NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED
STATES.
Geomark Exploration Ltd. ("Geomark" or 'the Company") (www.geomark.ca) (TSX
VENTURE:GME) is pleased to announce its Geomark Carved Out Operations (Geomark
Operations) financial and operational results for the three months and six
months ended June 30, 2010.
Report to Shareholders
Geomark commenced operations as a junior exploration company on July 6, 2010
following the successful completion of a plan of arrangement (the "Arrangement")
involving Comaplex Minerals Corp. (Comaplex), Agnico-Eagle Mines Limited
(Agnico-Eagle) and Geomark.
For purposes of Geomark's continuing disclosure requirements, the Company has
prepared the following financial statements and corresponding discussion
relating to all operations that have been transferred to Geomark from Comaplex.
Geomark is a well-financed exploration company with experienced staff, proven
management and immediate cash flow from its oil and gas and investment assets.
As part of the Arrangement, Comaplex transferred to Geomark the Geomark Carved
Out Operations consisting of all the assets and related liabilities other than
those relating to the Meliadine properties and related assets. These assets
included: 1) net cash of approximately $26.5 million (which includes the $12
million loan to Bonterra Energy Corp.); 2) the non-Meliadine mineral properties
located in Ontario, the Northwest Territories and Nunavut; 3) all oil and gas
properties located primarily in the Harmattan area of south-western Alberta; 4)
investments which have a current combined value of approximately $7.2 million;
and 5) a contingent receivable from Perfora Investments S.a.r.l. (Perfora) of
approximately $13.5 million which Geomark has received as of August 21, 2010.
Geomark's cash position is now approximately $40,000,000 (including the loan
from Bonterra).
Geomark issued a total of 52,039,760 common shares to the former Comaplex
shareholders (excluding Agnico-Eagle and Perfora) as consideration for the
Non-Meliadine Operations. The management team consists of George F. Fink as
President and Chief Executive Officer, Mark J. Balog as Chief Operating Officer
and Garth E. Schultz as Vice President, Finance and Chief Financial Officer, all
of whom were previously officers of Meliadine. The Board of Directors of Geomark
consists of Gary J. Drummond, George F. Fink, Carl R. Jonsson and F. William
Woodward, all of whom were previously directors of Comaplex.
The Company's business strategy is to generate the majority of its prospects
internally and conduct appropriate exploration programs to develop their
economic potential. The Company is currently focused on the investigation and
development of its mining assets located in Ontario, the Northwest Territories
and Nunavut. Preparation and planning is currently underway for the start of an
exploratory program on the Ontario assets which is expected to commence in Q4
2010.
Geomark's business strategy also includes the acquisition of additional mineral
interests either through grassroots staking or negotiated transactions with
other mining companies. The Company has begun its assessment of such properties
and their potential opportunities.
The next few months will be busy and exciting as the focus will shift to
exploration and away from the Comaplex mining development philosophy.
Basis of Presentation
Comaplex incorporated a 100 percent wholly-owned subsidiary, Geomark, which was
capitalized on July 6, 2010 with the Non-Meliadine assets and obligations. In
return Comaplex received 52,039,759 common shares of Geomark.
Subsequent to the carve out of the Non-Meliadine assets and obligations, Geomark
was distributed to the shareholders of Comaplex, other than Agnico-Eagle Mines
Limited (Agnico) and Perfora Investments S.a.r.l. (Perfora) on a one Geomark
share for every Comaplex share.
The interim financial statements are prepared on a continuity of interest basis
for the Geomark Operations transferred to Geomark from Comaplex on July 6, 2010.
Amounts applicable to the Geomark Operations for certain revenues, expenses,
assets and liabilities can be derived directly from the accounting records of
Comaplex, it has been necessary to allocate certain items in the manner
described below.
