UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 000-53132
CHILE MINING TECHNOLOGIES
INC.
(Exact name of registrant as specified in its charter)
Nevada | 26-1516355 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
Jorge Canning 1410
Ñuñoa, Santiago
Republic of
Chile
(Address of principal executive offices)
(56) (02) 813 1087
(Registrants telephone
number, including area code)
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 [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of each of the issuers classes of common equity, as of December 9, 2011 is as follows:
Class of Securities | Shares Outstanding |
Common Stock, $0.001 par value | 9,364,593 |
TABLE OF CONTENTS
PART I | FINANCIAL INFORMATION | |
ITEM 1. | FINANCIAL STATEMENTS. | 1 |
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 2 |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 10 |
ITEM 4. | CONTROLS AND PROCEDURES. | 10 |
PART II | OTHER INFORMATION | |
ITEM 1. | LEGAL PROCEEDINGS. | 12 |
ITEM 1A. | RISK FACTORS. | 12 |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 12 |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 12 |
ITEM 4. | (REMOVED AND RESERVED). | 12 |
ITEM 5. | OTHER INFORMATION. | 12 |
ITEM 6. | EXHIBITS. | 12 |
PART I
FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
CHILE MINING TECHNOLOGIES, INC. |
(Formerly Latin America Ventures, Inc.) |
INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
For the three months ended June 30, 2011 and 2010 |
(Amounts expressed in US Dollars) |
F-1
CHILE MINING TECHNOLOGIES INC. |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010 |
Page | |
Interim Consolidated Financial Statements | |
Interim Consolidated Balance Sheets as at June 30, 2011 and March 31, 2011 | F-3 |
Interim Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2011 and 2010 | F-4 |
Interim Consolidated Statements of Cash flows for the three months ended June 30, 2011 and 2010 | F-5 |
Interim Consolidated Statements of Changes in Stockholders Deficiency for the three months ended June 30, 2011 and year ended March 31, 2011 | F-6 |
Notes to Interim Consolidated Financial Statements | F-7 F-19 |
F-2
CHILE MINING TECHNOLOGIES, INC. |
(Formerly Latin America Ventures, Inc.) |
INTERIM CONSOLIDATED BALANCE SHEETS AS AT JUNE 30, 2011 AND MARCH 31, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
June 30, | March 31, | |||||
2011 | 2011 | |||||
(Unaudited) | (Audited) | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalent | 438,891 | 437,124 | ||||
Sundry assets and other receivables (Note 12) | $ | 341,741 | $ | 279,942 | ||
Inventory (Note 11) | 145,759 | 95,508 | ||||
Goods in transit | - | - | ||||
926,391 | 812,574 | |||||
DEPOSITS AND OTHER ASSETS (Note 13) | 1,111,424 | 932,291 | ||||
DEFERRED FINANCING COSTS (Note 8 (b)) | 181,232 | 208,507 | ||||
PROPERTY PLANT AND EQUIPMENT (Note 3) | 5,235,376 | 5,235,099 | ||||
$ | 7,454,423 | $ | 7,188,471 | |||
LIABILITIES AND STOCKHOLDERS DEFICIENCY | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 1,399,054 | $ | 1,269,259 | ||
Loan from related parties (Note 5) | 329,112 | 104,857 | ||||
Loan from non related party (Note 14) | 500,000 | - | ||||
Obligation under capital leases | 375,976 | 374,055 | ||||
Due to related party (Note 5) | 1,406,259 | 1,381,490 | ||||
Convertible Promissory Note (Note 8 (c)) | 190,000 | 190,000 | ||||
4,200,401 | 3,319,661 | |||||
PROMISSORY NOTES (Note 4) | 1,680,342 | 1,607,983 | ||||
LONG TERM -OBLIGATION UNDER CAPITAL LEASE | 323,803 | 317,718 | ||||
DERIVATIVE FINANCIAL INSTRUMENTS (Note 8 (a)) | 5,432,808 | 5,866,285 | ||||
11,637,354 | 11,111,647 | |||||
REDEEMABLE COMMON STOCK (Note 8 (b)) | 3,128,605 | 3,128,605 | ||||
Stockholders deficiency | ||||||
Capital stock (note 6) | 9,365 | 9,365 | ||||
Additional paid in capital | 1,822,309 | 1,822,309 | ||||
Deficit | (9,423,373 | ) | (9,096,767 | ) | ||
Accumulated other comprehensive income | 280,163 | 213,312 | ||||
(7,311,536 | ) | (7,051,781 | ) | |||
Total liabilities and stockholders deficiency | $ | 7,454,423 | $ | 7,188,471 |
Going Concern (Note 1)
Related Party Transactions (Note
5)
Commitments (Note 15)
The accompanying notes are an integral part of these interim consolidated financial statements.
F-3
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
For the three months ended |
June 30, | June 30, | |||||
2011 | 2010 | |||||
Sales | $ | 63,209 | $ | - | ||
Cost of sales | 341,242 | 134,474 | ||||
Gross profit (loss) | (278,033 | ) | (134,474 | ) | ||
Operating expenses: | ||||||
Impairment of mining rights (Note 7) | $ | 701 | 5,640 | |||
Salaries and wages | 40,684 | 115,142 | ||||
General and administrative | 318,659 | 323,224 | ||||
Professional fees | 13,884 | 502,891 | ||||
373,928 | 946,897 | |||||
Operating loss before the undernoted | (651,961 | ) | (1,081,371 | ) | ||
Other expense-interest (Note 8 (b)) | (27,275 | ) | - | |||
Other income -Derivative Financial Instrument | 433,477 | - | ||||
Imputed interest expense (note 4) | (80,847 | ) | (78,629 | ) | ||
Net Loss for the period | (326,606 | ) | (1,160,000 | ) | ||
Foreign exchange translation adjustment for the period | 66,851 | (39,316 | ) | |||
Comprehensive loss for the period | $ | (259,755 | ) | $ | (1,199,316 | ) |
Weighted average number of common shares outstanding | 9,364,593 | 6,000,000 | ||||
Loss per share basic and diluted | $ | (0.03 | ) | $ | (0.19 | ) |
The accompanying notes are an integral part of these interim consolidated financial statements.
F-4
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
For the three months ended June 30, |
2011 | 2010 | |||||
Cash Flows from Operating Activities: | ||||||
Net loss | $ | (326,606 | ) | $ | (1,160,000 | ) |
Impairment of mining rights | 701 | 5,640 | ||||
Amortization | 115,612 | 75,208 | ||||
Imputed interest expense | 80,847 | 78,629 | ||||
Issue of convertible promissory note for professional services | - | 190,000 | ||||
Warrant derivative liabilities expensed | - | 62,176 | ||||
Amortization of deferred finance costs | 27,275 | - | ||||
Fair value adjustment relating to warrants | (433,477 | ) | - | |||
Changes in non-cash working capital: | ||||||
Increase in sundry assets and other receivables | (56,256 | ) | (231,197 | ) | ||
Increase in inventory | (48,266 | ) | (97,821 | ) | ||
Decrease (Increase) in goods in transit | - | 22,850 | ||||
Increase (Decrease) in accounts payable and accrued liabilities | 105,148 | (415,486 | ) | |||
Decrease (Increase) in deposits and other assets | (157,711 | ) | - | |||
Net Cash provided (used) by Operating Activities | (692,733 | ) | (1,470,001 | ) | ||
Cash Flows from Investing Activities: | ||||||
Acquisition of mining rights | (701 | ) | (5,640 | ) | ||
Acquisition of property plant and equipment | (15,576 | ) | (283,108 | ) | ||
Net Cash used by Investing Activities | (16,277 | ) | (288,748 | ) | ||
Cash Flows from Financing Activities: | ||||||
Proceeds (Repayments) of promissory notes | - | (47,222 | ) | |||
Due from (repayment to) related party | (1,687 | ) | 250,216 | |||
Loan from related party | 211,575 | - | ||||
Loan from non-related party | 500,000 | - | ||||
Capital lease repayment | (75,404 | ) | - | |||
Proceeds from redeemable common stock, net | - | 5,286,190 | ||||
Net Cash Provided By Financing Activities | 634,484 | 5,489,184 | ||||
Effects of foreign currency exchange rate changes | 76,293 | 716 | ||||
Net Increase in Cash and Cash Equivalents | 1,767 | 3,731,151 | ||||
Cash and Cash Equivalents at beginning of the period | 437,124 | - | ||||
Cash and Cash equivalents at end of the period | $ | 438,891 | $ | 3,731,151 | ||
Supplemental information: | ||||||
Income tax paid | Nil | Nil | ||||
Interest paid | Nil | Nil |
The accompanying notes are an integral part of these interim consolidated financial statements.
F-5
CHILE MINING TECHNOLOGIES, INC.
