony and calcite, with minor amounts of adularia. Quartz and calcite occur in all the four stages cementing the breccia fragments of rock and older vein. Chalcedony, quartz and calcite associated with the economic mineralization usually show sacharoide, crustiform, coloform, cockade and comb textures. Stage one is totally barren of silver and gold. The main Ag-Au mineralization occurred in the second stage of brecciation, associated to coloform and chalcedony quartz. Stage three is carrying low grade and is abundant. The late stage of mineralization is characterized by native gold content, chlorargyrite and abundant partzite, as a result of the supergene alteration. Mineralization occurs as native gold, electrum, naumannite (AgSe) and argentojarosite (AgFe3(SO4)2(OH)6) associated principally with quartz and lesser calcite. The silver contained in argentojarosite is not recoverable with cyanidation.
Mining Operations
Mine production operations are in two distinct underground zones and one under one small open pit operation. Current mining is from zones, which are contiguous to, or nearby, earlier mined out areas.
The two underground zones are known as San José II and San Martín, while the open pit is the near surface remnants is now a closed operation. Production operations have been underway at the San Martin mine since May 1994. On top of the big breccia-vein the structure becomes a manto-like. Here the Cuerpo 28 and Cuerpo 29 orebodies have been exploited partially since 1998. A set of faults crosscut the structure and thrown down the continuous oreshoot and split it into several segments where Cuerpo 30 and Cuerpo 31 have been found.
The orebody geometry and geotechnical attributes of the ore and host rocks, in both underground zones, resulted in the selection of mechanized, trackless, room and pillar stoping, with post waste rock backfill and a poor mix of waste and cement, as the most suitable mining method for ore extraction. Ore recovered from these operations is hauled to surface by truck to the mill infrastructure, where it is crushed and milled.
The operations that were visited, by Mr. Enriquez, were dry, well-ventilated, very tidy and appeared to be run in an orderly manner. The development headings are well supported with regular patterned roof bolting, through mesh and shotcrete, as a standard throughout the mine.
Initial mining experience in the Cuerpo 28 zone indicated that dilution from waste wall rock and waste is greater than predicted in previous reports. Starcore has introduced measures to reduce the dilution and also to increase ore recovery.
Dilution has been controlled with cemented waste rock as the fill medium. The experience with dilution from this waste rock backfill is not affecting the cost per ounce produced from treating lower grade ore, suggests that this backfill system, involving some combination of rock and cement, may have been more economic and safe.
In addition to overall cost reduction programs, including trials of bulk emulsion explosives, Starcore management is implementing mine design modifications to reduce the ratio of waste development to ore tonnes and consequently the reduction in mining costs
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Current Reserves and Resources
The mineral resource estimation for the San Martin Mine was completed in accordance to the guidelines of Canadian National Instrument 43-101 (“NI 43-101”). The modeling and estimation of the mineral resources were completed in April 30, 2018 under the supervision of Erme Enriquez, qualified person with respect to mineral resource estimations under NI 43-101.
The effective date of the resource estimate is April 30, 2018. Mr. Enriquez is independent of Starcore by the definitions and criteria set forth in NI 43-101; there is no affiliation between Mr. Enriquez and Starcore except that of independent consultant/client relationships.
The San Martin resources are classified in order of increasing geological and quantitative confidence in Proven and Probable, Inferred and Indicated categories in accordance with the “CIM Definition Standards – For Mineral Resources and Mineral Reserves” (2014) and therefore NI 43-101, as is the Inferred Resources category.
In the years prior to mining by CMPB reserve and resource estimates were based on the assumptions and subject to rules defined by Luismin many years ago. In recent years, with the involvement of various professionals, it was recognized that mining methodology was changing due to factors such as:
| ☐ | a greater percentage of production coming from narrow to wide steeply dipping vein structures. |
| ☐ | Sub-horizontal Mantos mineralized structures that were somewhat narrower than historical Mantos. |
| ☐ | Reopening and scavenging of the footwall mineralization in old stopes where lower grade mineralization was not mined during times of lower gold prices. |
Based on the above mining changes and incorporating mining experience over the last 7 years some of the original Luismin assumptions have been modified to improve tonnage and grade estimation for reserves. The assumptions used in this estimate are:
| ☐ | A gold price of $1300 per ounce. |
| ☐ | A silver price of $16.00 per ounce. |
| ☐ | First quarter 2018 operating costs of US$69.41 per metric dry tonne. |
| ☐ | Average metallurgical recoveries of 88% for gold and 55% for silver. |
| ☐ | Using the above price and cost assumptions the resultant calculated cutoff grade is approximately 1.66 g/t Au equivalent. |
| ☐ | Specific gravity of 2.6 g/cm3 has been applied to all calculated mineralized volumes. |
| ☐ | Mining dilution is applied to in situ mineralized zones, and recovery factors are applied to these diluted blocks using the following factors: |
| ☐ | Mining dilution of 20% of zero grade in horizontal mineralized zones (Mantos) mined by room and pillar. |
| ☐ | Mining dilution of 20% of zero grade in steeply dipping mineralized zones mined by cut and fill. This dilution factor is modified by first applying a minimum 2-meter mining width to narrow zones. |
| ☐ | Remnant pillars left in room and pillar stopes are typically 20% of the total tonnage, i.e. 80% extraction. This recovery factor has been applied to sub-horizontal mineralized zones. |
In addition to these factors reserve grades are lowered to reflect mined grades in ore blocks that have sufficient historical production to establish that mined grades are lower than estimated from exploration data. The reserves and resources estimated in this report are based on data available up until April 30, 2018.
The mineral resources reported herein are classified as Measured, Indicated and Inferred according to CIM Definition Standards.
Total Inferred Mineral Resources at the San Martin mine, estimated by Starcore, are about 1,495,812 tonnes at a grade of 1.94 g Au/t and 25 g Ag/t. Inferred and Indicated Mineral Resources are not known to the same degree of certainty as Mineral Reserves and do not have demonstrated economic viability.
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Mineral Resources Inferred and Indicated, San Martín Mine
Compañía Minera Peña de Bernal, SA de CV Mineral Resource Estimate
(as of April 30, 2018)
| Mine |
Tonnes | Grade | Total Contained oz | |||||||||||||||||||||
| (Au g/t) | (Ag g/t) | (oz Au) | (oz Ag) | (oz Au Eq) | ||||||||||||||||||||
| San Jose II |
| |||||||||||||||||||||||
| Inferred |
178,871 | 1.73 | 10 | 9,935 | 57,578 | 9,579 | ||||||||||||||||||
| San Martin |
| |||||||||||||||||||||||
| Inferred |
454,288 | 1.82 | 11 | 26,563 | 153,528 | 25,607 | ||||||||||||||||||
| Inferred |
410,400 | 1.76 | 16 | 23,289 | 206,350 | 23,245 | ||||||||||||||||||
| Retaques SM |
| |||||||||||||||||||||||
| Inferred |
20,209 | 1.80 | 13 | 1,170 | 8,447 | 1,146 | ||||||||||||||||||
| Cuerpo 28 |
| |||||||||||||||||||||||
| Inferred |
182,684 | 2.44 | 88 | 20,666 | 513,925 | 26,991 | ||||||||||||||||||
| 4-700 |
| |||||||||||||||||||||||
| Inferred |
92,918 | 1.77 | 36 | 5,295 | 108,115 | 5,963 | ||||||||||||||||||
| Total Inferred |
1,339,370 | 1.87 | 24 | 86,917 | 1,047,943 | 99,814 | ||||||||||||||||||
| San Martín |
| |||||||||||||||||||||||
| Indicated |
156,442 | 2.56 | 27 | 12,883 | 136,711 | 13,109 | ||||||||||||||||||
| Total Indicated |
156,442 | 2.56 | 27 | 12,883 | 136,711 | 13,109 | ||||||||||||||||||
| ☐ | Resources are valid as of April 30, 2018 defined by end of month April 2018 topography. |
| ☐ | Measured, Indicated and Inferred resource cut-off grades were 1.66 g/t gold equivalent at San Martín. |
| ☐ | Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resources estimated will be converted into mineral reserves. |
| ☐ | Metallurgical recoveries were 88% gold and 55% silver. |
| ☐ | Gold equivalents are based on a 1:81 gold: silver ratio. Au Eq= gAu/t + (gAg/t ÷ 81) |
| ☐ | Price assumptions are $1300 per ounce for gold and $16.00 per ounce for silver for resource cutoff calculations. |
| ☐ | Mineral resources are estimated exclusive of and in addition to mineral reserves. |
| ☐ | Resources are constrained by a conceptual underground mining using parameters summarized in section. |
| ☐ | Resources were estimated by Starcore and reviewed by Erme Enriquez CPG. |
| ☐ | Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. |
The Total Proven and Probable Mineral Reserves at the San Martin mine as of April 30, 2018 estimated by Starcore and reviewed by Erme Enriquez are 1,651,318 tonnes at a grade of 2.11 g Au/t and 33 g Ag/t.
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Mineral Reserve Estimate Proven and Probable, San Martin Mine
Compañía Minera Peña de Bernal, SA de CV
Mineral Reserve San Martin Mine
(as of April 30, 2019)
| Category |
Tonnes | Grade | Total Contained oz | |||||||||||||||||||||
| (g Au/t) | (g Ag/t) | (oz Au) | (oz Ag) | (oz Au Eq) | ||||||||||||||||||||
| Proven |
117,302 | 2.57 | 60 | 9,692 | 226,281 | 12,477 | ||||||||||||||||||
| Probable |
1,219,669 | 1.96 | 24 | 76,858 | 941,118 | 88,441 | ||||||||||||||||||
| Total Proven and Probable |
1,336,971 | 2.11 | 33 | 86,550 | 1,167,398 | 100,918 | ||||||||||||||||||
| ☐ | Reserve cut-off grades are based on a 1.66 g/t gold equivalent. |
| ☐ | Metallurgical Recoveries were 88% gold and 55% silver. |
| ☐ | Mining Recoveries of 90% were applied. |
| ☐ | Minimum mining widths were 1.5 meters. |
| ☐ | Dilution factors is 20%. Dilution factors are calculated based on internal stope dilution calculations. |
| ☐ | Gold equivalents are based on a 1:81 gold:silver ratio. Au Eq= gAu/t + (gAg/t ÷ 81) |
| ☐ | Price assumptions are $1300 per ounce for gold and $16 per ounce for silver. |
| ☐ | Mineral resources are estimated exclusive of and in addition to mineral reserves. |
| ☐ | Resources were estimated by Starcore and reviewed by Erme Enriquez CPG. |
| ☐ | Dilution factor is 20%. Dilution factors are calculated based on historical internal stope dilution calculations. |
| ☐ | Reserves are exclusive of the indicated and measured resources. |
Local Resources & Infrastructure
At each of the mine sites, the water required is supplied from the dewatering of the mines. Industrial water for the cyanide plant is recycled, and additional water (60,000 m3/y of fresh water) is obtained from nearby wells. Electrical power from the Federal Electricity Commission (34 kV) supplies both the plant and mine, and satisfies power demand, which averages about 1.1 megawatts. Two emergency generators, one of 500 kW and other of 200 kW, provide power to the mill in case or outages. An upgrade to the tailings dam was completed in 2010, when dry stacking of the tailings began, and current capacity is sufficient for many years of production. Apart from offices, dining room, warehouses, shop and other facilities, Starcore also provides dormitories and limited housing facilities for employees working on a rotational schedule at the township of Ezequiel Montes and Bernal. Much of the labor work force lives in the San Martin town and nearby communities. The area has a rich tradition of mining and there is an ample supply of skilled personnel sufficient to man both the underground mining operations and the surface facilities.
Starcore has negotiated access and the right to use surface lands sufficient for many years of operation. Sufficient area exists at the property for all needed surface infrastructure related to the life-of-mine plan, including processing, maintenance, fuel storage, explosives storage and administrative offices. There exists sufficient capacity in existing tailing impoundments for tailings disposal.
Exploration
This section has been prepared by Salvador Garcia, P. Eng., COO of the Company, and a qualified person for the purposes of NI 43-101.
For the year ended April 30, 2019, the San Martin plant achieved 84.9% recovery of gold and 51.7% for silver from the 229,569 tonnes milled during the fiscal year (nine months). Head grades averaged 1.96 g/t gold and 18.4 g/t silver resulting in 13,215 equivalent gold ounces of production during the fiscal year. Equivalent gold ounce calculation is based on the actual daily average gold:silver ratio of 76.22 during the fiscal year (nine months). No surface exploration program was contracted during the nine-month period ended April 30, 2017; all exploration efforts were focussed within the mine.
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Between May 1, 2018 and April 30, 2019 a total of 7,163.95 meters were drilled using the two company owned diamond drills.
Highlights of exploration during the year included the development of the 2-062 stope in area 28 which produced roughly 35,000 tonnes of ore grading 2.5 grams per tonne gold. In addition the 3-069 stope was found in area 28 stope in area 28 which produced roughly 35,000 tonnes of ore grading 1.8 grams per tonne gold. Drilling has also succeeded in tracing mineralization down dip in the San Martin structure to level 11.