Presentation of the Balance Sheets
For purposes of the Geomark Operations' balance sheets all assets and
liabilities, except for future income taxes, have been derived directly from the
accounting records of Comaplex. Future income taxes are prepared on a legal
entity basis and as such it is not possible to specifically identify only those
activities that relate to the Geomark Operations. Management has separated the
future income tax assets and liabilities directly attributable to the Geomark
Operations on a reasonable basis based on best estimates for the purposes of the
financial statements.
Presentation of the Statement of Operations
The Mineral division and Oil & Gas division revenues, oil and gas production
expenses, foreign exchange loss (gain), depletion, depreciation, and accretion,
impairment of oil and gas assets and abandonment of mineral properties are
specifically allocated to the Geomark Operations in Comaplex's accounting
records, and as such, the amounts included in the financial statements have been
derived directly from Comaplex's accounting records.
General and administrative and stock based compensation expenses have been
derived directly from Comaplex's accounting records for the costs attributable
to the Geomark Operations.
Future income taxes are prepared on a legal entity basis and as such it is not
possible to specifically identify only those activities that relate to the
Geomark Operations, as some corporate Comaplex activities are also included
within the legal entity tax filings. Management has separated the future income
tax assets and liabilities attributable to the Geomark Operations on a
reasonable basis based on best estimates for the purposes of the financial
statements.
Presentation of the Statements of Cash Flow
As discussed above, the cash balances of the Geomark Operations can be
specifically identified and as such we have prepared the statements of cash flow
to represent the annual change.
Forward-Looking Statements
Certain statements contained in this press release include statements which
contain words such as "anticipate", "could", "should", "expect", "seek", "may",
"intend", "likely", "will", "believe" and similar expressions, statements
relating to matters that are not historical facts, and such statements of our
beliefs, intentions and expectations about development, results and events which
will or may occur in the future, constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and are based on
certain assumptions and analysis made by us derived from our experience and
perceptions. Forward-looking information in this press release includes, but is
not limited to: expected cash provided by continuing operations; future capital
expenditures, including the amount and nature thereof; oil and natural gas
prices and demand; expansion and other development trends of the oil and gas
industry; business strategy and outlook; expansion and growth of our business
and operations; and maintenance of existing customer, supplier and partner
relationships; supply channels; accounting policies; credit risks; and other
such matters.
All such forward-looking information is based on certain assumptions and
analyses made by us in light of our experience and perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. The risks,
uncertainties, and assumptions are difficult to predict and may affect
operations, and may include, without limitation: foreign exchange fluctuations;
equipment and labour shortages and inflationary costs; general economic
conditions; industry conditions; changes in applicable environmental, taxation
and other laws and regulations as well as how such laws and regulations are
interpreted and enforced; the ability of oil and natural gas companies to raise
capital; the effect of weather conditions on operations and facilities; the
existence of operating risks; volatility of oil and natural gas prices; oil and
gas product supply and demand; risks inherent in the ability to generate
sufficient cash flow from operations to meet current and future obligations;
increased competition; stock market volatility; opportunities available to or
pursued by us; and other factors, many of which are beyond our control. The
foregoing factors are not exhaustive and are further discussed in the Comaplex's
Annual Information Form filed on SEDAR at www.sedar.com.
QUARTERLY COMPARISONS
2010 2009
----------------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1
Financial ($ 000s, except $
per share)
Revenue
Mineral Division 73 70 72 59 77 39
Oil and Gas Division 676 568 549 367 425 557
Net Earnings (Loss) (12) (166) (676) (461) (318) (109)
Capital Expenditures and
Acquisitions
Mineral Division - - - - - -
Oil and Gas Division - 157 170 112 184 164
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil and Gas Operations
Barrels of Oil Equivalent
(BOE) per day (1) 148 161 139 139 150 177
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Barrels of Oil Equivalent (BOE) are calculated using a conversion ratio
of 6 MCF to 1 barrel of oil. The conversion is based on an energy
equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead and as such
may be misleading if used in isolation.