(Formerly Latin America
Ventures, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
DEFICIENCY FOR
THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND YEAR ENDED MARCH 31,
2010
(Amounts expressed in U.S. Dollars)
(Unaudited)
Number of common shares |
Capital stock |
Additional Paid in capital |
Deficit | Accumulated Other Comprehensive Income (loss) |
Total | |||||||||||||
Balance as at April 1, 2009* | 6,000,000 | 6,000 | 4,715 | (664,073 | ) | (33,871 | ) | (687,229 | ) | |||||||||
Discount on promissory notes | 1,404,458 | 1,404,458 | ||||||||||||||||
Net loss for the year | - | - | - | (1,177,963 | ) | - | (1,177,963 | ) | ||||||||||
Foreign currency translation adjustment | - | - | - | 149,268 | 149,268 | |||||||||||||
Balance as at March 31, 2010 | 6,000,000 | 6,000 | 1,409,173 | (1,842,036 | ) | 115,397 | (311,466 | ) | ||||||||||
Private placement of shares | 2,089,593 | 2,090 | 2,090 | |||||||||||||||
Stock for credit facility-AIBC | 75,000 | 75 | 75 | |||||||||||||||
Reverse acquisition adjustment | 4,800,500 | 4,800 | (4,800 | ) | ||||||||||||||
Cancellation of common shares | (3,600,500 | ) | (3,600 | ) | 3,600 | - | ||||||||||||
Forgiveness of debt by related parties | 661,552 | 661,552 | ||||||||||||||||
Discount on promissory notes adjusted | ||||||||||||||||||
due to forgiveness of debt | (261,051 | ) | (261,051 | ) | ||||||||||||||
Premium on convertible promissory note | 13,835 | 13,835 | ||||||||||||||||
Net loss for the year | (7,254,731 | ) | (7,254,731 | ) | ||||||||||||||
Foreign currency translation | 97,915 | 97,915 | ||||||||||||||||
Balance as at March 31, 2011 | 9,364,593 | 9,365 | 1,822,309 | (9,096,767 | ) | 213,312 | (7,051,781 | ) | ||||||||||
Net loss for the period | (326,606 | ) | (326,606 | ) | ||||||||||||||
Foreign currency translation | 66,851 | 66,851 | ||||||||||||||||
Balance as at June 30, 2011 | 9,364,593 | 9,365 | 1,822,309 | (9,423,373 | ) | 280,163 | (7,311,536 | ) |
*In a reverse merger, the historic stockholders deficiency of the accounting acquirer (Minera Licancabur S.A) is retroactively stated for all periods for the equivalent number of shares received in the reverse merger
The accompanying notes are an integral part of these interim consolidated financial statements.
F-6
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(unaudited) |
1. NATURE OF OPERATIONS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of the results for the interim periods.
The condensed consolidated financial statements should be read in conjunction with the financial statements and Notes thereto together with managements discussion and analysis of financial condition and results of operations contained in the Companys annual report on Form 10-K for the year ended March 31, 2011. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of the Company at June 30, 2011 and March 31, 2011, the results of its operations for the three month periods ended June 30, 2011 and June 30, 2010, and its cash flows for the three-month periods ended June 30, 2011 and June 30, 2010. In addition, some of the Companys statements in this quarterly report on Form 10-Q may be considered forward-looking and involve risks and uncertainties that could significantly impact expected results. The results of operations for the three-month period ended June 30, 2011 are not necessarily indicative of results to be expected for the full year.
The interim consolidated financial statements include the accounts of Chile Mining Technologies, Inc. (the Company or Chile Mining ), and its subsidiary Minera Licancabur S.A. (Minera) (99.99% owned by the Company). All material inter-company accounts and transactions have been eliminated.
Organization
On May 12, 2010, the Company entered into and closed a share exchange agreement (the Share Exchange Agreement) with Minera, a Chilean company, and its shareholders, pursuant to which the Company acquired 99.9% of the issued and outstanding capital stock of Minera in exchange for 6,000,000 shares of common stock, par value $0.001, which constituted 83.33% of the Companys issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share Exchange Agreement and after giving effect to the Cancellation Agreement described below. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Minera is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
The Companys Chief Executive Officer (CEO), who is also one of the former shareholders of Minera, retained one share of Minera, constituting 0.1% of Mineras issued and outstanding capital stock. The acquisition of Minera was structured to allow the CEO to retain one share of Minera in order to comply with Chilean legal requirements to have at least two record owners of its capital stock. Upon the closing of the Share Exchange Agreement, the CEO entered into a nominee agreement with the Company pursuant to which he agreed to act as the record holder of such share, but agreed that all other rights to the share, including the right to receive distributions on the share, vote the share and be the beneficial owner of the share, rest in the Company.
As a condition precedent to the consummation of the Share Exchange Agreement, on May 12, 2010, the Company also entered into a cancellation agreement (the Cancellation Agreement) with Halter Financial Investments, LP (HFI) and Mr. Pierre Galoppi, the controlling stockholders, whereby HFI and Mr. Galoppi agreed to the cancellation of an aggregate of 3,600,500 shares of common stock owned by them.
Private Placement Transaction
On May 12, 2010, the Company also completed a private placement transaction with a group of accredited investors. Pursuant to a securities purchase agreement that was entered into with the investors and Minera (the Securities Purchase Agreement), the Company issued to the investors an aggregate of 2,089,593 shares of common stock for an aggregate purchase price of $5,809,000, or $2.78 per share, and warrants (the Closing Warrants) to purchase up to 1,044,803 shares of our common stock. The Closing Warrants have a term of four years, bear an exercise price of $3.61 per share (subject to customary adjustments), are exercisable on a net exercise or cashless basis and are exercisable by investors at any time after the closing date.
F-7
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
1. NATURE OF OPERATIONS-Contd
Pursuant to the Securities Purchase Agreement, the Company also agreed to certain make good provisions. Under the make good provisions, the Company issued additional warrants (the Make Good Warrants) to the investors to purchase up to an aggregate of 2,089,593 shares of its common stock, at an exercise price of $0.01 per share, which will only become exercisable if the company does not meet certain financial performance targets in 2011 and 2012. The make good provisions established minimum net income thresholds of $14,382,102 and $15,179,687 for the 2011 and 2012 fiscal years, respectively. If, in a given fiscal year, 90% of the applicable minimum net income threshold is not met, such aggregate number of Make Good Warrants will become exercisable equal to the amount by which the Companys actual net income is less than the applicable financial target, divided by the financial target, and multiplied by 2,089,593. In connection with the private placement, the Company also entered into (i) a registration rights agreement, pursuant to which the Company is obligated to register the shares of common stock issued to investors, including the shares of common stock underlying the warrants, within a pre-defined period and (ii) a closing escrow agreement, with Halter Financial Securities, Inc., as placement agent, and Securities Transfer Corporation, as escrow agent, for deposit of funds by the investors.
The company also entered into lock-up agreements with each of our directors and officers, pursuant to which each of them agreed not to transfer any shares of capital stock held directly or indirectly by them for a one year period following the effective date of a registration statement covering the shares issued in connection with the private placement.
Convertible Promissory Note and Make Good Warrant
Halter Financial Group, L.P. (HFG) provided certain advisory services to the Company in connection with the acquisition of Minera and the private placement transaction described above. Pursuant to an advisory agreement that Minera entered into with HFG on April 16, 2009, HFG agreed to (a) advise Minera with regard to its desire to effect a combination transaction with a U.S. domiciled public shell corporation, (b) help Minera identify suitable investment bank(s) to act as placement agent for its contemplated private placement transactions and (c) counsel management on matters related to the operating a U.S. domiciled public company. Under the terms of the advisory agreement, HFG was entitled to receive a cash payment of $450,000 at the closing of the reverse acquisition of Minera. In lieu of such cash payment, HFG agreed to accept a cash payment of $260,000 and a promissory note issued by the Company in the principal amount of $190,000 that accrues simple annual interest at a rate of 3% (the HFG Note). The HFG Note is due and payable on the sooner of the closing of our next equity financing (including the receipt of additional funds by the Company from any subsequent closing of the May 12 private placement) or the 180th day following the date of its issuance. In addition, at any time that the HFG Note remains outstanding, it may be converted at HFGs option into shares of our common stock at a conversion price of $2.78. At the closing, HFG was also issued a Make Good warrant, to purchase up to 985,104 shares of the Companys common stock (the HFG Make Good Warrant). The terms of the HFG Make Good Warrant are identical to the terms of the Make Good Warrants issued to the investors in the private placement.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. This contemplates that assets will be realized and liabilities and commitments satisfied in the normal course of business.