The Company continues to explore with development headings that convert resources to reserves. A new NI43-101 compliant reserve estimate was not prepared during the fiscal period.
Drilling
Diamond drilling at the San Martin Mine Project is conducted under two general modes of operation: one by the exploration staff (surface exploration drilling) and the other by the mine staff (production and underground exploration drilling). Production drilling is predominantly concerned with definition and extension of the known mineralized zones in order to guide development and mining. Exploration drilling is conducted further from the active mining area with the goal of expanding the resource base. Drilling results from both programs were not used in the mineral resource and mineral reserve estimates presented in this report. To date, all drilling completed at the mine has been diamond core.
Surface drillholes are generally oriented to intersect the veins as close to perpendicular as possible. The drillholes are typically drilled from the hanging wall, perpendicular to, and passing through the target structure into the footwall, and no drilling is designed for intercepts with angles less than about 30° to the target.
Underground drillholes are typically drilled from the hanging wall of the main structure, and are ideally drilled perpendicular to structures, but oblique intersection is required in some instances due to limitations of the drill station. All holes are designed to pass through the target and into the footwalls. Both surface and underground drillholes are typically HQ to NQ in size.
As the core is received at the core facility, geotechnical data is logged manually on paper sheets and entered to Excel.15,316 The core is then manually logged for geological data and marked for sampling. Geological data and sample information are entered directly into Excel spreadsheets.
Sample Preparation, Analysis & Security
The samples received in the laboratory are dried before entering the preparation process. A primary size reduction is made up to 1/8 inch. The sample is divided into smaller portions using a Jones crusher until a sample of 150 g is obtained, which is considered representative of the initial sample volume.
The sample is reduced in size in a ring sprayer to a size smaller than 150 meshes, then is homogenized and placed in an envelope previously labeled with the folio number given by the Department of Geology, including the date.
From the sample in the envelope, 20 g are taken and homogenized with the mixture of fluxes to be cast and obtain the lead button that has captured the gold and silver values. This button with values is placed in a cup to remove the lead and obtain a gold and silver button at the end of the process.
The button of gold is weighed, and a chemical attack is made to dissolve the silver, the residue is pure gold that is weighed and, in this way, obtain the gold and silver grades present in the mineral sample.
This analysis of gold and silver in mineral samples has a detection limit of 0.1 g/t Au and 3.0 g/t Ag.
CMPB’s internal QAQC includes adding one duplicate, one reference and one blank to every 20 samples. A sample of sterile (white) material is crushed before starting the size reduction process. The degree of reduction is verified by passing the total of the sample through the # 6 mesh; 80% of the sample must pass, otherwise the breaker opening is adjusted. This process is done in the first sample and then every 20 samples. Similarly, every 20 samples in the crusher will pass a sample of sterile material, in addition to cleaning the equipment with compressed air, including the Jones quartz that is used to divide the sample into small portions.
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Continuing with the reduction process, after passing the sample through the ring sprayer, it passes through the 150 mesh, through which 80% of the total weight must pass. To avoid contamination, compressed air is used to clean the equipment and every 20 samples a sterile material is sprayed.
The pulverized sample is taken to furnace in batches of 42 samples each. At the beginning of each batch a blank is placed, in the position number 21 a standard of known value is placed and in the position number 42 a duplicate of the sample corresponding to the position number 22 is placed.
The Assay Standard CDN-ME-1304 certified standard is from the CDN Resource Laboratories LTD laboratory, with a grade of 1.80 g/t Au and 34.0 g/t Ag. In the same way, an in-home made and validated standard is used on site, with a grade of 1.93 g/t Au and 40.5 g/t Ag.
When performing the gold and silver test and the relationship between these two elements is less than 4, it is considered to repeat the assay of the sample by adding silver nitrate (inaccurate) to increase the ratio and prevent the encapsulation of the silver.
The third-party laboratory that has been used is ALS Geochemistry, located in Guadalajara, Jalisco, of ALS Global.
In the past, personnel of Inspectorate laboratories in Vancouver has inspected the mine lab facilities and has provided procedures, flux recipes and feedback on all laboratory equipment. The mine has been awarded the Mexican Quality Award which is like International Standards ISO 9001 for quality control in the overall mining operations and with the award Certificate of Clean Industry by SEMARNAT.
Data Verification
Historically (since 1993 to 2003), the San Martin mine has been using a specific gravity of 2.7 to convert volume in cubic metres to metric tons (the tonnage factor). Under suggestion of Mr. Gunning and M. Whiting, the geological staff started to implement, a specific gravity testing procedure on diamond drill core.
Following an examination of drill core and wallrock conditions in stopes, the “Method of Archimedes” (dry mass in grams divided by water displacement in milliliters method) was chosen as a reasonable and time effective procedure. There is not a significant amount of void space, so the costlier and time-consuming methods of pre-coating drill core are not recommended.
A selection of drill core from the San Martin and Guadalupe veins was tested and a new specific gravity was recommended. The new SG is 2.55 g/cm3 was used prior 2014 Resource and Reserves. Subsequent testing more recently has shown values between 2.6 and 2.8. These new data have resulted in the use of 2.6 g/cm3 for estimates in 2014 and later.
Other Mineral Properties
In addition to our principal property, the San Martin Mine, we have several other mineral interests in exploration properties, as summarized below, which we do not consider to be material to our operations at this time. These include three molybdenum-copper exploration projects that we acquired through our acquisition of Creston Moly Corp. (“Creston Moly”) from Deloitte Restructuring Inc., in its capacity as trustee in bankruptcy of Mercator Minerals Ltd., in February 2015 for a purchase price of Cdn$2 million – namely, the El Creston Project in Mexico, the Ajax Project in British Columbia and the Molybrook Project in Newfoundland.
Creston Moly, a British Columbia company, was formerly a wholly-owned subsidiary of Mercator Minerals, who acquired Creston Moly in 2011 in a cash-and-shares deal valuing Creston Moly at approximately Cdn$194 million.
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Table of Contents
| • | El Creston Project, Sonora, Mexico |
The El Creston molybdenum property is located in the State of Sonora, Mexico, 175 kilometres south of the US Border and 145 kilometers northeast of the city of Hermosillo. Creston Moly’s indirect wholly-owned subsidiary, Exploraciones Global S.A. de C.V. (“Exploraciones Global”), is the registered holder of the El Creston property. Exploraciones Global purchased the claims comprising the El Creston property from the previous owners. The property is known to host several zones of porphyry-style molybdenum copper mineralization.
| El Creston Project, Sonora, Mexico | ||||||||||||||||||
| Tenure Number |
Claim Name |
Owner/ Interest |
Underlying |
Tenure Type/ Tenure Sub Type |
Area (ha) | Issue Date/ Present Expiry Date |
Required |
Property |
Ownership | |||||||||
| 219813 | Meztli | Exploraciones Global/ 100% |
3% NSR | Concession/ Mining |
89 | 16/04/2003 15/04//2053 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | 4,529 hectares 100% Owned acquired through purchase from local landowners and Ejido. 573 hectares leased for 30 years with exclusive option to purchase | Ejido and local landowners | |||||||||
| 220332 | Meztli 1 | Exploraciones Global/ 100% |
3% NSR | Concession/ Mining |
8 | 16/07/2003 15/07/2053 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| 222321 | Lorenia | Exploraciones Global/ 100% |
3% NSR | Concession/ Mining |
138 | 25/06/2004 24/06/2054 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| 222700 | Alma | Exploraciones Global/ 100% |
3% NSR | Concession/ Mining |
359 | 13/08/2004 12/08/2054 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| 223111 | Letty | Exploraciones Global/ 100% |
3% NSR | Concession/ Mining |
391.509 | 15/10/2004 14/10/2054/ |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| 225638 | Meztli 2 | Exploraciones Global/ 100% |
3% NSR | Concession/ Mining |
1455.98 | 30/09/2005 29/09/2055 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
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| El Creston Project, Sonora, Mexico | ||||||||||||||||||
| Tenure Number |
Claim Name |
Owner/ Interest |
Underlying |
Tenure Type/ Tenure Sub Type |
Area (ha) | Issue Date/ Present Expiry Date |
Required |
Property |
Ownership | |||||||||
| 229984 | Meztli 6 | Exploraciones Global/ 100% |
3% NSR |
Concession/ Mining |
0.0032 | 04/07/2007 03/07/2057 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| 230018 | Meztli 4 | Exploraciones Global/ 100% |
3% NSR |
Concession/ Mining |
8465.04 | 10/07/2007 09/07/2057 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| 231151 | Meztli 3 | Exploraciones Global/ 100% |
3% NSR |
Concession/ Mining |
457.056 | 18/01/2008 17/01/2058 |
Taxes to be paid semi-annually. Notice of Work form filed by May 30th | Part of above | As above | |||||||||
| • | Sierra Rosario: Sinaloa. |
Located within the historically productive Sierra Madre Occident geological province in the northern Mexican state of Sinaloa, the Sierra Rosario property consists of two large mineral exploration concessions totalling 978.57 hectares. On February 2018, the Company sold this property for US$100,000 and an additional 1% NSR.
| • | Ajax Project, British Columbia. |
The Ajax molybdenum property is comprised of 11,718 hectares and is located 13 km north of Alice Arm, British Columbia. The Ajax property, one of North America’s largest undeveloped molybdenum deposits occupying a surface area of approximately 600 by 650 metres, is in the advanced stage of exploration.
Creston Moly’s wholly-owned subsidiary, Tenajon Resources Corp. (“Tenajon Resources”), is the registered holder of the Ajax property. Tenajon Resources acquired all but one of the claims comprising the Ajax property through on line staking; the final claim, identified by tenure number 511540, was acquired by way of a claim conversion (that is, a procedure for converting manually-staked claims to computerized-staked claims).
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| Ajax Molybdenum Property, British Columbia, Canada | ||||||||||||||||||
| Tenure Number |
Claim Name |
Owner/ Interest |
Underlying Royalty |
Tenure Type/ Tenure Sub Type |
Area (ha) |
Issue Date/ Present Expiry Date |
Required Holding Expenses |
Property Surface Rights |
Ownership | |||||||||
| 501393 | mq2 | Tenajon Resources Corp./ 100% |
NONE | Claim/ Mineral Exploration |
402.28 | 12/01/2005 14/07/2021 |
No work required until 2021. No gov’t fees | None | Govern-ment | |||||||||
| 504775 | mq3 | Tenajon Resources Corp/ 100% |
NONE | Claim/ Mineral Exploration |
255.99 | 25/01/2005 27/07/2021 |
No work required until 2021. No gov’t fees | None | Govern-ment | |||||||||
| 504776 | mq3 | Tenajon Resources Corp/ 100% |
NONE | Claim/ Mineral Exploration |
292.7 | 25/01/2005 27/07/2021 |
No work required until 2021. No gov’t fees | None | Govern-ment | |||||||||
| 504782 | mq-5 | Tenajon Resources Corp/ 100% |
NONE | Claim/ Mineral Exploration |
146.22 | 25/01/2005 27/07/2021 |
No work required until 2021. No gov’t fees | None | Govern-ment | |||||||||
| 505618 | mq5 | Tenajon Resources Corp/ 100% |
NONE | Claim/ Mineral Exploration |
256.00 | 02/02/2005 04/07/2021 |
No work required until 2021. No gov’t fees | None | Govern-ment | |||||||||
| 511540 | Tenajon Resources Corp/ 100% |
NONE | Claim/ Mineral Exploration |
365.67 | 22/04/2005 09/06/2021 |
No work required until 2021. No gov’t fees | None | Govern-ment | ||||||||||
| Total | 1718.86 | |||||||||||||||||
| • | Molybrook Project, Newfoundland. |
Creston’s Molybrook molybdenum property located on the south coast of Newfoundland is centred 2.5 km from the outport of Grey River less than 4 kilometres from a deep water, ice free navigable fjord. During the year ended April 30, 2019, the Company decided to abandon the property and all costs associated with this property have been written off in the Consolidated Statements of Operations and Comprehensive Income.
| • | American Consolidated Minerals Corp. |
On November 20, 2014, the Company announced the approval of the proposed acquisition of American Consolidated Minerals Corp (“AJC”) pursuant to a plan of arrangement (the “Transaction”) by the AJC shareholders. The Transaction was completed on December 1, 2014 upon the satisfaction of all of the conditions set out in the arrangement agreement entered into by AJC and the Company on October 1, 2014, including approval by the Supreme Court of British Columbia.
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| • | Toiyabe Property, Nevada, USA |
Pursuant to the acquisition of AJC, the Company acquired the right to a 100% undivided interest, subject to a 3% NSR, in 165 mining claims located in Lander County, Nevada, United States of America (“Toiyabe”) from MinQuest.
Consideration to be paid for the interest is USD$900,000 (payable over 5 years commencing October 19, 2018) and the Company must incur total exploration expenditures of USD$1,025,000 on the property (which expenses have been incurred) as agreed by MinQuest. Annual payments commencing October 19, 2018 are $60,000 (paid), $80,000, $100,000, $120,000, $140,000 and $400,000
The optionor has also granted the Company the right to purchase up to one-half of the NSR (or 1.5%) on the basis of US$2 million per each 1% of the royalty.