Revenues
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue:
Mineral Division 73 70 77 143 116
Oil and Gas Sales 507 557 394 1,064 875
Dividend income 128 111 78 239 160
----------------------------------------------------------------------------
Gross Revenue 708 738 549 1,446 1,151
----------------------------------------------------------------------------
Average Realized Prices
(Cdn $):
Natural gas (per MCF) 4.50 5.09 3.76 4.82 4.49
Natural gas liquids
(per barrel) 62.07 61.83 41.13 61.96 30.24
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenues from the Geomark Operations mineral operations in the first six months
of 2010 increased by $28,000 from the 2009 six months ended June 30. The
increase in interest income was mainly attributable to a larger cash balance
from an August 2009 financing.
Revenue for the first half of 2010 from the Geomark Operations petroleum and
natural gas properties increased compared to the first half of 2009 due to
increases in commodity prices, especially liquids. This was partially offset by
lower production volumes. Quarter over quarter revenue decreased due to a
decline in commodity prices for natural gas and a decrease in production from
Granta Makepeace.
On February 1, 2009, the operator of one of the oil and gas properties
unilaterally stopped allocating natural gas production (approximately 55 MCF per
day) to Geomark Operations and the other minority interest partners based on the
operator's interpretation of the unit agreement. It is the Company's position
that this interpretation of the agreement is incorrect and the non-operating
partners should continue to receive this production. No amount of the natural
gas in dispute has been recorded as sales from this property. Comaplex has filed
an objection with the operator outlining its position and management will
actively defend its position through whatever legal options it has. Until the
matter is resolved, no amounts will be accrued in respect of this production.
During the first quarter of 2009, the Geomark Operations received an adjustment
from the operator of the Geomark Operations' most significant producing property
(Garrington Elkton). The adjustment impacted the years 2004 and 2005. The
overall net impact of the adjustment was not that significant but it did result
in some significant financial line item adjustments. The adjustment increased
natural gas sales and revenue but reduced liquid sales and revenues by an even
greater amount (net reduction of approximately $62,000). The result was slightly
lower production volumes of approximately 125 BOE (1.3 BOE per day) for the
quarter. The impact to average pricing was greater as the average liquid revenue
was reduced approximately $105.00 per barrel while gas revenues increased by
$7.08 per MCF.
Dividend income from Bonterra Energy Corp. (Bonterra) increased for the six
month period of 2010 over the first half of 2009. This was due to Bonterra
increasing its dividends to $1.17 per share for the first six months of 2010
from $0.78 per share for the six months ended June 30, 2009.
Production
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Natural gas (MCF per
day) 622 726 672 674 777
Natural gas liquids
(barrels per day) 44 40 43 42 36
Total BOE per day 148 161 150 154 160
----------------------------------------------------------------------------
The annual decline rate on the Geomark Operations' oil and natural gas
production is approximately 12 percent. Production further decreased for the
first six months of 2010 compared to the first six months of 2009 due to the
above mentioned dispute, which will continue to impact production volumes until
the situation is resolved. Production decreased in Q2 2010 from Q1 2010 due to
larger than normal production declines in the Granta Makepeace property. The
Company is currently looking into the matter.
Royalties
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Crown royalties (recovery) (64) 76 30 12 7
Gross overriding royalties 23 24 17 47 46
----------------------------------------------------------------------------
Total royalty expense
(recovery) (41) 100 47 59 53
----------------------------------------------------------------------------
Crown royalties for the first six months of 2010 were comparable to the 2009 six
month period as crown royalties were reduced in both periods. In Q2 2010,
$102,000 of crown royalties were recovered relating to the prior year. In 2009 a
crown royalty decrease was due to the above mentioned adjustment on the
Garrington property ($66,000 crown royalty credit adjustment in the first
quarter of 2009).
The Geomark Operations acquired two crown royalty drilling credits of $102,000
per credit from Bonterra for $51,000 each. One of the credits was acquired in
the first quarter of 2010 and the other in the last quarter of 2009 (discussed
further in the related party section of this report). These drilling credits
reduced crown royalty expense.