As shown in the accompanying financial statements, the Company has a working capital deficit of $3,274,010 and has incurred a deficit of $9,423,373 for the cumulative period to June 30, 2011. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the production of copper. Management has plans to seek additional capital through private placements and public offering of its capital stock. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Although there are no assurances that management's plans will be realized, management believes that the Company will be able to continue operations in the future. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
F-8
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
2. COMPLETION OF ACQUISITION
On May 12, 2010, Chile Mining Technologies, Inc (The Company) completed an acquisition of Minera pursuant to the Share Exchange Agreement. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Minera is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
3. PROPERTY PLANT AND EQUIPMENT
June 30, 2011 | March 31, 2011 | |||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | Net | |||||||||
$ | $ | $ | $ | |||||||||
Santa Filomena Plant | 928,662 | - | 928,662 | 911,212 | ||||||||
Land-Santa Filomena Plant | 53,433 | - | 53,433 | 52,428 | ||||||||
Ana Maria Plant and equipment | 4,640,054 | 574,577 | 4,065,477 | 4,087,184 | ||||||||
Machinery under construction | 175,984 | - | 175,984 | 172,677 | ||||||||
Arica leasehold improvement | 11,820 | - | 11,820 | 11,598 | ||||||||
5,809,953 | 574,577 | 5,235,376 | 5,235,099 |
Included in property, plant and equipment are amounts relating to capital leases having a cost of $989,727 ($nil in 2010) and accumulated amortization of $33,587 ($nil in 2010). The Santa Filomena Plant is not being amortized as plant is under construction. Amortization for the period amounted to $115,612 ($75,208 in 2010)
4. PROMISSORY NOTES
Promissory notes from related parties payable were unsecured
and consisted of the following:
Company | Interest Rate |
June 30, |
March 31, |
||||||
2011 |
2011 |
||||||||
Ivan Vergara | Nil | $ | 237,218 | $ | 227,003 | ||||
Jorge Pizarro | Nil | 149,654 | 143,210 | ||||||
Geominco EIRL | Nil | 1,293,469 | 1,237,770 | ||||||
Total Long Term | $ | 1,680,342 | $ | 1,607,983 |
All long term liabilities are valued at fair market value at inception. These long term notes do not bear interest and had a maturity date of March 31, 2013. The Company recognized a discount on the face value of the loans at inception to adjust the carrying value to the fair value. Fair value was calculated by using the net present value of the loans, at an assumed interest rate of 18%. The amount of the discount, being $1,404,458 was recorded in Additional paid in capital on the opening balance sheet.
During the year ended March 31, 2011, the promissory note holders forgave $661,552 in debt. The transaction was accounted for as a capital transaction with related parties and the company credited Additional paid in capital with $661,552.
In addition, the Company credited additional paid in capital with $13,835 (refer to Note 8 (c))
The discounts are being amortized over the lives of the promissory notes using the effective interest method, with interest expense being recorded as an expense in the related period. The Company recognized interest expense to amortize discounts on promissory notes to related parties for the three month period ended June 30, 2011 in the amount of $80,847 ($78,629 in 2010).
F-9
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
5. RELATED PARTY
a) As of June 30, 2011, the Company has loans payable to related parties for $329,112 (2010: $nil). Loan for $104,857 is unsecured, free of interest and is payable on March 31, 2012. The balance loan for $222,247 is unsecured, free of interest and payable on demand.
During the quarter, the Company paid salaries of $7,998 ($19,739 in 2010) to parties that are related to the shareholder of the Company.
During the quarter, related promissory note holders forgave $Nil in debt. (2010: $661,552)
During the quarter, the Company had equipment rental and consulting expenses of $240,751 (2010: $---) to a related party, a party related by virtue of companies under common control.
The transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties under common control
b) The company owes the following amounts to related parties:
Included in accounts payable and accrued liabilities are amounts owing for services provided by two directors for $42,500 (2010 $nil)
As of June 30, 2011 the Company owes Geominco E.I.R.L., a related party for $1,406,259. This advance is unsecured non-interest bearing and due on demand.
F-10
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
6. CAPITAL STOCK
Authorized
Preferred Stock; $0.001 par value
10,000,000 shares authorized
Common Stock: $0.001 par value 100,000,000
shares authorized
Issued
Preferred Stock: None issued and
outstanding
Common Stock: 9,364,593 common shares (2011: 9,364,593 common
shares)
On May 12, 2010, the Company entered into and closed the Share Exchange Agreement with Minera and its shareholders, pursuant to which the Company acquired 99.9% of the issued and outstanding capital stock of Minera in exchange for 6,000,000 shares of common stock, par value $0.001, which constituted 83.33% of the Companys issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share Exchange Agreement and after giving effect to the Cancellation Agreement.
As a condition precedent to the consummation of the Share Exchange Agreement, on May 12, 2010, the Company also entered into the Cancellation Agreement HFI and Mr. Pierre Galoppi, the controlling stockholders, whereby HFI and Mr. Galoppi agreed to the cancellation of an aggregate of 3,600,500 shares of common stock owned by them.
On May 6, 2010, the Company entered into a letter agreement that outlined the proposed terms of a standby facility of credit with AIBC International Corp.(SR), or AIBC. Under the letter agreement, the Company could request an advance from AIBC for up to an aggregate of $3 million, subject to satisfaction of certain conditions. In connection with the execution of the letter agreement, the Company issued to AIBC 75,000 shares of common stock.
On May 12, 2010, the Company also completed a private placement transaction with a group of accredited investors. Pursuant to the Securities Purchase Agreement that was entered into with the investors and Minera, the Company issued to the investors an aggregate of 2,089,593 shares of common stock for an aggregate purchase price of $5,809,000, or $2.78 per share, and the Closing Warrants to purchase up to 1,044,803 shares of common stock. The Closing Warrants have a term of four years, bear an exercise price of $3.61 per share (subject to customary adjustments), are exercisable on a net exercise or cashless basis and are exercisable by investors at any time after the closing date (refer note 8 (b)).
7. IMPAIRMENT OF MINING RIGHTS
The Company has expensed mining rights, since the Company currently has no formal plan to exploit these mineral rights.
F-11
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
8(a) DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments, as defined in FASB Accounting Standards Codification (ASC) 815-10-15-83 Derivatives and Hedging, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has entered into certain other financial instruments and contracts, such as secured convertible debenture and warrant financing arrangements that are either (i) not afforded equity classification or (ii) embody risks not clearly and closely related to host contracts. As required by ASC 815, these instruments are required to be carried as derivative liabilities, at fair value, in the financial statements.
The following table summarizes the components of the derivative liabilities as of June 30, 2011 and inception of the instruments:
Inception |
||||||
May 2010 Private Placement: | June
30, 2011 |
May
12, 2010 |
||||
Investor warrants | $ | 579,866 | $ | 1,519,144 | ||
Broker warrants | 104,374 | 273,442 | ||||
Credit facility warrants | - | 523,440 | ||||
Make Good warrants | 3,227,172 | 131,891 | ||||
Acquisition advisory fees: | ||||||
Make Good warrants | 1,521,396 | 62,176 | ||||
Total derivative liabilities | $ | 5,432,808 | $ | 2,510,093 |
The following table summarizes the common shares indexed to the derivative instruments as of June 30, 2011 and inception of the instruments:
Inception |
||||||
May 2010 Private Placement: | June
30, 2011 |
May
12, 2010 |
||||
Investor warrants | 1,044,803 | 1,044,803 | ||||
Broker warrants | 188,062 | 188,062 | ||||
Credit facility warrants | - | 360,000 | ||||
Make Good warrants | 1,494,061 | 47,597 | ||||
Acquisition advisory fees: | ||||||
Make Good warrants | 704,350 | 22,438 | ||||
3,431,276 | 1,662,900 |
Since the number of common shares indexed to the Make Good warrants is dependent on the number of warrants that will vest based on the achievement of certain performance conditions, the number of shares of common stock indexed to the warrants was determined using probability-weighted outcomes based on managements best estimate of the probability of achievement of the performance conditions in 2011 and 2012.
F-12
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
8(b) MAY 2010 PRIVATE PLACEMENT
On May 12, 2010, the Company commenced a private placement of (i) 2,089,593 shares of common stock for an aggregate purchase price of $5,809,000, or $2.78 per share, (ii) Closing Warrants to purchase up to 1,044,803 shares of common stock, and (iii) Make Good Warrants to purchase up to an aggregate of 2,089,593 shares of common stock (the May 2010 Private Placement). In connection with the May 2010 Private Placement, the Company entered into a Registration Rights Agreement related to the common stock and warrants that requires the Company to, among other things, file a Registration Statement within 65 days from the closing of the May 2010 Private Placement and achieve effectiveness as soon as possible , but in no event later than the 180th day following the Final Closing Date or the 5th trading day following the date on which the Company is notified that the initial Registration Statement will not be reviewed or is no longer subject to review and comments. The Registration Rights Agreement does not provide for an alternative or contain a penalty in the event the Company is unable to fulfill its requirements. As a result of the registration rights obligation to file within a specified period, which is presumed not to be within the Companys control, the Company is required to classify the common stock outside of stockholders equity as redeemable common stock.