During the period ending October 31, 2016, the Company completed Phase 1 drilling on the Toiyabe property, the results of which were reported in the prior year’s Annual Report filing.
On May 22, 2018 Starcore filed an updated National Instrument (“NI 43-101”) “Technical Report for the Toiyabe Gold Project in Lander County, Nevada”, prepared by Paul D. Noland CPG dated May 11, 2018.
Highlights from the Technical Report include:
| • | Summary results from three drilling programs completed since the last report (2009, 2010, 2016) |
| • | In all three drilling campaigns since the 2009 report and resource estimate, the near-surface ‘Courtney’ resource was expanded and enhanced. |
| • | Drilling since the previous report has focused largely on structurally controlled, deeper and higher-grade mineralization not included in the 2009 resource estimate. |
| • | Wider spread drilling, outside known resource areas has allowed a better understanding of the structural setting of the project. |
| • | Lone Ranch: Washington State, USA |
The Company acquired the right to a 100% undivided interest, subject to a 3% net smelter royalty (“NSR”), in 73 mining claims located in Ferry County, Washington State, United States of America (“Lone Ranch”) from MinQuest Inc. (“MinQuest”). During the period ending October 31, 2018, the Company decided to abandon the property and all costs associated with this property have been written off in the Consolidated Statements of Operations and Comprehensive Income.
There is no assurance that a commercially viable mineral deposit exists on any of our exploration properties, or that we will be able to identify any mineral resource on any of these properties that can be developed profitably. Even if we do discover commercially exploitable levels of mineral resources on any of our properties, which is unlikely, there can be no assurance that we will be able to enter into commercial production of our mineral properties.
Processing Plant
The Altiplano gold and silver processing plant (the “Altiplano Plant”) is constructed on land with an area of 75 hectares located in Matehuala, Mexico. Both the land and the Altiplano Plant are owned by Altiplano Goldsilver S.A. de C.V., a wholly-owned subsidiary of Cortez Gold Corp., which is a wholly-owned subsidiary of the Company.
The Plant was designed to offer processing for precious metals at 25 tons per day with the to expand to 50 tons per day if extra leaching tanks were installed.
Commercial production began on November 1, 2016. During the period ended October 31, 2018, management announced that it had determined that the capital requirements of the Altiplano facility for inventory and operations, despite improving cash flow to a small profit in the prior quarter, did not justify the continuation of these operations.
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The operations were placed on a maintenance status in the quarter and remaining inventories were processed and sold accordingly. After assessing the best use of the assets of Altiplano, management decided to put up the facility for sale and is currently finalizing a purchase offer.
San Pedrito Property Sale
On March 21, 2017, the Company finalized the sale of its San Pedrito Property, a non-core asset located in Queretaro, Mexico for Mexican Pesos (“MXN$”) 192,784,331. The San Pedrito property was part of Starcore’s original acquisition in 2007, when the Company acquired the San Martin Mine from Goldcorp for US$26 million. The disposition of San Pedrito was recorded during the prior year ended April 30, 2017 and a gain of $7,128 was reported on the Statement of Operations and Comprehensive Income (Loss). At April 30, 2017, the Company had recorded an allowance for MXN$10.0 million for amounts that management deemed uncertain for collectability.
During the year ending April 30, 2018, the Company received MXN$ 12,500,000 and interest of MXN$ 1,270,833 on 5 ha of the remaining parcels to be received. During the current year ending April 30, 2019 the Company received MXN$ 15,000,000 and interest of MXN$ 2,300,000 on 6 ha of the remaining 14 ha of parcels to be paid. The Company does not anticipate receiving any additional funds from the sale of this property and therefore has made an allowance for the remaining receivable of $441 to the Statements of Operations and Comprehensive Income (Loss).
Item 5 Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations for the fiscal period ended April 30, 2019 should be read in conjunction with our financial statements and related notes included in this Annual Report. Our financial statements included in this Annual Report were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
| A. | Operating Results |
Our results of operations have been, and may continue to be, affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of prices and interest rates, currency values, commodities prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Factors of a local nature, including political, social, financial and economic stability, the availability of capital, technology, workers, engineers and management, geology and weather conditions, may also affect our results of operations. As a result of the economic and competitive factors discussed above, our results of operations may vary significantly from period to period. Except where otherwise noted, financial results are rounded to the nearest $1,000 and are expressed in Canadian currency.
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Year Ended April 30, 2019, April 30, 2018 and April 30, 2017.
(in thousands of audited)
| Twelve-Month Year Ended April 30, 2019 |
Twelve-Month Year Ended April 30, 2018 |
Twelve-Month Year Ended April 30, 2017 |
||||||||||
| Revenues |
||||||||||||
| Mined ore |
27,053 | 21,005 | $ | 24,642 | ||||||||
| Purchased concentrate |
5,742 | 6,802 | 2,586 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total revenue |
32,795 | 27,807 | 27,228 | |||||||||
| Cost of sales |
||||||||||||
| Mined ore |
(22,975 | ) | (20,672 | ) | (18,641 | ) | ||||||
| Purchased concentrate |
(5,891 | ) | (7,150 | ) | (2,151 | ) | ||||||
| Depreciation and depletion |
(3,893 | ) | (4,913 | ) | (5,610 | ) | ||||||
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| Total cost of sales |
(32,759 | ) | (32,735 | ) | (26,402 | ) | ||||||
| Earnings from mining operations |
36 | (4,928 | ) | 826 | ||||||||
| Financing income(costs) |
(311 | ) | (61 | ) | (626 | ) | ||||||
| Foreign exchange gain (loss) |
(125 | ) | 193 | 1,283 | ||||||||
| Professional and consulting fees |
(781 | ) | (1,204 | ) | (731 | ) | ||||||
| Management fees and salaries |
(1,405 | ) | (1,514 | ) | (1,642 | ) | ||||||
| Office and administration |
(1,250 | ) | (1,908 | ) | (1,368 | ) | ||||||
| Property investigation costs |
(54 | ) | (433 | ) | — | |||||||
| Shareholder relations |
(246 | ) | (198 | ) | (291 | ) | ||||||
| Regulatory and transfer agent fees |
(112 | ) | (166 | ) | (218 | ) | ||||||
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| Loss before taxes |
(4,248 | ) | (10,219 | ) | (2,767 | ) | ||||||
| Allowance for receivables |
(441 | ) | — | — | ||||||||
| Other Income: Sale of San Pedrito |
— | — | 7,128 | |||||||||
| Other Loss: Impairment of Mining Interest, Plant and Equipment |
(4,804 | ) | (6,713 | ) | — | |||||||
| Other Loss: Loss on disposal of E&E Asset |
(82 | ) | (1,013 | ) | — | |||||||
| Income tax recovery (provision) |
(2,229 | ) | 5,945 | 2,861 | ||||||||
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| Earnings for the year |
(11,804 | ) | (12,000 | ) | 7,222 | |||||||
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Comparison April 30, 2019 to April 30, 2018
Overall, total revenue from mining operations milled ore increased by $4,988 for the year ended April 30, 2019. Mined ore increased by $6,048 when compared to the comparative year ended April 30, 2018, due mainly to higher metal production from higher ore grades and higher tonnage processed in the current year. Purchased concentrate revenue however decreased $1,060 due to the decreased operations experienced at the Altiplano concentrate processing plant as well as decreased carbon concentrate processed at the San Martin mine.
Sales of metals for mining operations for the twelve months ended April 30, 2019 approximated 13,852 ounces of gold and 229,982 ounces of silver sold at average prices in the period of US$1,280 and US$14.89 per ounce, respectively. This is an increase in sale ounces from the comparative period ended April 30, 2018 where sales of metal approximated 11,782 ounces of gold and 101,377.90 ounces of silver, sold at higher average prices of US$1,293 and US$16.76 per ounce, respectively.
The total cost of sales above includes non-cash expenses for depreciation and depletion of $3,893 compared to $4,913 in the comparable year, which is calculated based on the units of production from the mine over the expected mine production as a denominator. This calculation is based solely on the San Martin mine proven and probable reserves and a percentage of inferred resources in accordance with the Company’s policy of recognizing the value of expected Resources which will be converted to Proven and Probable Reserves, as assessed by management.
For the year ending April 30, 2019, the Company produced a profit of $36 in from mine operations compared to loss of $4,928 for the year ended April 30, 2018. The profit resulted from an increase in the sale of metal ounces when compared to the prior year.
Costs per ounce for the year ended April 30, 2019 was US$1,061/EqOz, which is lower than the average operating cash cost of US$1,237/EqOz. during the comparable year ended April 30, 2018. Reported mined ore costs were at $22,975 compared to $20,672 in the previous year ended April 30, 2018 due to higher tonnes processed in the current year. Mined ore costs also increased in the current year due mainly to much higher development costs incurred to increase future ore reserves, coupled with increased input costs such as fuel, electricity, chemicals and labour.
The Company also processed purchased concentrate at the Altiplano plant in the twelve months ended April 30, 2019 for revenue of $5,742 and cost of purchasing concentrate of $5,891, for a net loss of $149. The net loss is due mainly to the fixed cost of the facility in light of the facility not achieving a break-even level of production from purchase and processing of concentrates and other materials. During the year ended April 30, 2019, management determined that the capital requirements of the Altiplano facility for inventory and operations, despite improving cash flow, did not justify the continuation of these operations until the Company had sufficient excess working capital to support the operations of Altiplano. The Plant suspended operations in the second quarter of the 2019 fiscal year.
Other Items
Changes in other items for the year ended April 30, 2019 from the year ended April 30, 2018 are as follows:
| • | Financing costs during the year increased by $250 due to the Company incurring interest on debt of $325. These costs were offset by interest income earned from the sale of San Pedrito property in the current year; |
| • | Office and administration decreased by $658 due to lower corporate costs relating to general regulatory administration in the current year. |
| • | Management fees and salaries decreased by $109 primarily due to a decrease in directors and management fees; |
| • | Foreign exchange loss increased by $318 for the year ended April 30, 2019. The increase in the loss relates primarily to the fluctuations of the Mexican peso and Canadian dollar in relation to the US dollar, the functional currency of the mining operations; |
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| • | Professional and consulting fees decreased by $423 to $781 primarily due to additional costs relating to the San Pedrito sale in the prior year. Professional fees relate primarily to charges in relations to legal, tax and audit fees; |
| • | Property investigation costs of $54 were incurred during the year compared to $433 in the prior year, to perform the necessary due diligence on new projects; |
| • | Loss on disposal of Exploration and Evaluation Asset of $82 due to the disposition of Lone Ranch in AJC. In the previous year $1,013 resulted directly due to the sale of the Sierra Rosario asset to a third party. |
| • | Deferred Income Tax (“DIT”) expense increased by $8,174 due to the Company previously recognizing non-capital loss carry forwards in future periods which were adjusted lower in the current year. |
| • | Impairment of Mining Interest, Plant and equipment $4,804 was incurred in the current year on the Altiplano facility which operations were suspended, as discussed above. In the prior year impairment on CIL Plant led to an adjustment of $1,713 after management determined that the plant is no longer useful in the operations. An additional $5,000 impairment was recorded on the San Martin mine after management determined that future cash flow projects were negatively impacted due to changes in variables such as the amount of recoverable reserves, resources, and exploration potential, production cost estimates, discount rates and exchange rates. |
Comparison April 30, 2018 to April 30, 2017
Overall, revenue from mining operations milled ore decreased by $3,637 for the year ended April 30, 2018 compared to the comparative year ended April 30, 2017, due mainly to lower metal production from lower ore grades and lower tonnage processed in the current year compared to the prior year, offset partially by higher gold prices and slightly lower silver prices. Total revenue was $579 higher due to the increase of $4,216 in purchased concentrate revenue from the full year of increased operations experienced at the Altiplano concentrate processing plant as well as additional carbon concentrate processed at the San Martin mine.
Sales of metals for mining operations for the twelve months ended April 30, 2018 approximated 11,782 ounces of gold and 101,377.90 ounces of silver sold at average prices in the period of US$1,293 and US$16.76 per ounce, respectively. This is a decrease in sale ounces from the comparative period ended April 30, 2017 where sales of metal approximated 14,791 ounces of gold and 80,421 ounces of silver, sold at lower average prices of US$1,264 and US$18.04 per ounce, respectively.
The total cost of sales above includes non-cash expenses for depreciation and depletion of $4,913 compared to $5,610 in the comparable year, which is calculated based on the units of production from the mine over the expected mine production as a denominator. This calculation is based solely on the San Martin mine proven and probable reserves and a percentage of inferred resources in accordance with the Company’s policy of recognizing the value of expected Resources which will be converted to Proven and Probable Reserves, as assessed by management.
For the year ending April 30, 2018, the Company produced a loss of $4,928 in from mine operations compared to income of $826 for the year ended April 30, 2017. The loss resulted from a decrease in the sale of metal ounces when compared to the prior year. The combination of lower grades and tonnes processed for gold and silver during this year resulted in lower metal production and, therefore, revenue from mined ore as compared to the prior year.