Production Costs
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Production costs -
natural gas/NGLs 151 129 116 280 305
$ per BOE 11.23 8.93 8.58 10.04 10.54
----------------------------------------------------------------------------
The decrease in 2010 production costs over the first six months of 2009 was due
to decreased natural gas processing fees. The decrease relates to a Q1 2009
settlement in respect of 2008 processing fees. Q2 2010 production costs
increased in relation to Q1 2010 due to the payment of mineral taxes in the
second quarter.
General and Administrative (G&A) and Transaction Costs
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
G&A costs - Minerals
Division 375 326 429 701 708
G&A costs - Oil and Gas
Division 43 35 37 78 71
----------------------------------------------------------------------------
Total G&A 418 361 466 779 779
----------------------------------------------------------------------------
General and administrative costs increased by $49,000 in Q2 2010 compared to Q1
2010. The increase was primarily due to annual directors' fees, increased
continuous disclosure costs and legal fees. The Oil and gas division G&A costs
have remained relatively unchanged.
Stock-Based Compensation
Stock-based compensation is a statistically calculated value representing the
estimated expense of issuing employee stock options. As Geomark Operations will
be keeping all the employees it has recorded a compensation expense over the
vesting period based on the fair value of options granted to employees,
directors and consultants. Stock-based compensation decreased to $333,000 in the
first six months of 2010 from $480,000 for the first six months of 2009. The
decrease was due primarily to the granting of 731,000 stock options in
September, 2008, with the majority of the stock-based compensation being
recognized in the first year after issuance. Stock-based expense decreased
$13,000 from Q1 2010 due to the escalating reduction in the compensation costs
related to the 2008 stock options.
During the first six months of 2010, the Geomark Operations did not issue
any stock options.
Depletion, Depreciation and Accretion Expense
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Depletion, depreciation
and accretion expense 93 73 71 166 146
----------------------------------------------------------------------------
The increase in depletion, depreciation and accretion expense for the first six
months of 2010 compared with the first six months of 2009 was due primarily to
depreciation and depletion on tangible oil and gas. No mineral property
abandonment costs were incurred in the first six months of 2010. The policy is
to review the carrying value of its mineral properties on an ongoing basis and
if required reduces the cost of properties if it is determined that the property
values should be lowered.
Income Tax Expense (Recovery)
The future tax expense of $7,000 in the first half of 2010 compared to a future
tax recovery of $185,000 in the first half of 2009 was primarily due to changes
in the estimates, tax rates and other differences in the Geomark Operations'
statements to the legal entity tax returns.
Loss
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Loss (12) (166) (318) (178) (427)
----------------------------------------------------------------------------
Loss for the first six months of 2010 decreased by $249,000 compared to the
first six months of 2009. The decrease was mainly due to increased oil and gas
sales, dividend and interest income, offset partially by a future income tax
expense in 2010 versus a future income tax benefit in 2009.
Other Comprehensive Income
Other comprehensive income relates entirely to the mark to market valuation on
the Geomark Operations' investments in Bonterra and Pine Cliff Energy Ltd. (Pine
Cliff). During the first half of 2010, the market value of the investments
increased by $46,000. In the first half of 2009 the market value of the
investments increased by $909,000.
Cash Flow (Deficiency) from Operations
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Cash flow (deficiency)
from operations (41) 204 (262) 163 (338)
----------------------------------------------------------------------------
Cash flow from operations increased $501,000 in the first six months of 2010
compared to the first six months of 2009. The increase was primarily due to
increased oil and gas income and increased dividend and interest income. Q2 2010
decreased from Q1 2010 due to non-cash working capital items.
Liquidity and Capital Resources
At June 30, 2010, the Geomark Operations had a working capital position of
$26,613,000 (December 31, 2009 - $27,893,000). These numbers do not include the
value of liquid investments of $7,229,000 at June 30, 2010 (December 31, 2009 -
$7,193,000).
No exploration programs were conducted on the Geomark Operations' mineral
projects. Capital expenditures of $150,000 (2009 - $164,000) were incurred on
the Geomark Operations' oil and natural gas assets for capital maintenance
projects. Capital expenditures for the oil and natural gas assets are expected
to be less than $250,000 for 2010.