The Closing warrants included in the May 2010 Private Placement are indexed to 1,044,803 shares of the Companys common stock and may be exercised until the fourth anniversary of their issuance at an exercise price of $3.61 per share. Pursuant to the Securities Purchase Agreement, the Company also agreed to issue Make Good warrants to investors to purchase up to an aggregate amount of 2,089,593 shares of common stock at an exercise price of $0.01 per share which only become exercisable if the Company does not meet certain financial performance targets in 2011 and 2012. The make good provisions established minimum net income thresholds of $14,382,102 and $15,179,687 for the 2011 and 2012 fiscal years, respectively. If, in a given fiscal year 90% of the applicable minimum net income threshold is not met, such aggregate number of Make Good warrants will become exercisable equal to the amount by which our actual net income is less than the applicable financial target, divided by the financial target, and multiplied by 50% of the total warrant shares underlying the warrant agreement. The Closing and Make Good warrants were evaluated under the guidance of ASC 480, Distinguishing Liabilities and Equity for purposes of their classification. Due to the Make Good warrants contingent exercise provisions, they did not meet the definition of indexed to a Companys own stock and were required to be classified as liabilities and measured at inception and an ongoing basis at fair value. The Closing warrants met the definition of indexed to a Companys own stock; however, they did not meet eight conditions for equity classification provided in ASC 815-40 because they have firm registration rights with no economic alternative to registration. The Company is required to assume that cash settlement would be the only alternative to non-filing and effectiveness under the standards. Accordingly, the Closing warrants required liability classification at inception and on an ongoing basis at fair value until the registration rights are fulfilled. In order to estimate the fair value of the warrants the Company was required to develop certain subjective assumptions which are listed in more detail below.
The total basis in the financing was allocated first to derivative instruments, required to be classified as liabilities with the remaining basis being allocated to the common stock.
F-13
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
8(b) MAY 2010 PRIVATE PLACEMENT-Contd
The following table illustrates the initial allocation:
Financing | |||||||||
Proceeds | Cost | Final | |||||||
Allocation | Allocation | Allocation | |||||||
Gross proceeds | $ | 5,809,000 | $ | - | $ | 5,809,000 | |||
Financing costs paid in cash | - | (522,810 | ) | (522,810 | ) | ||||
5,809,000 | (522,810 | ) | 5,286,190 | ||||||
Derivative liabilities: | |||||||||
Closing warrants: | |||||||||
Investor warrants | (1,519,144 | ) | (1,519,144 | ) | |||||
Broker warrants | (273,442 | ) | (273,442 | ) | |||||
Credit facility warrants | (523,440 | ) | (523,440 | ) | |||||
Make Good warrants | (131,891 | ) | (131,891 | ) | |||||
Total derivative liabilities | (1,651,035 | ) | (796,882 | ) | (2,447,917 | ) | |||
Redeemable common stock | (4,157,965 | ) | - | (4,157,965 | ) | ||||
Financing costs paid in cash | 407,792 | 407,792 | |||||||
Financing costs paid with warrants | 621,568 | 621,568 | |||||||
Total redeemable common stock | (4,157,965 | ) | 1,029,360 | (3,128,605 | ) | ||||
Deferred finance costs | $ | - | $ | 290,332 | $ | 290,332 |
The Company amortized deferred finance cost by $27,275 during the quarter ended June 30, 2011. Deferred finance costs outstanding as of June 30, 2011 is $ 181,232.
The direct financing costs are allocated to the financial instruments (redeemable common stock and warrants), based upon their relative fair values. Amounts related to the warrants are recorded as deferred finance costs and amortized through charges to interest expense over the term of the arrangement using the effective interest method while amounts related to the common stock directly offset the carrying value of the redeemable common stock.
8(c) CONVERTIBLE PROMISSORY NOTE AND MAKE GOOD WARRANT
HFG provided certain advisory services to the Company in connection with the acquisition of Minera and the May 2010 Private Placement. Pursuant to an advisory agreement that Minera entered into with HFG on April 16, 2009, HFG agreed to (a) advise Minera with regard to its desire to effect a combination transaction with a U.S. domiciled public shell corporation, (b) help Minera identify suitable investment bank(s) to act as placement agent for its contemplated private placement transactions and (c) counsel management on matters related to the operating a U.S. domiciled public company. Under the terms of the advisory agreement, HFG was entitled to receive a cash payment of $450,000 at the closing of the reverse acquisition of Minera. In lieu of such cash payment, HFG agreed to accept a cash payment of $260,000 and the HFG Note in the principal amount of $190,000 that accrues simple annual interest at a rate of 3%. The HFG Note is due and payable on the sooner of the closing of the next equity financing (including the receipt of additional funds by the Company from any subsequent closing of the May 12 private placement) or the 180th day following the date of its issuance. In addition, at any time that the HFG Note remains outstanding, it may be converted at HFGs option into shares of our common stock at a conversion price of $2.78.
F-14
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
8(c) CONVERTIBLE PROMISSORY NOTE AND MAKE GOOD WARRANT-Contd
The Company has evaluated the terms and conditions of the HFG Note under the guidance of ASC 815, Derivatives and Hedging. The embedded conversion feature (ECF) is an equity-linked feature that is not clearly and closely related to the risks of the host debt instrument. However, current accounting standards afforded an exemption to bifurcation of the ECF because it is both indexed to the Companys own stock and otherwise met the definition of Conventional Convertible based upon the fixed conversion price.
At the closing, the Company was also issued to HFG the HFG Make Good Warrant for the purchase up to 985,104 shares of common stock. The terms of the HFG Make Good Warrant are identical to the terms of the Make Good Warrants issued to the investors in the private placement and accordingly, they did not meet the definition of indexed to a Companys own stock and were required to be classified as liabilities and measured at inception and an ongoing basis at fair value. The fair value of the Make Good Warrants was determined using the Black-Scholes-Merton valuation technique over the term to contractual expiration. In applying this technique we were required to develop certain subjective assumptions which are listed in more detail below.
The fair value of the HFG Note was estimated based upon the present value of its future cash flows, using credit risk adjusted rates, as enhanced by the fair value of the ECF. Since the Company does not have an established credit rating, the credit risk adjusted yield of 15.51% was determined by reference to comparable instruments in public markets and industry-specific risk. The fair value of the ECF was determined using the Monte Carlo Simulation (MCS). MCS is an option-based model that embodies assumptions that would likely be considered by market participants who trade the financial instrument. In addition to more traditional assumptions, such as stock price, trading volatilities and risk-free rates, MCS assumptions include credit risk, interest risk and redemption considerations. Significant assumptions included in the MSC valuation technique were as follows:
Assumption | |||
Linked common shares | 68,345 | ||
Stock price | $ | 2.78 | |
Expected life (years) | 4.00 | ||
Volatility (based on peers) | 58.24%- 63.55% | ||
Risk adjusted yield | 15.51%- 16.94% | ||
Risk adjusted interest rate | 1.52%- 1.65% |
The advisory fee expense was determined based upon the fair value of the HFG Note and the HFG Make Good Warrants. In accordance with APB 14, the premium on the HFG Note, representing the difference between the fair value and the face value of the note, was recorded to additional paid in capital..
The following table illustrates the initial allocation:
Initial | |||
Allocation | |||
Convertible Promissory Note | $ | 190,000 | |
Make Good warrants | 62,176 | ||
Additional paid in capital | 13,835 | ||
Total | $ | 266,011 |
F-15
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
8(c) CONVERTIBLE PROMISSORY NOTE AND MAKE GOOD WARRANT-Contd
Fair value Disclosures:
ASC 820, Fair value Measurements and Disclosures, provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition. Financial instruments arising from the May 2010 Private Placement that are measured at fair value on a recurring basis are (i) the investor warrants, (ii) the broker warrants, (iii) the credit facility warrants and (iii) Make Good warrants, respectively.
The warrants were valued using the Black-Scholes-Merton technique, and the Company estimated (i) the expected term as equal to the remaining term on the warrant, (ii) the volatility, based upon a reasonable peer group, (iii) the risk free rate as the published rate for zero coupon government securities with terms consistent with the expected term.
Information and significant assumptions embodied in our warrant valuations (including ranges for certain assumptions) as of June 30, 2011 are illustrated in the following tables:
Fair value | Closing | Make Good | |
hierarchy | Warrants | warrants | |
Warrants to purchase common | |||
stock: | |||
Stock price (1) | (2) | $2.17 | $2.17 |
Strike price | n/a | $3.61 | $0.01 |
Volatility (2) | (2) | ||
Range of volatilities | 49.48% - 86.38% | 49.48% - 86.38% | |
Equivalent volatility | 58.09% | 58.09% | |
Term (years) (3) | (3) | 2.87 | 2.87 |
Risk-free rate (2) | (2) | ||
Range of risk free rates | 0.03% -0.81% | 0.03% -0.81% | |
Equivalent risk free rate | 0.29% | 0.29% | |
Dividends | n/a | -- | -- |
Fair value hierarchy:
(1) |
Level 1 inputs are quoted prices in active markets for identical assets and liabilities, or derived there from. We used our trading market price as of June 30, 2011 as input into the model which is a Level 1 input. |
(2) |
Level 2 inputs are inputs other than quoted prices that are observable. The Binomial Lattice model provides for multiple assumptions related to volatility and risk free rate over the remaining term of the warrants. The equivalents or averages of these assumptions are also provided above. We use the current published yields for zero-coupon US Treasury Securities for our risk free rate. We did not have a historical trading history sufficient to develop an internal volatility rate for use in the Binomial Lattice model. As a result, we have used a peer approach wherein the historical trading volatilities of certain companies with similar characteristics as ours and who had a sufficient trading history were used as an estimate of our volatility. In developing this model, no one company was weighted more heavily. |
(3) |
Level 3 inputs are unobservable inputs. Inputs for which any parts are Level 3 inputs are classified as Level 3 in their entirety. The remaining term used equals the remaining contractual term as our best estimate of the expected term. The probability-weighted outcomes of achieving the performance conditions are also a Level 3 input. |
Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high estimated volatility. Since derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.