Costs per ounce for the year ended April 30, 2018 was US$1,237/EqOz. which is higher than the average operating cash cost of US$969/EqOz. during the comparable year ended April 30, 2017. This resulted in comparable reported mined ore costs at $20,672 compared to $18,641 in the previous year ended April 30, 2017 despite the higher tonnes processed in the prior year. Mined ore costs increased in the current year due mainly to much higher development costs incurred to increase future ore reserves, coupled with increased input costs such as fuel, electricity, chemicals and labour.
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The Company also processed purchased concentrate at the Altiplano plant and at the San Martin plant in the twelve months ended April 30, 2018 for revenue of $6,802 and cost of purchasing concentrate of $7,150, for a net loss of $348. The net loss is due mainly to the fixed cost of the facility in light of the facility not achieving a break-even level of production from purchase and processing of concentrates and other materials.
Other Items
Changes in other items for the twelve months year ended April 30, 2018, resulted in the following significant changes from the twelve months year ended April 30, 2017:
| • | Financing costs during the year decreased by $565 due to the Company not incurring interest on debt which was repaid in the prior year ended April 30, 2017 further offset by the interest income earned from the sale of San Pedrito property; |
| • | Office and administration increased by $540 due higher corporate costs relating to general regulatory administration in the current year. |
| • | Management fees and salaries decreased by $128 primarily due to the resignation of the prior COO and the period of time the Company acted before replacing the COO position; |
| • | Foreign exchange gain decreased by $1,090 for the year ended April 30, 2018. The decrease relates primarily to the fluctuations of the Mexican peso and Canadian dollar in relation to the US dollar, the functional currency of the mining operations; |
| • | Professional and consulting fees increased by $473 to $1,204 primarily due to additional costs relating to the San Pedrito sale. Professional fees relate primarily to charges in relation to legal, tax and audit fees; |
| • | Property investigation costs of $433 were incurred during the year to perform the necessary due diligence on new projects, including primarily the Santa Fe Project. |
| • | Loss on disposal of Exploration and Evaluation Asset of $1,013 resulted directly due to the sale of the Sierra Rosario asset to a third party. |
| • | Deferred Income Tax (“DIT”) Recovery increased by $3,084 due to the Company recognizing its ability to use additional, previously unrecognized, non-capital loss carry forwards in the current and future periods and to the reversal of DIT liability related to the impairment of assets. |
| • | Impairment on CIL Plant led to an adjustment of $1,713 after management determined that the plant is no longer useful in the operations. While this plant has a value as a functioning carbon leach plant and has operated to process third party carbon concentrates, the Company cannot guarantee its usefulness in the future or the ability to attract third party carbon concentrates for processing. An additional $5,000 impairment was recorded on the San Martin mine after management determined that future cash flow projects were negatively impacted due to changes in variables such as the amount of recoverable reserves, resources, and exploration potential, production cost estimates, discount rates and exchange rates. The key assumptions used for assessing the recoverable amount are gold price of USD $1,300/oz and a discount rate of 9%. |
Comparison April 30, 2017 to April 30, 2016
Overall, revenue from milled ore decreased by $0.3 million compared to the equivalent 12 month prior period due mainly to lower metal production and lower gold and silver recovery in the current period compared to prior year. Mined ore costs decreased in the current period due to lower tonnage processed and lower overall mine development costs and costs of labour and supplies, including chemicals and electricity. As a percentage of mined ore revenue, earnings from mining operations decreased to 3% of mined ore revenue compared to 10% in the comparative period.
Sales of metals for the year ended April 30, 2017 approximated 14,791 ounces of gold and 80,421 ounces of silver sold at average prices in the period of US$1,264 and US$18.04 per ounce, respectively. This is a decrease in sale ounces from the comparative period ended April 30, 2016 where sales of metal approximated 16,720 ounces of gold and 100,293 ounces of silver, sold at lower average prices of US$1,147 and US$15.11 per ounce, respectively.
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The total cost of sales above includes non-cash expenses for depreciation and depletion of $5,610, compared to $6,075 in the comparable 12 month period, which is calculated based on the units of production from the mine over the expected mine production as a denominator. This calculation is based solely on the San Martin mine proven and probable reserves and a percentage of inferred resources in accordance with the Company’s policy of recognizing the value of expected Resources which will be converted to Proven and Probable Reserves, as assessed by management.
For the period ending April 30, 2017, the Company produced $826 in earnings from mine operations compared to $2,667 for the comparable 12 month period ended April 30, 2016. The change resulted partially due to a decrease in the sale of metal ounces when compared to the prior period despite a higher average price for the commodity. The combination of slightly lower recoveries for gold and silver also resulted in lower revenue as compared to the prior period.
Costs per ounce for the period ended April 30, 2017 were US$969/EqOz. which are higher than the average operating cash cost of US$847/EqOz. during the period ended April 30, 2016. This resulted in higher reported mined ore costs at $18,641 compared to $18,772 in the previous comparable 12 month period ended April 30, 2016. Included in mined ore costs in the current period is depletion of $5,610 compared to $6,075 for the comparable 12 month period ended April 30, 2016 and the cost of purchasing concentrate of $2,151.
Other Items
Changes in other items for the year ended April 30, 2017, resulted in the following significant changes from the twelve month period ended April 30, 2016:
| • | Financing costs during the period increased by $27 due to the debt extension charges of $45 which were incurred during the year.; |
| • | Office and administration decreased by $210 due to higher corporate costs relating to acquisition of its subsidiaries, general regulatory administration and office related costs in the prior year. |
| • | Management fees and salaries increased by $358 primarily due to the costs related to share based compensation that were granted during the year; |
| • | Foreign exchange increased by $734 for the period ended April 30, 2017. The increase relates primarily due to the weakening of the Mexican peso and Canadian dollar and strengthening of the US dollar, the functional currency of the mining operations in the prior comparable period; |
| • | Professional and consulting fees decreased by $690 to $731 due to higher fees charged in relation to legal, tax and audit fees in the prior comparative period; |
| • | Regulatory and transfer agent fees decreased by $84 due to costs relating to registration on the United States markets that were incurred in the prior year; |
| • | Deferred Income Tax Recovery increased by $84 due to the Company recognizing its ability to use its non-capital loss carry forwards in the current and future years. |
| • | Sale of San Pedrito during the year resulted in a gain of $7,128. This is a transaction that was not in the normal course of business. |
B. Liquidity and Capital Resources
Liquidity risk arises from the excess of financial obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements. The Company accomplishes this by achieving profitable operations and maintaining sufficient cash reserves. As at April 30, 2019, the Company was holding cash of $2,549,000 (2018 - $2,321,000).
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| Obligations due within twelve months of the year ended, |
2019 | 2020 | 2021 and beyond | |||||||||
| Trade and other payables |
3,399 | — | — | |||||||||
| Current portion of loan payable |
1,507 | — | — | |||||||||
| Non- current portion of loan payable |
— | 3,081 | ||||||||||
| Reclamation and closure obligations |
— | — | 1,254 | |||||||||
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The Company’s trade and other payables are due in the short term. Long-term obligations include the Company’s reclamation and closure cost obligations, other long-term liabilities and deferred income taxes. Management believes that profits generated from the mine will be sufficient to meet its financial obligations and therefore has sufficient working capital.
The Company has several sources of cash flow which includes raising cash through debt, issuance of shares and from operating a profitable mine.
| 1. | On June 18, 2018, the Company completed a private placement of secured bonds in the aggregate principal amount of $3,000 (the “Bonds”) less structuring and finder’s fees of $60 cash and $171 attributed to finders warrants, totaling $231 (the “Discount”). The Bonds bear interest at 8% per annum, payable on maturity, and mature on June 18, 2020. The Bonds are secured by a charge over the Company’s and its subsidiaries assets. |
| 2. | During the year ended April 30, 2018 the Company secured an additional $1,283 (USD1,000) loan with a lender. The full principal plus accrued interest on the loan shall be repayable to the lender on October 25, 2019 and is secured against certain assets of the Company and bears interest at 8% per annum, compounded annually, with interest payable on October 25, 2019. Interest not paid when due shall be added to principal amount and shall bear interest from such due date at 8% interest. |
| 3. | The Company has no contractual commitments for capital expenditures and has disclosed all material commitments under Section F (“Tabular disclosure of contractual obligations”). The Company does have budgeted capital expenditures to be incurred in the normal operation of the San Martin Mine, the Altiplano facility and for exploration of properties, which are expected to approximate $2.4 million in fiscal 2020. |
C. Research and Development, Patents and Licenses, etc.
We do not currently, and did not previously, have research and development policies in place.
There have been no significant recent trends in production, sales and inventory, the state of the order book and costs and selling prices in our business since the end of the latest financial year, nor are there any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Although there are significant uncertainties in respect of market prices for minerals and, accordingly, the availability of equity financing for the purposes of mineral exploration and development, we do not believe that the fluctuations in market price are predictable. The price of minerals has fluctuated widely in recent years and wide fluctuations are expected to continue.
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E. Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resource that is material to investors. We have optioned its mineral properties from a private company controlled by an officer and director of our Company.
F. Tabular Disclosure of Contractual Obligations
| Obligations due within twelve months of the year ended, |
Total | Less than 1 year |
1-3 years | 3-5 years | More than 5 years |
|||||||||||||||
| (in thousands of Canadian dollars) |
||||||||||||||||||||
| Trade and other payables |
3,399 | 3,399 | — | — | — | |||||||||||||||
| Loan payable – current portion |
1,507 | — | 1,507 | — | — | |||||||||||||||
| Rehabilitation and closure cost provision |
1,254 | — | — | — | 1,254 | |||||||||||||||
| Loan payable – non current portion |
3,081 | — | 3,081 | — | — | |||||||||||||||
| Executive employment agreement obligation |
1,950 | 750 | 1,200 | — | — | |||||||||||||||
| Explorations and evaluation asset |
1,107 | 105 | 290 | 712 | — | |||||||||||||||
| Land lease obligation |
132 | 132 | — | — | — | |||||||||||||||
| Office lease obligation |
144 | 144 | — | — | — | |||||||||||||||
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Statements in Item 5.E and Item 5.F of this Annual Report on Form 20-F that are not statements of historical fact, constitute “forward-looking statements.” See “Forward-Looking Statements” on page 3 of this Annual Report. Our Company is relying on the safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in making such forward-looking statements.
Item 6 Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets forth the names, age, business experience and functions and areas of experience in our Company of each of our directors and officers:
| Name Office Held Age |
Area of Experience and Functions in Our Company | |
| Robert Eadie Chief Executive Officer and Director Age: 54 |
As our Chief Executive Officer, Mr. Eadie is responsible for strategic planning and operations, as well as managing our relations with our lawyers, regulatory authorities and investor community; as a director, Mr. Eadie participates in management oversight and helps to ensure compliance with our corporate governance policies and standards. Mr. Eadie was one of the founders of our Company. | |
| Gary Arca Chief Financial Officer and Director Age: 59 |
As Chief Financial Officer, Mr. Arca is responsible for the management and supervision of all of the financial aspects of our business; as a director, Mr. Arca participates in management oversight and as Chairman of the Corporate Governance committee, helps to design our corporate governance policies and standards and ensures compliance therewith. | |
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| Name Office Held Age |
Area of Experience and Functions in Our Company | |
| Salvador Garcia Chief Operations Officer and Director Age: 63 |
As our Chief Operating Officer, Mr. Garcia is responsible for our exploration, development and mining operations and for management of our Mexican operations; as a director, Mr. Garcia participates in management oversight and helps to ensure compliance with our corporate governance policies and standards. | |
| Cory Kent Director and Corporate Secretary Age: 50 |
As Corporate Secretary, Mr. Kent is responsible for ensuring that the board of directors has the proper advice and resources to fulfill their duties to shareholders. Mr. Kent’s duties include compliance with statutory and regulatory requirements. Mr. Kent is a member of the Compensation Committee. | |
| Jordan Estra Director Age: 72 |
As an independent director, Mr. Estra provides oversight to management to help ensure alignment with corporate strategies and compliance with our corporate governance policies and standards. Mr. Estra is a member of the Audit Committee and the Corporate Governance Committee. | |
| Ken Sumanik Director Age: 82 |
As an independent director, Mr. Sumanik provides oversight to management to help ensure alignment with corporate strategies and compliance with our corporate governance policies and standards. Mr. Sumanik is a member of the Audit Committee, the Compensation Committee and the Corporate Governance Committee. | |
| Federico Villaseñor Director Age: 67 |
As an independent director, Mr. Villaseñor provides oversight to management to help ensure alignment with corporate strategies and compliance with our corporate governance policies and standards. Mr. Villaseñor is a member of the Audit Committee and Chairman of the Compensation Committee. | |
| Tanya Lutzke Director Age: 50 |
As an independent director, Ms. Lutzke provides oversight for management to help ensure alignment with corporate strategies and compliance with our corporate governance policies and standards. Ms. Lutzke’s membership in the Board of Directors also confirms management’s compliance with gender diversity in its Board. | |
Robert Eadie – Chief Executive Officer and Director
Mr. Eadie has been our President & Chief Executive Officer, and a director of our Company since October 2003. Mr. Eadie is a self-employed business owner and has many years of experience in working with and helping build start-up companies. He began his career as a corporate investor and public relations consultant and went on to establish his own investor relations consulting business. He has since become an executive, officer or director of a number of junior public companies, primarily in the natural resource sector. In the past 20 years, Mr. Eadie has been actively involved in public resource companies raising over $100 million dollars for various exploration and development projects around the world.