The following table summarizes the changes in fair values of our derivative liabilities, which are reflected in income, during the three months ended June 30, 2011 and 2010:
Three months ended June 30, | ||||||
2011 | 2010 | |||||
May 2010 Private Placement: | ||||||
Investor warrants | $ | 302,993 | $ | -- | ||
Broker warrants | 54,538 | -- | ||||
Credit facility warrants | 304,200 | -- | ||||
Make Good warrants | (155,124 | ) | ||||
Acquisition advisory fees: | -- | |||||
Make Good warrants | (73,130 | ) | -- | |||
Total derivative (expense) income | $ | 433,477 | $ | -- |
The following represents a reconciliation of the changes in our derivatives and the related changes in fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2011:
Balances at March 31, 2011 | $ | 5,866,285 | |
Fair value adjustments | (433,477 | ) | |
Balances at June 30, 2011 | $ | 5,432,808 |
F-16
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
9. SEGMENT INFORMATION
As at June 30, 2011 the Company operated in one reportable segment, being the exploration for and the development of mining rights in the Republic of Chile.
10. CAPITAL MANAGEMENT
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to maintain its daily operations. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain the future development of the business.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company upon approval from its Board of Directors will balance its overall capital structure through new share issues or by undertaking other activities as deemed appropriate under the specific circumstances. As such, the Company is dependent on external financing to fund its daily operations. In order to procure materials and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the foregoing paragraph and the relative size of the Company, is reasonable.
There were no changes in the Company's approach to capital management during the quarter ended June 30, 2011.
11. INVENTORY
The quantity of material in ore on the leach pad is based on surveyed volumes of mined material. Sampling and assaying determine the estimated amount of copper contained in material delivered to the leach pad. As at June 30, 2011 the amount of copper contained in material delivered to the leach pad is at a level of 1%.Expected copper recovery rates are determined using small-scale laboratory tests, historical trends and other known factors, including mineralogy of the ore and rock type. The ultimate recovery of copper contained in leach stockpiles can vary from a very low percentage to over 90 percent depending on several variables, including type of processing, metallurgical processes and mineralogy. As at March 31, 2011 the current ultimate recovery copper has been estimated at 80%.
F-17
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
12. SUNDRY ASSETS AND OTHER RECEIVABLES
June 30,2011 | March 31,2011 | |||||
Employee advances | $ | 124,030 | $ | 18,220 | ||
Deferred rent | 159,869 | 156,865 | ||||
Deposit for production materials | 57,842 | 104,857 | ||||
$ | 341,741 | $ | 279,942 |
In November 2010, the Company signed a ten year lease for operating two properties in Arica, Republic of Chile. The Company is obligated to pay a total monthly rent of $32,051 for the first 12 months (Chilean 15 million Pesos) which will be adjusted and offset with future royalty payments. The Royalty established will be equivalent to ten percent of the net value of the ore to be extracted and sold, metallic or nonmetallic, taking as reference the rates established by ENAMI monthly. However, the Company, at its full cost, may install a plant to process the ore extracted. The royalty will be paid monthly, starting in month thirteen counted from the signing of the contract. All direct and indirect expenses related to the program of exploration, conceptual study and feasibility study will be at the total and exclusive charge of the Company and not adjustable with the rent or royalty.
13. DEPOSITS AND OTHER ASSETS
June 30, 2011 | March 31,2011 | |||||
Investment in San Daniel | $ | 320,595 $ | 314,571 | |||
Value added taxes (VAT) | 460,913 | 433,175 | ||||
Equipment deposit | 329,916 | 184,545 | ||||
$ | 1,111,424 | $ | 932,291 |
Deposits and other assets includes VAT for $460,913 (March 31, 2011: $433,175) as applicable to the laws in Chile, which the Company will apply for refund from the Government of Chile.
F-18
CHILE MINING TECHNOLOGIES INC. |
(Formerly Latin America Ventures, Inc.) |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
June 30, 2011 |
(Amounts expressed in U.S. Dollars) |
(Unaudited) |
14. LOAN FROM NON RELATED PARTY
During the period ended June 30, 2011, the Company received a loan from a non-related party for $500,000. This loan is free of interest and payable in six monthly equal installments commencing six months from the receipt of loan. The Company will be obligated to pay interest at 10% per annum in the event of default.
15. COMMITMENTS
The company is committed to supply 100MT of cathodes per month to a customer for a period of 12 months for a total of 1,200MT commencing May, 2011. The selling prices are based on London metal prices less 8% commission. Any short supply will be carried forward to next month until the supply of 1,200MT is complete. The Company did not supply any cathodes as of June 30, 2011.
One of the Company's suppliers has filed a legal action claiming that the Company is responsible for the full payment of ordered merchandise in the amount of 141,857,940 Chilean pesos. The Company has paid a deposit of 53,906,017 Chilean pesos on this order, but has neither received the merchandise nor made any further installments. The Company and the supplier have come to a preliminary agreement that allows the supplier to forfeit approximately 50% of the deposit towards the cancellation of the order. Accordingly, the Company recorded a provision for 50% of the deposit during the fiscal quarter ended June 30, 2011.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK FACTORS
The fair value of a financial instrument is the estimated amount that the Company would receive or pay to settle the financial assets and financial liabilities as at the reporting date. The book value of sundry assets and other receivables, deposits and other assets, accounts payable and accrued liabilities, and due to related party approximate fair values at the balance sheet dates.
The fair value of the long-term debt has been estimated by discounting future cash flows at a rate offered for debt of similar maturities and credit quality.
All financial instruments except for derivative financial instruments and cash and cash equivalent are classified as level 3. Both cash and cash equivalents and derivative financial instruments are classified as level 1.
June 30, 2011 | March 31, 2011 | |||||||||||
Carrying | Carrying | |||||||||||
Assets/Liabilities | Value | Fair Value | Value | Fair Value | ||||||||
Cash and cash equivalents | 438,891 | 438,891 | 437,124 | 437,124 | ||||||||
Sundry assets and other receivables | $ | 341,741 | $ | 341,741 | $ | 279,942 | $ | 279,942 | ||||
Accounts payable and accrued liabilities | $ | 1,399,054 | $ | 1,399,054 | $ | 1,269,259 | $ | 1,269,259 | ||||
Due to related party | $ | 1,406,259 | $ | 1,406,259 | $ | 1,381,490 | $ | 1,381,490 |
The following table summarizes the components of the derivative
liabilities as of June 30, 2011 and inception of the instruments. These
financial instruments are measured at fair value at Inception and as of June 30,
2011:
Inception | ||||||
May 2010 Private Placement: | June 30, 2011 | May 12, 2010 | ||||
Investor warrants | $ | 579,866 | $ | 1,519,144 | ||
Broker warrants | 104,374 | 273,442 | ||||
Credit facility warrants | - | 523,440 | ||||
Make Good warrants | 3,227,172 | 131,891 | ||||
Acquisition advisory fees: | ||||||
Make Good warrants | 1,521,396 | 62,176 | ||||
Total derivative liabilities | $ | 5,432,808 | $ | 2,510,093 |
Interest rate risk
The companys exposure to interest rate fluctuations is not significant.
Credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of amounts receivable. The Company is not exposed to material losses on its accounts receivable and future revenues.
Commodity price risk
The ability of the Company to develop its properties and the future profitability of the Company is directly related to the market price of certain minerals. The Company does not currently use derivative financial instruments to reduce its exposure to commodity price risk.
Liquidity risk
The Companys exposure to liquidity risk is dependent on the collection of amounts receivable and the ability to raise funds to meet purchase commitments and to sustain operations. The company controls its liquidity risk by managing working capital and cash flows.
Foreign currency risk
The Company is exposed to foreign currency risk as substantially all of the Companys cash is denominated in Chilean Pesos. This risk is partially mitigated by the fact that a significant portion of the costs associated with the mining claims and deferred exploration expenditures are incurred in Chilean Pesos.
F-19
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as believe, expect, anticipate, project, target, plan, optimistic, intend, aim, will or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in Chile, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Certain Defined Terms
Except as otherwise indicated by the context, references in this report to:
Overview
We are a mineral extraction company based in the Republic of Chile, with copper as our principal pay metal. Our founders, Messrs. Jorge Osvaldo Orellana Orellana and Jorge Fernando Pizarro Arriagada, have scaled the electrowin process in a way that permits the electrowin process to be economically feasible for operation at a traditionally smaller mine and/or tailings sites. Electrowinning is a process in which positive and negative electrodes are placed in an acidic solution containing copper ions, and an electric current passed through the solution causes the copper to be deposited on the negative electrodes so that it can be collected.
We have obtained rights to conduct our mineral extraction operations at 7 different sites, and are in negotiations to obtain rights to one additional site, in and around the Coquimbo region, which is located in north-central Chile, approximately 400 kilometers north of Santiago. While these sites each have their own mineral deposits, we will procure the majority (approximately 88%) of our source material from non-traditional sources, including tailings, ore, or a combination thereof, by purchasing rights to such source material at smaller sites, where it is not economical for larger open-pit mining companies to operate, due largely to the transportation costs associated with moving source materials to fixed processing sites.
2
By utilizing MINI plants, we are able to build scalable, less expensive plants closer to source material deposits, resulting in significant processing savings. In addition, since smaller sites generally require higher copper prices, due to transportation costs, to operate profitably, these deposits can currently be purchased at a discount. By utilizing this strategy, we are able to reduce costs and operate profitably with smaller deposits.
The initial design capacity of each MINI plant is between approximately 1,400 and 2,000 metric tons of annual copper cathode output. Each MINI plant can be expanded on a modular basis in increments of 1,500 metric tons. We believe that the installed cost for a new 1,500 metric ton MINI plant, with the ability to produce tailings, at the average location, is about $3,000,000, or $2,000 per metric ton of annual capacity. Expanding the capacity of an existing MINI plant will cost between $400 and $800 per metric ton, depending on the site. Once the available source material deposits at and around the site of an existing MINI plant have been depleted, we anticipate that we can recover up to 70% of the cost of constructing a new MINI plant by relocating the support structures and processing equipment from the original MINI plant.
By reducing unit costs and carefully managing the average source material grade, we estimate that the MINI plant technology will allow us to break even at copper prices as low as US$1.00 per pound, or US$2,205 per metric ton. As of December 5, 2011, copper was trading at $7,939 per metric ton on the LME. As the price of finished copper has increased, however, there has been increased interest in raw copper ore from a number of higher cost producers that can increase their production volumes by buying ore in the market from small miners. Historically, these producers would not have been interested in raw ore purchases, as they could not generate profits at lower finished copper prices. However the increase in finished copper prices has made third-party purchase attractive for a number of additional producers. While the additional producers entering the market for minerals has not had an affect on the cost of the ore, it has put the miners into a stronger negotiating position on the sales of their ore. As such, the market now demands that producers must purchase the ore by providing payment upon delivery of the ore, as opposed to the historical practice of providing payment following the sale of the finished copper. This shift in market economics has affected our need for working capital substantially, in that we now require approximately $1 million per MINI plant to purchase enough ore to operate at full capacity.
Initially, we plan to sell our copper cathodes to Madeco, the largest cable producer in Chile. Based on our discussions with Madeco, we expect that the selling price will be at a 3% discount from the price for copper, adjusted for purity, on the LME. We expect that sales will be made under purchase orders where cash will be paid upon delivery. We anticipate that this arrangement will provide us with immediate cash flow with which we will use to fund our current operations. In the future, as business volume grows, we may elect to sell our copper cathodes at the generally higher prices prevailing on the LME.
Since our inception on January 2, 2008, we have focused our activities on acquiring mineral rights and sites on which to construct our MINI plants. Since starting construction in the fall of 2008, we have successfully completed our first scalable MINI plant, designated as the Ana Maria plant, located about 30 kilometers northeast of the town of Illapel, in the mining district of Matancilla. We have been testing the production of copper cathodes at the Ana Maria plant since late April 2009. In July 2009, we produced our first commercial run of copper cathodes.
We commenced operations at the Ana Maria plant in July 2009. The Ana Maria plant was taken off-line the first week of May 2010 in order to increase the capacity of this facility. As a result, the total capacity of the Ana Maria plant increased from 120 metric tons per month to 180 metric tons per month, effectively increasing its capacity by 50%. We resumed operations at the plant with the additional capacity in place at the beginning of August 2010. We believe that the site can be progressively expanded to about 5,000 metric tons per annum on a modular basis in increments of 500 to 1,000 metric tons, subject to the market price for copper and the grade and quantity of source materials available to be processed. In addition, we are also further enhancing our electrowin-based recovery techniques to reduce costs and improve the yield of the copper out of the mineral spectrum.
Our second plant, Santa Filomena, is approximately 75% complete as of the date of this report, and we have also begun preparatory work at one additional site we have under our control, in anticipation of the construction of additional MINI plants over the next 18 to 24 months.
The table below summarizes the capacity of each of our current and planned MINI plants
District | Plant | Initial Production | Initial Capacity/Year |
PHASE 1 | |||
Matancilla | Ana Maria | Operating | 1,500 MT (1) |
Salamanca | Santa Filomena | 1st Quarter 2012 | 1,500 MT |
Arica | Navidad | 1st Quarter 2013 | 1,500 MT |
Combarbala | Gabriella | 4th Quarter 2013 | 1,500 MT |
Panucillo | Panucillo | 4th Quarter 2013 | 1,500 MT |
TOTAL | 7,500 MT | ||
PHASE 2 | |||
Camisa | Camisa | TBD | 1,500 MT |
Chincolco | Jakeline | TBD | 1,500 MT |
Cerrado | Cerrado | TBD | 1,500 MT |
Cabildo | Jaqueline | TBD | 1,500 MT |
TOTAL | 13,500 MT |
(1) Since we commenced operations at the Ana Maria plant, total annual capacity has been increased to 2,225 metric tons.
To date, the majority of our $5,235,376 in capital expenditures has been used for the construction of our facilities.
3
Comparison of the Three Months Ended June 30, 2011 and 2010
The following table sets forth key components of our results of operations for the periods indicated.
Three Months Ended June 30, | % Increase/ | ||||||||
2011 | 2010 | (Decrease) | |||||||
Net sales | $ | 63,209 | - | $ | n/a | ||||
Cost of sales | 341,242 | 134,474 | 154% | ||||||
Gross profit (loss) | (278,033 | ) | (134,474 | ) | (107% | ) | |||
Operating expenses: | |||||||||
Impairment of mining rights | 701 | 5,640 | (88% | ) | |||||
Salaries and wages | 40,684 | 115,142 | 65% | ||||||
General and administrative expenses | 318,659 | 323,224 | (1% | ) | |||||
Professional fees | 13,884 | 502,891 | (97% | ) | |||||
Total operating expenses | 373,928 | 946,897 | (61% | ) | |||||
Operating loss before the undernoted | (651,961 | ) | (1,081,371 | ) | (40% | ) | |||
Other expense-interest | (27,275 | ) | - | n/a | |||||
Other expense-derivative financial instrument | 433,477 | - | n/a | ||||||
Imputed interest expense | (80,847 | ) | (78,629 | ) | 3% | ||||
Net Loss | (326,606 | ) | (1,160,000 | ) | (72% | ) | |||
Foreign exchange translation adjustment | 66,851 | (39,316 | ) | 270% | |||||
Comprehensive loss | $ | (259,755 | ) | (1,199,316 | ) | $ | (78% | ) |
Net sales. We had net sales of $63,209 for the three months ended June 30, 2011, as compared with no net sales for the three months ended June 30, 2010. During the three months ended June 30, 2011, we ran the Ana Maria facility at lower capacities due limited working capital and the change in the purchasing economics for minerals. Our original business plan anticipated that third party mineral would be consigned to us, and that we would be required to pay for the cost of the mineral after the copper had been produced and sold. As the price of finished copper has increased to over the past several years, there has been increased interest in raw copper ore from a number of higher cost producers that can increase their production volumes by buying ore in the market from small miners. The result has had no artificial effect on the cost of the ore, but it has put the miners in a stronger negotiating position on the sales of their ore. As a result, the market now demands that any producer must purchase the ore by providing payment at the delivery of the ore. This has substantially increased the amount of working capital required to ramp the plants. During the three months ended June 30, 2010, we took the Ana Maria facility off-line in order to increase the overall capacity of the plant. As a result, we reported no revenues during this period.
Cost of sales. Cost of sales includes direct costs associated with the sale of our products. Cost of sales were $341,242 for the three months ended June 30, 2011, as compared with $134,474 for the three months ended June 30, 2010. The increase in cost of sales was mainly due to higher material, labor and other direct costs allocated with production and higher amortization on plant and equipment during the three months ended June 30, 2011. The lower cost reflected during the three months ended June 30, 2010 is due to the fact that we had taken the plant off-line to upgrade the plant and increase its capacity.
4
Gross profit (loss). Gross profit (loss) is equal to the difference between our net sales and the cost of sales. For the three months ended June 30, 2011, we had a gross loss of $278,033, as compared with a gross loss of $134,474 for the three months ended June 30, 2010. The decrease in gross loss was primarily due to the increase in net sales as discussed above.
Operating expenses. Our operating expenses consist of impairment of mining rights, salaries and wages, general and administrative expenses and professional fees.
Impairment of mining rights. For the three months ended June 30, 2011, impairment of mining rights was $701, as compared with $5,640 for the three months ended June 30, 2010, a decrease of $4,939. We have expensed mining rights, since we currently have no formal plans to exploit these mining rights. All expenses incurred in relation to mining rights are thus considered period expenses.