Gary Arca – Chief Financial Officer and Director
Mr. Arca has been our Chief Financial Officer and a director of our Company since January 2006. Mr. Arca has over 37 years of financial management experience. He is a Chartered Professional Accountant (CPA) and has been a member of the Canadian Institute of Chartered Professional Accountants and British Columbia Institute of Chartered Professional Accountants since 1980. He was a partner with public accounting firms, Amisano Hanson from 2002 to 2005 and Driver Anderson from 1996 to 2001.
Mr. Arca has provided auditing, consulting, taxation, accounting and litigation support services to various clients. Mr. Arca has extensive experience dealing with public companies and start-ups both from the perspective of management and as a consultant, and has served as a director of various publicly traded resource companies.
Mr. Arca is Chair of the Corporate Governance Committee.
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Salvador Garcia – COO & Director
Mr. Garcia has been a Director of the Company since October 2017. With over 39 years of progressive experience in the mining industry in Mexico, Mr. Garcia joined Starcore International Mines in August 2017 as COO. His extensive experience encompasses mine development and production including open pit and underground operations.
Prior to Starcore, Mr. García was the Country Manager in Mexico for First Majestic Silver Corp, serving in that company since 2013. Previously, Mr. Garcia collaborated with Luismin (purchased by Goldcorp (TSX:G)(NYSE:GG) for a period of 25 years holding several positions from General Manager to Operations Director and later promoted to the senior management team of Goldcorp as Vice President for Mexico. During his tenure at Goldcorp, he was in charge of the operations at the Tayoltita and San Antonio mines and was involved in the development, construction and operation of the Los Filos, El Sauzal and Peñasquito mines.
Mr. García holds a B.Sc. degree in Mining Engineering from the Guanajuato University School of Mines in Mexico. In addition, Mr. García is the President of the Mining Cluster of Sonora State, member of the CAMIMEX (Mexican Mining Chamber) Advisor Board, Member of the Mining Cluster of Zacatecas State, Member of the Mining Advisor Board of San Luis Potosi State.
Cory Kent LLB – Corporate Secretary & Director
Mr. Kent has been a director of our Company since November 2004. Mr. Kent is a Partner at McMillan LLP.,With a practice focused on corporate securities law and related technology, natural resources and commercial matters, Mr. Kent possesses a strong and varied legal background suited to the junior mining sector.
Mr. Kent is a member of the Compensation Committee.
Mr. Jordan Estra – Director
Mr. Estra has been a director of our Company since March 2010. Mr. Estra is Managing Director of Private Equity at Sutter Securities Incorporated, a full-service investment banking firm headquartered in San Francisco, California. Mr. Estra is also currently President and Chief Executive Officer of Ophir Brasil Mineracao, Ltda., a privately owned gold mining company in Brazil, and President and Chief Executive Officer of Ophir Consulting Group, Inc., a privately owned mining consulting company. His background includes his experience as a leading research analyst for a number of international investment banks.
Mr. Estra graduated with High Distinction from Babson College (International Economics) and with Honors from the Columbia University Graduate School of Business (Finance). He served in the United States Army (Medical Corps) and has been a member of the American Institute of Mining, Metallurgical and Petroleum Engineers, the Foreign Policy Associate, the New York Society of Security Analysts and the Stock & Bond Club of South Florida. He holds Series 6, 7, 24, 57 and 58 securities licenses.
Mr. Estra is a member of the Audit Committee and the Corporate Governance Committee.
Mr. Federico Villaseñor – Director
Mr. Villasenor has been a director of our Company since February, 2007. He is currently a consultant to various mining companies. From 2007 to 2014, he served as the Business Development Director for Goldcorp Mexico, a subsidiary of Goldcorp Inc., a leading global gold producer engaged in the acquisition, exploration, development and operation of gold properties in Canada, the United States and Latin America. He obtained a B.Sc. in Mining Engineering from the University of Guanajuato in 1972, a Master of Science from Columbia University of New York City in 1976 and a Finance Degree from the Instituto Tecnologico de Mexico in 1985. Mr. Villaseñor has been a member of the Mexican Mining Chamber Board.
Mr. Villaseñor is a member of the Audit Committee and the Compensation Committee.
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Mr. Ken Sumanik – Director
Mr. Sumanik has been a director of our Company since November, 1993. He is an environment and land specialist with over 40 years of experience in logging and mining impact assessment and evaluation. From 1989 to 1999, he held the position of Vice-President of Environment and Land Use for the Mining Association of British Columbia.
Mr. Sumanik then served as Assistant to the Minister for Mining in British Columbia before becoming involved with publicly listed junior mining companies on the TSX Venture Exchange and the Toronto Stock Exchange.
Mr. Sumanik is currently a retired resource consultant.
Mr. Sumanik sits on the Audit Committee, the Compensation Committee and the Corporate Governance Committee.
Ms. Tanya Lutzke – Director
Ms. Lutzke has been a director of our Company since October, 2016 and has over 10 years’ experience in financial services, the banking industry and law enforcement. A native of Vancouver, B.C., Ms. Lutzke attended the University of British Columbia and obtained her Financial Planning and Canadian Securities Institute designations.
Director Interlocks
Each of our directors and officers has served and continue to serve as officers and/or directors of other companies engaged in natural resource exploration and development and related industries.
Messrs. Robert Eadie and Gary Arca (who are, respectively, the Chief Executive Officer and Chief Financial Officer of our Company, in addition to serving on our Board of Directors) are also executive officers and directors of iMining Blockchain and Cryptocurrency Inc.; a junior company listed on the TSX Venture Exchange and Bond Resources Inc. listed on the Canadian securities Exchange. Ken Sumanik, a member of our Board of Directors, also serves as director of Bond Resources Inc. Mrs. Tanya Lutzke, a member of our Board of Directors, also serves as director of iMining Blockchain and Cryptocurrency Inc. Mr. Cory Kent, our Corporate Secretary and a member of our Board of Directors, is a director of Nevada Sunrise Gold Corp., a junior company listed on the TSX Venture Exchange with mineral exploration properties in Nevada.
Mr. Federico Villaseñor, a member of our Board of Directors, is also a director of Santacruz Silver Mining, Ltd., a company listed on the TSX Venture Exchange whose operations include the Rosario silver mine near the town of Charcas, in the state of San Luis Potosi, Mexico.
Mr. Jordan Estra, a member of our Board of Directors, is also a director of each of Searchlight Minerals Corp. and Meadow Bay Gold Corporation. Searchlight Minerals Corp. is a junior mineral exploration company quoted on the OTCQB with a slag reprocessing project in Arizona, and Meadow Bay Gold Corporation is a junior company listed on the Toronto Stock Exchange that is focused on exploration activities at the Atlanta Gold Mine Project site in the State of Nevada.
Executive Compensation
The following table contains information about the compensation paid for services in all capacities to us, including compensation paid to or earned by (a) our Chief Executive Officer (or an individual who acted in a similar capacity); (b) our Chief Financial Officer (or an individual who acted in a similar capacity); (c) each of the three most highly compensated executive officers, other than the Chief Executive Officer and Chief Financial Officer, who were serving as executive officers as at April 30, 2019 and whose total salary and bonus exceeds $150,000 during the period ended April 30, 2019; and (d) any additional individuals for whom disclosure would have been provided under (c) except that the individual was not serving as an officer of our Company as of April 30, 2019.
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Summary Compensation Table
The compensation paid to the Named Executive Officers during the Company’s most recently completed financial year ended April 30, 2019 is as set out below and expressed in Canadian dollars unless otherwise noted:
| Name and principal position |
Year ended April 30, 2019 |
Salary(1) ($) |
Share- based awards(4) ($) |
Option- based awards ($) |
Non-equity incentive plan compensation(2) ($) |
Pension value ($) |
All other compen- sation(3) ($) |
Total compen- sation ($) |
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| Annual incentive plans |
Long-term incentive plans |
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| Robert Eadie Executive Chairman, CEO & President |
2019 | 360,000 | 15,200 | — | — | — | — | 12,000 | 387,200 | |||||||||||||||||||||||||||
| Gary Arca CFO |
2019 | 240,000 | 8,500 | — | — | — | — | 12,000 | 260,500 | |||||||||||||||||||||||||||
| Salvador Garcia COO |
2019 | US$ | 315,000 | 15,300 | — | — | — | — | Nil | US$
|
315,000 15,300 |
| ||||||||||||||||||||||||
| (1) | Includes the dollar value of cash and non-cash base salary earned during a financial year covered. Pursuant to their executive employment agreements amended effective as of August 2015, Messrs. Eadie and Arca are entitled to be paid annual salaries of $360,000 and $240,000, respectively, and subsequently amended effective May 1, 2019. For additional details please refer to the discussion below under the heading, “Directors, Senior Management and Employees – Board Practices – Executive Employment Agreements”. |
| (2) | These amounts include annual non-equity incentive plan compensation, such as bonuses and discretionary amounts for the year ended April 30, 2019. |
| (3) | All other compensation includes $12,000 paid to each of Mr. Eadie and Mr. Arca as directors’ fees for 2019. |
| (4) | Share based awards are based on RSU/DSU options vested which are calculated at the volume weighted average (“VWAP”) of the trading price per common share on the Toronto Stock Exchange (“TSX”) for the last ten (10) trading days ending on that date. |
Long Term Incentive Plan (LTIP) Awards
We do not have any long term incentive plans and, except as disclosed above.
An LTIP is “any plan providing compensation intended to motivate performance over a period longer than one fiscal year but does not include option or stock appreciation rights plans or plans for compensation through shares or units that are subject to restrictions on resale”.
Option and Stock Appreciation Rights (SARs)
The Company currently has no outstanding stock options. The Company does not currently have an active plan as shareholders rejected the Company’s share option plan dated for reference January 17, 2011 (the “Plan”) at its annual general meeting in January 2014.
Option/SAR Grants During the Most Recently Completed Financial Year
During the most recently completed financial year ended April 30, 2019 and subsequent thereto, no stock options were granted. See “Options and Stock Appreciation Rights.”
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Aggregated Option/SAR Exercises During the Most Recently Completed Financial Year and Financial Year-End Option/SAR Values
There were no outstanding stock options as at April 30, 2019. Any unexercised options expired on January 15, 2019 and no values can be attributed as there were no unexecised in the money options as at that date.
Option and SAR Repricings
There were no repricings of stock options under the stock option plan or otherwise during our completed financial year ended April 30, 2018. All outstanding options expired on January 15, 2019.
Defined Benefit or Actuarial Plan
We do not have a defined benefit or actuarial plan.
Compensation of Directors
The compensation provided to the directors, excluding the three officers named in the foregoing, for the Company’s most recently completed financial year of April 30, 2019, is as follows:
|
Name(1) |
Fees earned(1) ($) |
Share- based Awards(2) ($) |
Option-based awards ($) |
Non-equity incentive plan compensation ($) |
Pension value ($) |
All other compen- sation(3) ($) |
Total ($) |
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| Cory Kent |
12,000 | 4,200 | — | — | — | 11,563 | 27,763 | |||||||||||||||||||||
| Ken Sumanik |
15,000 | 3,400 | — | — | — | — | 18,400 | |||||||||||||||||||||
| Jordan Estra |
— | 3,400 | — | — | — | — | 3,400 | |||||||||||||||||||||
| Federico Villaseñor |
15,500 | 3,400 | — | — | — | — | 18,900 | |||||||||||||||||||||
| Tanya Lutzke |
15,000 | 2,600 | — | — | — | — | 17,600 | |||||||||||||||||||||
| (1) | Includes all fees awarded, earned, paid or payable in cash for services as a director, including annual retainer fees, committee, chair and meeting fees. |
| (2) | Includes share based awards granted during the year that vested during the year. Share based awards are based on RSU/DSU options vested and paid calculated at and the volume weighted average (“VWAP”) of the trading price per common share on the Toronto Stock Exchange (“TSX”) for the last ten (10) trading days ending on that date. |
| (3) | Includes all compensation paid, payable, awarded, granted, given or otherwise provided, directly or indirectly, wherein the director received compensation for services rendered. The Company paid in legal fees to a law firm of which Cory Kent is a partner. |
Outstanding Share-based Awards and Option-based Awards
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The following table sets out all share-based awards and option-based awards outstanding as at April 30, 2019, for each director, excluding a director who is already set out in disclosure for a Named Executive Officer for the Company:
| Option-based Awards | Share-based Awards | |||||||||||||||||||||||
| Name |
Number of securities underlying unexercised options (#) |
Option exercise price ($) |
Option expiration date |
Value of unexercised in-the-money options(1) ($) |
Number of shares or units of shares that have not vested (#) |
Market or payout value of share- based awards that have not vested ($) |
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| Cory Kent |
Nil | n/a | n/a | Nil | 41,667 | 3,125 | ||||||||||||||||||
| Ken Sumanik |
Nil | n/a | n/a | Nil | 36,667 | 2,750 | ||||||||||||||||||
| Jordan Estra |
Nil | n/a | n/a | Nil | 36,667 | 2,750 | ||||||||||||||||||
| Federico Villaseñor |
Nil | n/a | n/a | n/a | 36,667 | 2,750 | ||||||||||||||||||
| Tanya Lutzke |
Nil | n/a | n/a | n/a | 30,000 | 2,250 | ||||||||||||||||||
| (1) | The market price of the Company’s common shares as reported on the TSX on April 30, 2019 was $0.075 per share. |
Incentive Plan Awards – Value Vested or Earned During the Year
The following table sets out all incentive plans (value vested or earned) during the year ended April 30, 2019, for each director who was not a Named Executive Officer
| Name |
Option-based awards –Value vested during the year ($) |
Share-based awards –Value vested during the year ($) |
Non-equity incentive plan compensation –Value earned during the year ($) |
|||||||||
| Cory Kent |
Nil | 4,200 | Nil | |||||||||
| Ken Sumanik |
Nil | 3,400 | Nil | |||||||||
| Jordan Estra |
Nil | 3,400 | Nil | |||||||||
| Federico Villaseñor |
Nil | 3,400 | Nil | |||||||||
| Tanya Lutzke |
Nil | 2,600 | Nil | |||||||||
Each director of our Company is elected annually and holds office until the next annual general meeting of the shareholders unless that person ceases to be a director before then. Our last annual general meeting of the shareholders was held on October 24, 2018.