Salaries and wages. Salaries and wages amounted to $40,684 for the three months ended June 30, 2011, as compared to $115,142 for the three months ended June 30, 2010, a decrease of $74,458. The decrease in salaries and wages during the three months ended June 30, 2011 reflects the fact that the Company had limited working capital during the quarter. As a result, the Company limited expenses wherever possible and delayed additional projects in order to minimize costs. The Company applied as much of its limited working capital as possible to revenue generating projects, thereby limiting salaries and wages for the quarter.
General and administrative expenses. General and administrative expenses consist primarily of building maintenance and repairs, energy costs and general expenses. General and administrative expenses for the three months ended June 30, 2011 were $318,659, as compared with $323,224 for the three months ended June 30, 2010. This slight decrease was due to the difference in costs of being a publicly traded Company.
Professional fees. Professional fees consist of legal fees, accounting fees and other fees associated with our private placement transaction and operations as a public company. For the three months ended June 30, 2011, professional fees were $13,884, as compared with $502,891 for the three months ended June 30, 2010. In May 2010 the Company undertook the private placement transaction and became a public company. This decrease is due to the fact that during the three months ended June 30, 2010 the Company incurred significant expenses associated with this transaction.
Other expense – interest. On May 12, 2010 (during fiscal year 2011), we commenced a private placement of common shares, warrants and make good warrants. The direct financing costs were allocated to the financial instruments (redeemable common stock and warrants), based upon their relative fair values. Amounts related to the warrants were recorded as deferred finance costs and amortized through charges to interest expense over the term of the arrangement using the effective interest method, while amounts related to the common stock directly offset the carrying value of the redeemable common stock. For the three months ended June 30, 2011, we amortized deferred finance costs of $27,275, as compared to no deferred finance costs during the three months ended June 30, 2010. The Company commenced the amortization of deferred financing costs from July 1, 2010.
Other expense – derivative financial instrument. For the three months ended June 30, 2011, we recognized an income for derivative financial instrument of $433,477, as compared to no expense or income for derivative financial instrument during the three months ended June 30, 2010. On May 12, 2010, (during fiscal year 2010-2011), we commenced a private placement of common shares, warrants and make good warrants. We valued our derivative financial instruments on inception (May 12, 2010) at fair value for $2,510,093. Derivative financial instruments are initially, and subsequently, measured at fair value and were recorded as liabilities. The fair value of the derivative liabilities was valued at $5,866,285 as of March 31, 2011. The fair value of the derivative financial instruments reduced to $ 5,432,808 as of June 30, 2011. The reduction in fair value resulted in the Company recognizing income for $433,477 in its Income statement.
Imputed interest expense. Imputed interest expense is related to unsecured, no interest promissory notes from related parties. These loans were valued at fair value at inception. We recognized a discount on the face value of the loans at inception to adjust the carrying value to the fair value. Discounts associated with these notes are being amortized over the lives of the promissory notes using the effective interest method, with interest expense being recorded as an expense in the related period. We recognized interest expense to amortize discounts on promissory notes to related parties for the three months ended June 30, 2011 in the amount of $80,847, as compared with $78,629 for the three months ended June 30, 2010.
Net loss. As a result of the cumulative effect of the foregoing factors, we generated a net loss of $326,606 for the three months ended June 30, 2011, as compared to a net loss of $1,160,000 for the three months ended June 30, 2010.
5
Liquidity and Capital Resources
As of June 30, 2011 we had cash and cash equivalents of $438,891 and had a working capital deficit of $3,274,010. The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.
Cash Flow
(all amounts in U.S. dollars)
Three Months Ended June 30, | ||||||
2011 | 2010 | |||||
Net cash provided by (used in) operating activities | $ | (692,733 | ) | $ | (1,470,001 | ) |
Net cash provided by (used in) investing activities | (16,277 | ) | (288,748 | ) | ||
Net cash provided by (used in) financing activities | 634,484 | 5,489,184 | ||||
Effects of Exchange Rate Change in Cash | 76,293 | 716 | ||||
Net Increase in Cash and Cash Equivalents | 1,767 | 3,731,151 | ||||
Cash and Cash Equivalents, Beginning | 437,124 | - | ||||
Cash and Cash Equivalent, End | $ | 438,891 | $ | 3,731,151 |
Operating Activities
Net cash used in operating activities was $692,733 for three months ended June 30, 2011, as compared to $1,470,001 net cash used in operating activities for the three months ended June 30, 2010. The decrease in cash used in operating activities is mainly due to the smaller net loss we incurred during the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.
Investing Activities
Net cash used in investing activities for the three months ended June 30, 2011 was $16,277, as compared to $288,748 for the three months ended June 30, 2010. This decrease is mainly the result of the Company having limited working capital during the three months ended June 30, 2011 and therefore limiting its acquisition of plant and property and construction of additional plants.
Financing Activities
Net cash provided by financing activities for the three months ended June 30, 2011 was $634,484, as compared to $5,489,184 for the three months ended June 30, 2010. This decrease is mainly due to the fact that during the three months ended June 30, 2010, the Company undertook the transaction to become a publicly traded company and raised funds in conjunction with this event by issuing common stock. In the quarter ended June 30, 2011, the Company only raised funds through loans.
As discussed above, on May 12, 2010, we completed a private placement in which we issued and sold to certain accredited investors an aggregate of 2,089,593 shares of our common stock for an aggregate purchase price of $5,809,000, or $2.78 per share, and warrants to purchase up to 1,044,803 shares of our common stock. The warrants have a term of four years, bear an exercise price of $3.61 per share (subject to customary adjustments), are exercisable on a net exercise or cashless basis and are exercisable by investors at any time after the closing date. As a result of this private placement, we raised approximately $5.8 million in gross proceeds, which left us with approximately $5.3 million in net proceeds after the deduction of offering expenses.
On May 6, 2010, Minera entered into a letter agreement that outlined the proposed terms of a standby facility of credit with AIBC International Corp.(SR), or AIBC. Under the letter agreement, we could request an advance from AIBC for up to an aggregate of $3.0 million, subject to satisfaction of certain conditions. However, this letter agreement expired on May 6, 2011, and no amounts were advanced under the letter agreement. In connection with the execution of the letter agreement, we issued to AIBC 75,000 shares of our common stock and a one-year warrant to purchase up to 360,000 shares of our common stock, at an exercise price of $2.78 per share.
Overall Liquidity and Capital Resources
In May 2010, we determined that potential long-term opportunities of increasing the capacity at the Ana Maria plant outweighed the short-term costs to us of taking the plant off-line. Accordingly, we shut down operations at the Ana Maria facility for a period of approximately three months and increased the facilitys capacity by 50%. As a result, we generated no sales during the three months ended June 30, 2010, which affected our cash flows from operations.
As discussed above, through the course of our operations we have realized that MINI plants which process tailings will now require an additional module at a cost of $500,000 in order to more efficiently process the tailings. Accordingly, the total cost of construction per such MINI plant has increased from our initial estimates of $2,500,000 to approximately $3,000,000. In addition, due to the higher copper prices, there has been a significant increase in demand for raw copper ore. As a result, the market now demands that any producer must purchase the ore by providing payment at the delivery of the ore, and therefore, we now require approximately $500,000 per MINI plant to purchase enough ore to operate at full capacity.
6
Initially, we estimated that it would cost approximately $2,500,000 in working capital per plant to construct and operate the plant to capacity. However, as discussed above, we now require approximately $3,500,000 in working capital per MINI plant in order to construct and operate the plant to capacity.
In order to fully operate on our business plan, we will need an aggregate of approximately $2.2 million to operate at full capacity at our Ana Maria and Filomena plants. In addition, we will need approximately $1.3 million in order to fully capitalize on our opportunity at the site in Arica, as discussed elsewhere in this report. Accordingly, we will need to raise approximately $3.5 million.
If we are able to obtain sufficient funds, through a financing, bank loans or a combination thereof, our plan of operations over the next 12 months is as follows:
Ana Maria Plant: First, we will spend approximately $140,000 on equipment for upgrades and repairs at the existing plant. An additional $400,000 will be spent to purchase mining rights and $200,000 in working capital will be required to ramp production to capacity.
Filomena Plant: Once we have fully funded the Ana Maria plant as indicated above, we will spend approximately $200,000 in manufacturing equipment to complete construction of the plant and commence operations. In addition, we will spend approximately $887,000 over several years to purchase mining rights and $338,000 of working capital to allow the plant to operate at full capacity.
Arica: Once we have fully funded the Ana Maria and Filomena plants as indicated above, we intend to spend approximately $3.8 million on the Arica project. An initial $1.0 million will be spent on capital equipment for the open pit mining exploitation. In addition, $2.5 million will be spent on construction of a new MINI plant at the Arica site, and $300,000 will be used for working capital at the plant. We anticipate that construction of the Arica plant will be funded by a combination of a financing or bank loans, and cash flow from ongoing operations at our Ana Maria and Filomena MINI plants. We anticipate that we will begin construction on the Arica plant in September 2012, with the expectation that the facility will commence operations in March 2013.
Obligations under Material Contracts
On September 11, 2008, we issued a promissory note to Geominco in exchange for a loan of 200,000,000 Pesos (approximately $381,345). On June 17, 2010, Geominco forgave 186,308,540 Pesos of the indebtedness under this loan, pursuant to a Loan Cancellation Agreement. Therefore, as of March 31, 2011, 13,691,460 Pesos (approximately $26,106) of this loan, which does not bear interest and matures on March 31, 2013, remains outstanding.
On December 30, 2008, we issued a promissory note to Geominco in exchange for a loan of 100,000,000 Pesos (approximately $190,672). The promissory note does not bear interest and matures on March 31, 2010. The entire amount of the loan was outstanding as of March 31, 2011 and remains outstanding.
On July 31, 2009, we issued a promissory note to Geominco in exchange for a loan of 250,000,000 Pesos (approximately $476,681). The promissory note does not bear interest and matures on March 31, 2013. The entire amount of the loan was outstanding as of March 31, 2011 and remains outstanding.
On December 31, 2009, we issued a promissory note to Geominco in exchange for a loan of 554,200,000 Pesos (approximately $1,056,708). The promissory note does not bear interest and matures on March 31, 2013. The entire amount of the loan was outstanding as of March 31, 2011 and remains outstanding.
From time to time, Minera has borrowed funds from its shareholders, directors and officers. As of March 31, 2010, Minera had borrowed 200,000,000 Pesos (approximately $381,345) from Iván Orlando Vergara Huerta, a shareholder, and 231,000,000 Pesos (approximately $440,453) from Jorge Fernando Pizarro Arriagada, a shareholder. On June 17, 2010, Mr. Jorge Fernando Pizarro Arriagada forgave 126,420,030 Pesos (approximately $241,048) of the indebtedness under his loan and Mr. Iván Orlando Vergara Huerta forgave 34,229,250 Pesos (approximately $65,266) of the indebtedness under his loan, pursuant to separate Loan Cancellation Agreements. The outstanding face values of the loans, which do not bear interest and mature on March 31, 2013, remain outstanding.
7
Inflation
Inflation does not materially affect our business or the results of our operations.
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 resources that is material to our stockholders.
Seasonality
The price of copper on the LME fluctuates during the year, with prices tending to be stronger in the April to September period, and weaker in the October to March period, subject to global supply and demand.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require managements difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from managements current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
8
Recent Accounting Pronouncements
In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20), which amends FASB ASC 310, Receivables. This ASU requires disclosures related to financing receivables and the allowance for credit losses by portfolio segment. The ASU also requires disclosures of information regarding the credit quality, aging, non accrual status and impairments by class of receivable. Trade accounts receivable with maturities of one year or less are excluded from the disclosure requirements. We do not have any financing receivables as of March 31, 2011.
9
On April 1, 2010, we adopted FASB ASU 2010-06, Fair Value Measurements and Disclosures (ASU 2010-06). ASU 2010-06 updates FASB ASC 820, Fair Value Measurements. ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments. There was no material impact on our consolidated financial statements related to the adoption of this guidance.
On April 1, 2010, we adopted updated guidance included in FASB ASC 860-10, Transfers and Servicing Overall. This guidance requires additional disclosures about the transfer and de-recognition of financial assets and eliminates the concept of qualifying special-purpose entities. The adoption of this guidance did not have an impact on our consolidated financial statements.
On April 1, 2010, we adopted updated guidance included in FASB ASC 810, Consolidation (ASC 810), related to the consolidation of variable interest entities. This guidance requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. In addition, this updated guidance amends the quantitative approach for determining the primary beneficiary of a variable interest entity. ASC 810 amends certain guidance for determining whether an entity is a variable interest entity and adds additional reconsideration events for determining whether an entity is a variable interest entity. Further, this guidance requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. The adoption of this guidance did not have an impact on our consolidated financial statements.
In December 2010, the FASB issued ASU 2010-28, Intangibles Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (ASU 2010-28). ASU 2010-28 clarifies the requirement to test for impairment of goodwill. ASC Topic 350 has required that goodwill be tested for impairment if the carrying amount of a reporting unit exceeds its fair value. Under ASU 2010-28, when the carrying amount of a reporting unit is zero or negative an entity must assume that it is more likely than not that a goodwill impairment exists, perform an additional test to determine whether goodwill has been impaired and calculate the amount of that impairment. The modifications to ASC Topic 350 resulting from the issuance of ASU 2010-28 are effective for fiscal years beginning after December 15, 2010 and interim periods within those years. Early adoption is not permitted. The adoption of ASU 2010-08 is not expected to have an impact on our financial statements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not Applicable.
ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report on Form 10-Q. This evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer, and our Chief Financial Officer. Based upon that evaluation, management concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management (including the chief executive officer and chief financial officer) to allow timely decisions regarding required disclosure and that our disclosure controls and procedures are effective to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
There were no changes in our internal control over financial reporting identified in connection with the evaluation performed that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
10
Internal Controls Over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Quarterly Report on Form 10-Q a report on management’s assessment of the effectiveness of our internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting is effective, as of June 30, 2011, and was effective during the entire quarter ended June 30, 2011.
11
PART II
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.
ITEM 1A. | RISK FACTORS. |
Not applicable.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
We have not sold any equity securities during the quarter ended June 30, 2011.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | (REMOVED AND RESERVED). |
ITEM 5. | OTHER INFORMATION. |
None.
ITEM 6. | EXHIBITS. |
The following exhibits are filed as part of this report or incorporated by reference:
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Chile Mining Technologies Inc. | |
Dated: December 9, 2011 | /s/ Jorge Osvaldo Orellana Orellana |
Jorge Osvaldo Orellana Orellana | |
Chairman and Chief Executive Officer | |
(Principal Executive Officer) | |
Dated: December 9, 2011 | /s/ Ronald Christian Pellegrini Vasquez |
Ronald Christian Pellegrini Vasquez | |
Chief Financial Officer | |
(Principal Financial Officer and Principal Accounting Officer) |
13
EXHIBIT INDEX
14
EXHIBIT 31.1
CERTIFICATIONS
I, Jorge Osvaldo Orellana Orellana, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Chile Mining Technologies Inc.; | |
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 registrant as of, and for, the periods presented in this report; | |
4. |
The registrants other certifying officer 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 registrant 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 registrant, 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting. |
Date: December 9, 2011 |
/s/ Jorge Osvaldo Orellana Orellana |
Jorge Osvaldo Orellana Orellana |
Chief Executive Officer |
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATIONS
I, Ronald Christian Pellegrini Vasquez, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Chile Mining Technologies Inc.; | |
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 registrant as of, and for, the periods presented in this report; | |
4. |
The registrants other certifying officer 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 registrant 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 registrant, 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting. |
Date: December 9, 2011 |
/s/ Jose Luis Munoz Aviles |
Jose Luis Munoz Aviles |
Chief Financial Officer |
(Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, |
AS ADOPTED PURSUANT TO SECTION 906 |
OF THE SARBANES-OXLEY ACT OF 2002 |
The undersigned, Jorge Osvaldo Orellana Orellana, the Chief Executive Officer of Chile Mining Technologies Inc. (the Company), DOES HEREBY CERTIFY that:
1. The Companys Quarterly Report on Form 10-Q for the three months ended June 30, 2011 (the Report), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, the undersigned has executed this statement this 9th day of December, 2011.
/s/Jorge Osvaldo Orellana Orellana |
Jorge Osvaldo Orellana Orellana |
Chief Executive Officer |
(Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Chile Mining Technologies Inc. and will be retained by Chile Mining Technologies Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Ronald Christian Pellegrini Vasquez, the Chief Financial Officer of Chile Mining Technologies Inc. (the Company), DOES HEREBY CERTIFY that:
1. The Companys Quarterly Report on Form 10-Q for the three months ended June 30, 2011 (the Report), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, the undersigned has executed this statement the 9th day of December, 2011.
/s/ Ronald Christian Pellegrini Vasquez | |
Ronald Christian Pellegrini Vasquez | |
Chief Financial Officer | |
(Principal Financial and | |
Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Chile Mining Technologies Inc. and will be retained by Chile Mining Technologies Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
PROMISSORY NOTES
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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PROMISSORY NOTES [Text Block] | 4. PROMISSORY NOTES Promissory notes from related parties payable were unsecured and consisted of the following:
All long term liabilities are valued at fair market value at inception. These long term notes do not bear interest and had a maturity date of March 31, 2013. The Company recognized a discount on the face value of the loans at inception to adjust the carrying value to the fair value. Fair value was calculated by using the net present value of the loans, at an assumed interest rate of 18%. The amount of the discount, being $1,404,458 was recorded in “Additional paid in capital” on the opening balance sheet. During the year ended March 31, 2011, the promissory note holders forgave $661,552 in debt. The transaction was accounted for as a capital transaction with related parties and the company credited ‘Additional paid in capital’ with $661,552. In addition, the Company credited additional paid in capital with $13,835 (refer to Note 8 (c)) The discounts are being amortized over the lives of the promissory notes using the effective interest method, with interest expense being recorded as an expense in the related period. The Company recognized interest expense to amortize discounts on promissory notes to related parties for the three month period ended June 30, 2011 in the amount of $80,847 ($78,629 in 2010). |