| Name and Position with the Company |
Director/Officer Since | |
| Robert Eadie Executive Chairman, Chief Executive Officer and Director |
October 24, 2003 | |
| Salvador Garcia Chief Operating Officer and Director |
October 24, 2017 | |
| Gary Arca Chief Financial Officer and Director |
January 25, 2006 | |
| Cory Kent, Corporate Secretary and Director |
January 25, 2006 | |
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| Name and Position with the Company |
Director/Officer Since | |
| Ken Sumanik Director |
November 19, 1993 | |
| Federico Villaseñor Director |
February 1, 2007 | |
| Jordan Estra Director |
March 26, 2010 | |
| Tanya Lutzke Director |
October 28, 2016 | |
2. Executive Employment Agreements
Pursuant to an executive employment agreement amended with effect as of August 1, 2015, Robert Eadie is paid a base salary of $360,000 per annum, for acting as Chief Executive Officer of the Company. The agreement is for a term of five years to July 31, 2020 and may be terminated upon notice in writing and payment of 24 months salary. In addition, the agreement provides that, for a period of 30 days after a “change of control”, Mr. Eadie may, by notice in writing to the Company, deem the agreement to be terminated, in which case Mr. Eadie will receive a lump sum payment of $720,000. A change of control (a “Change of Control”) is deemed to occur when (i) there is a sale of all or substantially all of the assets of the Company, (ii) there is a merger of the Company whereby shareholders of the Company hold less than 50% of the shares in the surviving entity, (iii) there is a change in ownership of voting securities of the Company sufficient to permit any person to elect or appoint a majority of the Board of Directors, (iv) any person or persons acting jointly or in concert acquire greater than 50% of the outstanding voting securities of the Company, or (v) there is a change in the composition of the Board of Directors of the Company as a result of a proposal by a shareholder group not supported by management resulting in current members of the Board of Directors representing less than 51% of the members of the Board of Directors. In addition to his base salary, Mr. Eadie received fees for his services as a director in the amount of $12,000 for the year ended April 30, 2019.
Pursuant to an executive employment agreement amended with effect as of August 1, 2015, Gary Arca is paid a base salary of $240,000 per annum, for acting as Chief Financial Officer of the Company. The agreement is for a term of five years to July 31, 2020 and may be terminated upon notice in writing and payment of 24 months salary. In addition, the agreement provides that, for a period of 30 days after a Change of Control, Mr. Arca may, by notice in writing to the Company, deem the agreement to be terminated, in which case Mr. Arca will receive a lump sum payment of $480,000. In addition to his base salary, Mr. Arca received fees for his services as a director in the amount of $12,000 for the year ended April 30, 2019.
Pursuant to an executive employment agreement with effect as at August 21, 2017, Salvador Garcia was paid a base fee of US$315,000 for acting as Chief Operating Officer of the Company.
Effective May 1, 2019, Starcore management agreed to take a 25% reduction in salary. The agreement to reduce the current contracts with Robert Eadie, CEO and Gary Arca, CFO, has been amended to provide for the 25% reduction and to increase the term of their contracts to April 30, 2022 from July 31, 2020. The reductions to the CEO, CFO and Salvador Garcia, COO, will result in annual savings to the Company of approximately $250,000.
3. Committees
The members of our Company’s audit committee include Jordan Estra (Chairman), Tanya Lutzke, Ken Sumanik and Federico Villaseñor. The audit committee is directly responsible for overseeing the work of the external auditors in preparing or issuing the auditor’s report, including the resolution of disagreements between management and the external auditors regarding financial reporting and audit scope or procedures. The audit committee also considers whether adequate controls are in place over annual and interim financial reporting as well as controls over assets, transactions and the creation of obligations, commitments and liabilities of our Company. The audit committee also reviews the financial statements and financial information prior to its release to the public.
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The members of our Company’s compensation committee are Cory Kent, Ken Sumanik and Federico Villaseñor (Chairman). The function of the Compensation Committee is to review periodically the compensation paid to the Company’s executive officers and to the Directors, and to make recommendations on compensation to the Board. In addition, the Committee reviews the compensation plans for the Company’s senior executive staff and administers the Company’s stock option plan.
The members of our Company’s corporate governance committee are Ken Sumanik, Jordan Estra and Gary Arca (Chairman). The Corporate Governance & Nominating Committee is charged with the responsibility of developing corporate governance policies and seeking out individuals for appointment to the board of directors as required.
The San Martin mine operates with a combination of contractors and employees. Most of the hourly workers are contracted through the union or syndicate. The mine has a good relationship with the union and has seen significantly fewer labour issues than most other mines in Mexico.
As at April 30, 2019, we had the following employees and contractors:
| Location |
Full-Time Salaried |
Hourly (Union) |
Contractors | Total | ||||||||||||
| Altiplano |
— | — | — | — | ||||||||||||
| San Martin Mine |
74 | 170 | 95 | 339 | ||||||||||||
| Vancouver Office |
6 | — | 3 | 9 | ||||||||||||
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|
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| Total |
80 | 170 | 98 | 348 | ||||||||||||
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In comparison, we had the following employees and contractors as at April 30, 2018:
| Location |
Full-Time Salaried |
Hourly (Union) |
Contractors | Total | ||||||||||||
| Altiplano |
26 | — | 7 | 33 | ||||||||||||
| San Martin Mine |
74 | 170 | 95 | 339 | ||||||||||||
| Vancouver Office |
7 | — | 2 | 9 | ||||||||||||
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| Total |
107 | 170 | 104 | 381 | ||||||||||||
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In comparison, we had the following employees and contractors as at April 30, 2017:
| Location |
Full-Time Salaried |
Hourly (Union) |
Contractors | Total | ||||||||||||
| Altiplano |
19 | 0 | 0 | 19 | ||||||||||||
| San Martin Mine |
61 | 168 | 85 | 314 | ||||||||||||
| Vancouver Office |
11 | 0 | 3 | 14 | ||||||||||||
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| Total |
91 | 168 | 88 | 347 | ||||||||||||
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There were 49,646,851 common shares issued and outstanding as of April 30th, 2019. Of the shares issued and outstanding, warrants held and stock options granted, our directors and officers owned the following common shares as of April 30, 2019:
| Name |
Number of Common Shares Beneficially Owned |
Percentage | ||||||
| Robert Eadie |
3,482,117 | 7.01 | % | |||||
| Gary Arca |
537,499 | 1.08 | % | |||||
| Salvador Garcia |
500,000 | 1.00 | % | |||||
| Cory Kent |
77,625 | 0.15 | % | |||||
The voting rights attached to the common shares owned by our officers and directors do not differ from those voting rights attached to shares owned by people who are not officers or directors of our Company.
For information concerning options held by our officers and directors, please see “Compensation”.
Stock Option Plan
The Company does not currently have any equity compensation arrangements in place under which directors, officers or employees can be granted an equity interest in the Company. The Company previously had an incentive stock option plan in place (the “Plan”) pursuant to which the Board had the ability to grant options to purchase common shares (“Options”) to directors, officers, employees and consultants to the Company. The Plan was subject to shareholder approval, which was not received at the Company’s January 28, 2014 annual general meeting. Options granted under the Plan prior to January 28, 2014 have expired. As at the April 30, 2019, no Options to purchase common shares remain outstanding under the Plan.
The following is a summary of the material terms of the Plan that apply to the outstanding Options:
| (a) | All Options granted under the Plan are non-assignable, non-transferable, will be exercisable for such period as is determined by the board of directors on the date of grant, such period not to exceed 10 years, and will vest at the discretion of the board of directors; |
| (b) | for Options granted to employees or service providers (inclusive of management company employees), the Company must ensure that the proposed Optionee is a bona fide employee or service provider (inclusive of a management company employee), as the case may be, of the Company or of any of its subsidiaries; |
| (c) | if an Optionee ceases to be employed by the Company, other than as a result of termination with cause in which case the option terminates immediately or ceases to act as a director or officer of the Company or a subsidiary of the Company, any vested option held by such Optionee may be exercised within 30 days after the date such Optionee ceases to be employed or act as an officer or director; |
| (d) | in the case of the death of an Optionee, any vested Option held by the Optionee at the date of death will become exercisable by the Optionee’s lawful personal representatives, heirs or executors until the earlier of one year after the date of death of such Optionee and the date of expiration of the term otherwise applicable to such Option; and |
| (e) | subject to the policies of the Toronto Stock Exchange, the Plan and Options granted under it may be amended without shareholder approval to: |
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| • | may make amendments which are of a typographical, grammatical, clerical or housekeeping nature only; |
| • | No other amendments are allowed. |
For information regarding outstanding stock options, please see “Compensation” above.
In May, 2016, the Board of Directors approved the adoption of a Restricted Share Unit and Deferred Share Unit Plan (the “RSU/DSU Plan”) as part of the Company’s compensation arrangements for directors, officers, employees or consultants of the Company or a related entity of the Company. The RSU/DSU Plan was initialized as at August 1, 2016 with the first grants of RSUs and DSUs. The purpose of the RSU/DSU Plan is to provide directors, officers, employees or consultants (the “Eligible Persons”) with the opportunity to acquire restricted share units (RSU’s) and deferred share units (“DSUs”) of the Company, enabling them to participate in the long-term success of the Company, and to promote a greater alignment of their interests with the interests of the shareholders of the Company.
Although the RSU/DSU Plan is share-based, all vested RSUs and DSUs will be settled in cash. No common shares will be issued.
Both RSUs and DSUs, and all other rights, benefits or interests in the RSU/DSU Plan are non- transferrable (other than to a grantee’s beneficiary or estate, as the case may be, upon the death of the grantee). The RSUs and DSUs to be granted to Eligible Persons under the RSU/DSU Plan will entitle the holder to receive the fair market value of common shares, subject to vesting and performance criteria (the “Performance Conditions”) established by the Board. Accordingly, the RSUs and DSUs will track the value of the underlying common shares, but the grantees will not receive the fair market value thereof until the applicable RSU or DSU vests, and upon vesting, will be further subject to meeting the Performance Conditions.
For the purposes of the RSU/DSU Plan, the fair market value of the Common Shares is determined, as at a particular date, by the volume weighted average (“VWAP”) of the trading price per common share on the Toronto Stock Exchange (“TSX”) for the last ten (10) trading days ending on that date.
The RSU/DSU Plan is administered by the Board. The Board has the authority to delegate all of its powers and authority under the RSU/DSU Plan to the Compensation Committee of the Board of Directors. The maximum number of common shares to be made subject to the RSU/DSU Plan together with options outstanding under the Company’s existing Stock Option Plan, will not exceed 10% of the outstanding common shares of the Company. The Board will be guided by this ceiling and the Performance Conditions described hereunder. The Board has also determined that it will not be seeking shareholder approval for the Stock Option Plan to be renewed, once the outstanding stock options have been exercised or expire, with the last outstanding options expiring on January 15, 2019.
Restricted Share Units
The purpose of the RSUs is to reward directors, officers, employees or consultants for their individual performance and to provide an alternative incentive mechanism to the Company’s Stock Option Plan which expired on January 15, 2019. The goal of such grants is to more closely align awards to individual performance and established performance criteria.
The RSU/DSU Plan permits the Board to grant awards of RSUs to Eligible Persons. The Board of Directors has the discretion to stipulate the length of time for vesting and to determine various performance conditions to be met prior to payout of any RSUs. The Board has determined the following criteria to govern RSUs:
1. RSUs will vest over a period of three years from the date of grant, vesting as to one-third at the end of each calendar year.
2. Performance Conditions will accompany vested RSUs as to the following percentages:
| • | 50% of vested RSUs will automatically be paid out; |
| • | 25% of vested RSUs will be based on the market price having increased by a minimum of 10% per annum from the market share price in the initial year granted (with the minimum initial share price of C$0.50), or 30% over a 3-year term. If this criteria is not met in the first year, so long as the criteria is met in either year 2 or year 3, the affected portion of vested RSUs will be paid out. If the criteria is not met, unpaid RSUs will expire |
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| • | 25% of vested RSUs will be based on meeting an earnings-per-share of $0.05 per annum. This portion of vested RSUs will not carry over to the succeeding years. If this criteria is not met, this portion of vested RSUs will expire in the year that they vest. |
The Performance Conditions to be met are established by the Board at the time of grant of the RSU. RSUs that are permitted to be carried over to the succeeding years shall expire no later than December 30th of the third calendar year after the year in which the RSUs have been granted, and will be terminated to the extent the performance objectives or other vesting criteria have not been met. Upon vesting, and upon applying the Performance Conditions, the RSUs will be settled through a cash payment equal to the fair market value of the common shares underlying the RSUs as of the date of vesting.
Treatment of Dividends
If the Company pays a cash dividend on its shares, the RSUs held by an RSU Grantee will be increased by (i) multiplying the amount of the dividend per share by the aggregate number of Restricted Share Units that were credited to the Eligible Person’s account as of the record date for such dividend, and (ii) dividing that amount by the fair market value on the date on which the dividend is paid.
Termination and Change of Control
RSUs will remain outstanding and vest in accordance with their terms, unless the RSU Grantee is terminated by the Company with cause, in which case all RSUs held by the RSU Grantee, whether vested or unvested will be forfeited and cancelled without payment. In the event of a change of control of the Company and the subsequent termination of the RSU Grantee, or a decrease or diminishment of the RSU Grantee’s duties, the RSUs will immediately vest and be paid out. Upon resignation of a participant, all unvested RSUs will be automatically cancelled and all rights in respect thereof will be forfeited for no consideration.
Deferred Share Units
DSU Awards will vest as to 33-1/3% on each anniversary date of the grant over a period of 3 years. No cash settlements will be given to the Eligible Person until he/she ceases to be an Eligible Person, whether such status changes as a result of the termination of service of the Eligible Person by the Company, retirement or resignation of the Eligible Person, removal from the Board of Directors, or otherwise, but in any event no later than three months following the Separation Date (being the date that the DSU recipient ceases to be an Eligible Person), or in the case of the death of the holder of the DSU Award, within two months of the death of the holder. All vested DSUs will be settled through a cash payment equal to the fair market value of the common shares (“FMV”) underlying the DSUs, the determination of such FMV to be done on the Separation Date in accordance with the provisions of Regulation 6801(d) of the Income Tax Act.
Treatment of dividends for DSUs will be the same as the treatment of dividends for RSUs.
Item 7 Major Shareholders and Related Party Transactions
The following table sets forth, as of April 30, 2019, the persons known to us to be the beneficial owner of more than five percent (5%) of our common shares:
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| Name of Shareholder |
No. of Common Shares Beneficially Owned |
Percentage of Outstanding Common Shares |
Percentage of Fully Diluted Common Shares(1) |
|||||||||
| 2176423 Ontario Ltd. (a private company controlled by Eric S. Sprott) Toronto, Ontario |
7,681,693 | (2) | 15.47 | % | 15.10 | % | ||||||
| Italpreziosi S P A |
3,787,135 | 7.62 | % | 7.44 | % | |||||||
| Robert Eadie |
3,482,117 | 7.01 | % | 6.58 | % | |||||||
| (1) | Based on 49,646,851 common shares issued and outstanding as at April 30, 2019 and 3,250,000 being the number of shares issuable upon the exercise of issued and outstanding warrants which are exercisable, for a total of 52,896,851 fully diluted common shares. |
| (2) | The information is as at April 30, 2019, as derived from SEDI, the electronic filing system for Insider Reporting. The voting rights of our major shareholders do not differ from the voting rights of holders of our common shares who are not major shareholders. |
As at June 30, 2019, the registrar and transfer agent for our Company reported that there were 49,646,851 common shares of our Company issued and outstanding. Of these, 44,032,794 were registered to Canadian residents 246 shareholders), 1,302,907 were registered to residents of the United States (92 shareholders) and 4,311,150 were registered to residents of other foreign countries (11 shareholders).
To the best of our knowledge, our Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.
There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our Company.
Other than compensation paid to our directors and officers in such capacities, and except as disclosed below, to the best of our knowledge, since the formation of our Company:
| • | there have been no material transactions to which we were or are a party and in which any of our directors or officers, any relative or spouse of any director or officer, or any individual owning, directly or indirectly, an interest in our voting power that gives it significant influence over us, has or will have a direct or indirect material interest; and |
| • | none of our directors or officers, nor any relatives or spouses of such directors or officers, nor any individuals owning, directly or indirectly, an interest in our voting power that gives them significant influence over us, were indebted to us. |
C. Interests of experts and counsel
Not Applicable
A. Consolidated Statements and Other Financial Information
Item 18 of this Annual Report contains our financial statements as at and for the year ended April 30, 2019. Our financial statements are stated in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
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Export Sales
(All dollar figures are in ‘000s)
Export sales constituted 100 percent of our Company’s total sales volume during the fiscal years disclosed in the following table:
| Year |
Sales | Export Sales (%) | ||||||
| 2019 |
$ | 32,795 | 100 | % | ||||
| 2018 |
$ | 27,807 | 100 | % | ||||
| 2017 |
$ | 27,228 | 100 | % | ||||
| 2016 |
$ | 20,326 | 100 | % | ||||
| 2015 |
$ | 28,405 | 100 | % | ||||
Legal Proceedings
There are no legal proceedings to which our Company is a party and, to our knowledge, no such proceedings are pending.
On December 22, 2015, the SEC initiated proceedings under Section 12(j) of the Securities Exchange Act of 1934 for our Company’s failure to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder because it had not filed any periodic reports with the Commission since the period ended April 30, 2004. On January 25, 2016, the Company executed an Offer of Settlement presented by the SEC to settle the proceedings. The SEC issued its Final Order on February 1, 2016.
Dividend Policy
Our Company does not have a formal dividend policy.
Our Company paid our shareholders dividends in September 2014. Any future payment of dividends or distributions will be determined by the board of directors of our Company on the basis of our Company’s earnings, financial requirements and other relevant factors. Successful operation of our business is subject to a number of risks and uncertainties, including those described under the heading “Risk Factors” appearing on page8, above.
Not Applicable
Not Applicable
Not Applicable
Our common shares trade on the TSX Exchange (Toronto Stock Exchange) with symbol “SAM” and our CUSIP number is 85525T202. Our common shares also trade on the Frankfurt Stock Exchange with symbol V4JA.
Not Applicable
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Not Applicable
Not Applicable
Item 10 Additional Information
Not applicable for annual reports
B. Memorandum and articles of association.
This information is included in the 20F Registration Statement filed on August 12, 2016 and has not changed, except for the amendment to the Articles of the Company providing for the Direct Registration System (“DRS”) of the Company’s securities. DRS provides for electronic direct registration of securities in an investor’s name on the books of the Company’s transfer agent. See Exhibit 1.2
With the exception of the contracts listed below and the executive employment agreements described under the heading “Directors, Senior Management and Employees -Board Practices – Executive Employment Agreements” above, we have not entered into any material contracts during the last twenty-four months that were outside those entered into in the ordinary course of business.
There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See “Taxation” below.
Except as provided in the Investment Canada Act (Canada), which has rules regarding certain acquisitions of shares by non-residents, there is no limitation imposed by Canadian law or by our charter or other constituent documents on the right of a non-resident to hold or vote our common shares. The Investment Canada Act is a Canadian federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures. Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Canada Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Canada Act, the Investment Canada Act generally prohibits implementation of the investment unless, after review, the Minister of Industry is satisfied that the investment is likely to be of net benefit to Canada.
Canadian Federal Income Taxation
We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm’s length with our Company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our Company in connection with carrying on a business in Canada (a “non-resident holder”). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of the Income Tax Act (Canada) (the “ITA”) and regulations thereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a prescribed stock exchange.
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This summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as amended by the Protocols thereto (the “Treaty”) as at the date of the Annual Report and the currently publicly announced administrative and assessing policies of the Canada Revenue Agency (the “CRA”). This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder, publicly announced by the Government of Canada to the date hereof.
This summary does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances specific to each investor. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences to them of purchasing, owning and disposing of common shares in our Company.
Dividends
The ITA provides that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident corporation (such as our Company) to a non-resident of Canada shall be subject to a non-resident withholding tax equal to 25% of the gross amount of the dividend of deemed dividend. Provisions in the ITA relating to dividend and deemed dividend payments to and gains realized by non-residents of Canada, who are residents of the United States, are subject to the Treaty. The Treaty may reduce the withholding tax rate on dividends as discussed below.
Article X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company paying the dividend. In cases where dividends or deemed dividends are paid to a United States resident (other than a corporation) or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a withholding tax of 15% is imposed on the gross amount of the dividend or deemed dividend paid. We would be required to withhold any such tax from the dividend and remit the tax directly to the CRA for the account of the investor.
The reduction in withholding tax from 25%, pursuant to the Treaty, will not be available:
| (a) | if the shares in respect of which the dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or |
| (b) | the holder is a U.S. LLC which is not subject to tax in the U.S. |
The Treaty generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if the organization is resident in the U.S. and is exempt from income tax under the laws of the U.S.
Capital Gains
A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of one of our shares unless the share represents “taxable Canadian property” to the holder thereof. Our common shares will be considered taxable Canadian property to a non-resident holder only if-.
| (a) | the non-resident holder; |
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| (b) | persons with whom the non-resident holder did not deal at arm’s length- or |
| (c) | the non-resident holder and persons with whom he did not deal at arm’s length, |
owned not less than 25% of the issued shares of any class or series of our Company at any time during the five year period preceding the disposition. In the case of a non-resident holder to whom shares of our Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless:
| (a) | the value of such shares is derived principally from real property (including resource property) situated in Canada, |
| (b) | the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be a resident of Canada, |
| (c) | they formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or |
| (d) | the holder is a U.S. LLC which is not subject to tax in the U.S. |
If subject to Canadian tax on such a disposition, the taxpayer’s capital gain (or capital loss) from a disposition is the amount by which the taxpayer’s proceeds of disposition exceed (or are exceeded by) the aggregate of the taxpayer’s adjusted cost base of the shares and reasonable expenses of disposition. For Canadian income tax purposes, the “taxable capital gain” is equal to one-half of the capital gain.
United States Federal Income Taxation
The following is a discussion of the material United States Federal income tax consequences, under current law, applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local, or foreign tax consequences. (See “Canadian Federal Income Tax Consequences” above.)
The following discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
The discussion below does not address potential tax effects relevant to our Company or those tax considerations that depend upon circumstances specific to each investor. In addition, this discussion does not address the tax consequences that may be relevant to particular investors subject to special treatment under certain U.S. Federal income tax laws, such as dealers in securities, tax-exempt entities, banks, insurance companies and non-U.S. Holders. Purchasers of shares of our common stock should therefore satisfy themselves as to the overall tax consequences of their ownership of our common stock, including the State, local and foreign tax consequences thereof (which are not reviewed herein), and should consult their own tax advisors with respect to their particular circumstances.
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U.S. Holders
As used herein, a “U.S. Holder” includes a beneficial holder of common shares of our Company who is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, any trust if a US court is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, any entity created or organized in the United States which is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of common shares of our Company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.
Dividend Distribution on Shares of our Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be deducted or may be credited against actual tax payable, subject to certain limitations and other complex rules, against the U.S. Holder’s United States Federal taxable income. See “Foreign Tax Credit” below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital to the extent of the shareholder’s basis in the common shares of our Company and thereafter as gain from the sale or exchange of the common shares of our Company. Preferential tax rates for net long term capital gains may be applicable to a U.S. Holder which is an individual, estate or trust.
In general, dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.
Foreign Tax Credit
A U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income” and certain other classifications of income. A U.S. Holder who is treated as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in certain circumstances for the underlying foreign tax of our Company related to dividends received or Subpart F income received from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application of the limitations on the foreign tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.
Disposition of Common Shares
If a U.S. Holder is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However, gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined to be a “collapsible corporation” within the meaning of Code Section 341 based on the facts in existence on the date of the sale (See below for definition of “collapsible corporation”). The amount of gain or loss recognized by a selling U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) his tax basis in our common shares. Capital losses are deductible only to the extent of capital gains. However, in the case of taxpayers other than corporations (U.S.) $3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.
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A “collapsible corporation” is a corporation that is formed or availed principally to manufacture, construct, produce, or purchase prescribed types or property that the corporation holds for less than three years and that generally would produce ordinary income on its disposition, with a view to the stockholders selling or exchanging their stock and thus realizing gain before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes: stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables or fees, consisting of rights to payment for non-capital assets delivered or to be delivered, or services rendered or to be rendered to the extent not previously included in income, but excluding receivables from selling property that is not prescribed; and property gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly 5 percent or less of the outstanding stock of the corporation may treat gain on the sale of his shares as capital gain.
Other Considerations for U.S. Holders
In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Registrant.
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares in our capital would be required to include in income for such year their allocable portion of our passive income which would have been treated as a dividend had that passive income actually been distributed.
Foreign Investment Company
If 50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging our common shares to be treated as ordinary income rather than capital gains.
Passive Foreign Investment Company
A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company (“PFIC”) is subject to U.S. federal income taxation of that foreign corporation under one of two alternative tax methods at the election of each such U.S. Holder.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by value (or, if the company is a controlled foreign corporation or makes an election, adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. For taxable years of U.S. persons beginning after December 31, 1997, and for tax years of foreign corporations ending with or within such tax years, the Taxpayer Relief Act of 1997 provides that publicly traded corporations must apply this test on a fair market value basis only.
As a PFIC, each U.S. Holder must determine under which of the alternative tax methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a timely manner to treat the Registrant as a Qualified Electing Fund (“QEF”), as defined in the Code, (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which we qualify as a PFIC on his pro-rata share of our (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holder’s taxable year in which (or with which) our taxable year ends, regardless of whether such amounts are actually distributed. Such an election, once made shall apply to all subsequent years unless revoked with the consent of the IRS.
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A QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his common shares) as capital gain; (ii) treat his share of our net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of our annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is an individual, such an interest charge would be not deductible.
The procedure a U.S. Holder must comply with in making a timely QEF election will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which we are a PFIC. If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a “Pedigreed QEF Election”), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year. If, however, we qualified as a PFIC in a prior year, then the U.S. Holder may make an “Unpedigreed QEF Election” by recognizing as an “excess distribution” (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date (Deemed Sale Election) or (ii) if we are a controlled foreign corporation (“CFC”), the Holder’s pro rata share of the corporation’s earnings and profits (Deemed Dividend Election) but see (“Elimination of Overlap Between Subpart F Rules and PFIC Provisions”). The effect of either the deemed sale election or the deemed dividend election is to pay all prior deferred tax, to pay interest on the tax deferral and to be treated thereafter as a Pedigreed QEF as discussed in the prior paragraph. With respect to a situation in which a Pedigreed QEF election is made, if we no longer qualify as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.
If a U.S. Holder has not made a QEF Election at any time (a “Non-electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his common shares and (ii) certain “excess distributions”, as specially defined, by our Company. An “excess distribution” is any current-year distribution in respect of PFIC stock that represents a rateable portion of the total distributions in respect of the stock during the year that exceed 125 percent of the average amount of distributions in respect of the stock during the three preceding years.
A Non-electing U.S. Holder generally would be required to pro-rate all gains realized on the disposition of his common shares and all excess distributions over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to our first taxable year during such U.S. Holder’s holding period and beginning after January, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing U.S. Holder also would be liable for interest on the deferred tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Holder that is an individual is not allowed a deduction for interest on the deferred tax liability. The portions of gains and distributions that are not characterized as “excess distributions” are subject to tax in the current year under the normal tax rules of the Internal Revenue Code.
If we are a PFIC for any taxable year during which a Non-electing U.S. Holder holds common shares, then we will continue to be treated as a PFIC with respect to such common Shares, even if our Company is no longer by definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which we were a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which we are a PFIC and the U.S. Holder holds our shares) (a “Unpedigreed Election”), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective. U.S. Holders should consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.
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Certain special, generally adverse, rules will apply with respect to the common shares while we are a PFIC whether or not it is treated as a QEF. For example under Section 1297(b)(6) of the Code (as in effect prior to the Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change. Any such change could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of our common shares are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in our Company. For a discussion of the impact of the Taxpayer Relief Act of 1997 on a U.S. Holder of a PFIC, see “Mark-to-Market Election For PFIC Stock Under the Taxpayer Relief Act of 1997” and “Elimination of Overlap Between Subpart F Rules and PFIC Provisions” below.
Mark-to-Market Election for PFIC Stock Under the Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 provides that a U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below. This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders. Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holder’s adjusted basis in the stock is included in the Holder’s income. The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year. However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called “unreversed inclusions.” For purposes of the election, PFIC stock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section II A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.
A Holder’s adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election. If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner. Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income. Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses. The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.
If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S. person that may make the mark-to-market election. Amounts includible in the CFC’s income under the election are treated as foreign personal holding company income, and deductions are allocable to foreign personal holding company income.
The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.
The rules of Code Section 1291 applicable to nonqualified funds as discussed above generally do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holder’s holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election. However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund after the beginning of a taxpayer’s holding period for such stock, a co-ordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.
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Controlled Foreign Corporation Status
If more than 50% of the voting power of all classes of stock or the total value of the stock of our Company is owned, directly or indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power of all classes of stock of our Company, we would be treated as a “controlled foreign corporation” or “CFC” under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of our Company and our earnings invested in “U.S. property” (as defined by Section 956 of the Code). In addition, under Section 1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stock, gain from the sale or exchange of common shares of our Company by such a 10% U.S. Holder of our common stock at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.
Elimination of Overlap Between Subpart F Rules and PFIC Provisions
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a “United States Shareholder,” see “Controlled Foreign Corporation,” above). The exception only applies to that portion of a U.S. Holder’s holding period beginning after December 31, 1997. For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this new provision, if we were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election. The PFIC provisions will however continue to apply to U.S Holders for any periods in which Subpart F does not apply (for example he is no longer a 10% Holder or we are no longer a CFC) and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in our Company as if those shares had been sold.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES OF OUR COMPANY.
F. Dividends and Paying Agents
Not applicable for annual Reports
Not applicable for annual Reports
Upon the effectiveness of this filing, we will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and we will thereafter file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, DC 20549. In addition, the SEC maintains a web site that contains reports and other information regarding registrants that file electronically with the SEC at HTTP://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The documents concerning our Company referred to in this Annual Report may be viewed at our principal executive offices, Suite 750 – 580 Hornby Street, Box 113, Vancouver, British Columbia, Canada V6C 3B6 (Telephone: (604) 602-4935), during normal business hours.
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See Item 4(C) for the Company’s active subsidiaries as at the date of this Annual Report.
Item 11 Quantitative and Qualitative Disclosures About Market Risk
As a Canadian company, our cash balances are kept in U.S. and Canadian funds. Therefore, we may become exposed to some exchange, interest rate and other risks as listed below. We consider the amount of risk to be manageable and do not currently, nor will we likely in the foreseeable future, conduct hedging to reduce our market risks.
| i.) | Currency Risk – Currency risk is the risk to the Company’s earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. |
| ii.) | Interest rate risk – The Company’s cash earns interest at variable interest rates. While fluctuations in market rates do not have a material impact on the fair value of the Company’s cash flows, future cash flows may be affected by interest rate fluctuations. The Company is not significantly exposed to interest rate fluctuations. |
| iii.) | Credit risk – Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is exposed to credit risk with respect to its cash and short-term investments. |
| iv.) | Liquidity risk – Liquidity risk arises from the excess of financial obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements. The Company accomplishes this by achieving profitable operations and maintaining sufficient cash reserves. |
| v.) | Commodity Risk – Mineral prices and marketability fluctuate and any decline in mineral prices may have a negative effect on the Company. Mineral prices, particularly gold and silver prices, have fluctuated widely in recent years. The marketability and price of minerals which may be produced and sold by the Company will be affected by numerous factors beyond the control of the Company. These other factors include delivery uncertainties related to the proximity of its resources to processing facilities and extensive government regulations related to price, taxes, royalties, allowable production land tenure, the import and export of minerals and many other aspects of the mining business. |
Item 12 Description of Securities Other than Equity Securities
Not applicable
Item 13 Defaults, Dividend Arrearages and Delinquencies
None
Item 14 Material Modifications to the rights of Security Holders and Use of Proceeds
Not Applicable
Item 15 Controls and Procedures
Not Applicable
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Item 16A Audit Committee Financial Expert
The Company’s board of directors has determined that it has two audit committee financial experts serving on its audit committee. Jordan Estra and Federico Villaseñor have been determined to be such audit committee financial experts and are independent, as that term is defined by the Toronto Stock Exchange’s listing standards applicable to the Company. The SEC has indicated that the designation of Messrs. Estra and Villaseñor as audit committee financial experts does not make either of them an “expert” for any purpose, impose any duties, obligations or liability on either of them that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee or board of directors.
Item 16B Code of Ethics
The Company has not adopted a written code of ethics applicable to officers and directors of the Company. The Board has found that the fiduciary duties placed on individual directors by the Company’s governing corporate legislation and the common law and the restrictions placed by applicable corporate legislation on an individual director’s participation in decisions of the Board in which the director has an interest have been sufficient to ensure that the Board operated independently of management and in the best interests of the Company.
Item 16C Principal Accountant Fees and Services
Audit Fees. This category includes the fees for the audit of our financial statements and the quarterly reviews of interim financial statements. This category also includes advice on audit and accounting matters that arose during or as a result of the audit or the review of interim financial statements and services in connection with Securities and Exchange Commission filings.
Audit-Related Fees. This category includes assurance and related services that are reasonably related to the performance of the audit or review of the financial statements that are not reported under Audit Fees, and describes the nature of the services comprising the fees disclosed under this category.
Tax Fees. This category includes the fees for professional services rendered for tax compliance, tax advice and tax planning, and describes the nature of the services comprising the fees disclosed under this category.
All Other Fees. This category includes products and services provided by the principal accountant, other than the services reported under Audit Fees, Audit-Related Fees or Tax Fees.
Our current independent public accountants provided audit and other services during the fiscal year ended April 30, 2018 and April 30, 2019:
| April 30, 2019 | April 30, 2018 | |||||||
| Audit Fees |
85,000 | 111,384 | ||||||
| Audit-Related Fees |
30,000 | 20,000 | ||||||
| Tax Fees |
Nil | Nil | ||||||
| All Other Fees |
Nil | Nil | ||||||
| Total Fees |
105,000 | 131,384 | ||||||
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Pre-Approval Policies and Procedures
Our audit committee pre-approves all services provided by our independent auditors. All of the services and fees described under the categories of “Audit Fees”, “Audit Related Fees”, “Tax Fees” and “All Other Fees” were reviewed and approved by the audit committee before the respective services were rendered. We are not relying upon a waiver pursuant to the provisions of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X
The audit committee has considered the nature and amount of the fees billed by Davidson & Company LLP, Chartered Professional Accountants, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Davidson & Company LLP, Chartered Professional Accountants.
Item 16D Exemptions from Listing Standards for Audit Committees
Not Applicable
Item 16E Purchase of Equity Securities by the Issuer and Affiliated Purchasers
There have been no purchases of the Company’s common shares by the Company or affiliated purchasers during the period covered by this report.
Item 16F Change in Registrant’s Certifying Accountant
In May, 2016, our Board of Directors approved the appointment of Davidson & Company LLP, Chartered Professional Accountants, as our independent accountants to audit our financial statements and dismissed Deloitte LLP, Chartered Professional Accountants, as our independent accountants. The appointment of Davidson & Company LLP was approved by the Company’s shareholders at the Annual General Meeting held on October 28, 2016.
Item 16G Corporate Governance
Not Applicable
Item 16H Mine Safety Disclosure
Not Applicable
PART III
Not Applicable
The following financial statements and notes thereto are filed with and incorporated herein as part of this Annual Report as Exhibit F-1:
Audited financial statements of the Company for the year ended April 30, 2019, including consolidated statements of financial position, consolidated statements of operations and comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows, and notes to the consolidated financial statements.
The Company’s Financial Statements are stated in Canadian Dollars and are prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
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Exhibits Required by Form 20-F
| Exhibit Number |
Description | |
| 1. | Articles of Incorporation | |
| 1.1 | Notice of Articles of Starcore International Mines Ltd. dated November 1, 2017.2 | |
| 1.2 | Amended Articles of Starcore International Mines Ltd dated October 24, 2017.2 | |
| 1.3 | Notice of Change of Directors dated November 1, 2017. 2 | |
| 4. | Material Contracts | |
| 4.1 | Arrangement Agreement dated May 29, 2015 between the Company and Cortez Gold.1 | |
| 8. | List of Subsidiaries | |
| 8.1 | Subsidiaries of the Company.1 | |
| 15. | Additional Exhibits | |
| 15.1 | Consent of Erme Enriquez, CPG, BSc, MSc2 | |
| F-1 | Financial Statements | |
Notes:
1. Incorporated by reference from the Company’s Registration Statement on Form 20-F, as filed with the Securities and Exchange Commission on August 12, 2016.
2. Incorporated by reference from the Company’s Annual report on Form 20-F, as filed with the Securities exchange Commission on July 30, 2018.
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CERTIFICATIONS
I, Robert Eadie, certify that:
1. I have reviewed this annual report on Form 20-F of Starcore International Mines Ltd.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
| Date: July 29th, 2019 |
| Signature: /s/ Robert Eadie |
| Title: Chief Executive Officer & President |
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CERTIFICATIONS
I, Gary Arca, certify that:
1. I have reviewed this annual report on Form 20-F of Starcore International Mines Ltd.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
| Date: July 29th, 2019 |
| Signature: /s/ Gary Arca |
| Title: Chief Financial Officer |
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