Related Party Transactions
A management fee to Bonterra of $180,000 (2009 - $165,000) was paid by Geomark
Operations. The Geomark Operations also shares office rental costs and
reimburses Bonterra for costs related to employee benefits and office materials.
These costs have been included in general and administrative costs. In addition,
Bonterra owns 689,682 (December 31, 2009 - 689,682) common shares in Comaplex
and subsequent to July 6, 2010 the equivalent amount in Geomark. Services
provided by Bonterra include executive services (president and vice president,
finance duties), accounting services, oil and gas administration and office
administration. All services performed are charged at estimated fair value. As
at June 30, 2010, Geomark Operations had an account payable to Bonterra of
$82,000 (December 31, 2009 - $105,000).
During the six month period ended June 30, 2010, Bonterra sold $102,000 of
drilling royalty credits to Geomark Operations for $51,000 (2009 - $Nil).
Drilling royalty credits will be used to offset future crown royalties.
The Geomark Operations assets include at June 30, 2010, 204,633 (December 31,
2009 - 204,633) common shares in Bonterra representing just over one percent of
the outstanding shares of Bonterra. The shares have a fair value of $7,111,000
(December 31, 2009 - $7,093,000). In 2010, Geomark Operations received dividend
income of $239,000 (2009 - $160,000).
As at June 30, 2010, Geomark Operations has loaned Bonterra $12,000,000
(December 31, 2009 - $12,000,000). Effective May 1, 2010 interest is charged at
a rate of Canadian Chartered Bank Prime less 5/8 percent. Prior to May 1, 2010,
interest was charged at a rate of Canadian Chartered Bank Prime less 0.25
percent. The loan is subordinated to Bonterra's bank debt and is unsecured. The
loan is payable upon demand subject to availability under Bonterra's line of
credit. As at June 30, 2010, Bonterra has sufficient room under its line of
credit to repay the loan. Interest earned on the loan during the period was
$114,000 (2009 - $79,000). This loan results in a substantial benefit to
Bonterra and to the Company. The interest paid by Bonterra is substantially
lower than the bank interest rate and for the Company, the interest earned is
substantially higher than it would receive by investing in bank instruments such
as bankers' acceptance or guaranteed investment certificates.
The Geomark Operations assets also include, at June 30, 2010, 346,000 (December
31, 2009 - 346,000) common shares in Pine Cliff. Pine Cliff has common directors
and management with the Company. Pine Cliff trades on the TSX Venture Exchange.
As of June 30, 2010 the common shares have a fair value of $118,000 (December
31, 2009 - $100,000). The ownership of 346,000 common shares represents less
than one percent of the total issued and outstanding common shares of Pine
Cliff. There were no transactions between Pine Cliff and the Geomark Operations.
Additional information relating to the Geomark may be found on www.sedar.com and
by visiting our website at www.geomark.ca.
The following consolidated financial statements and notes to the consolidated
financial statements have been provided for further details.
GEOMARK EXPLORATION LTD.
GEOMARK CARVED OUT OPERATIONS
Consolidated Balance Sheets
(See Note 1: Basis of Presentation)
As at June 30, 2010 and December 31, 2009
(unaudited)
($ 000s) 2010 2009
----------------------------------------------------------------------------
Assets
Current
Cash 14,612 16,051
Accounts receivable 406 359
Prepaid expenses 119 246
Loan to related party (Note 3) 12,000 12,000
----------------------------------------------------------------------------
27,137 28,656
Investments (Note 3) 7,229 7,193
----------------------------------------------------------------------------
Property and Equipment
Property and equipment 10,268 10,172
Accumulated depletion, depreciation and amortization (8,476) (8,314)
----------------------------------------------------------------------------
Net Property and Equipment 1,792 1,858
----------------------------------------------------------------------------
36,158 37,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities (Note 3) 524 763
Asset Retirement Obligations 178 179
Future Income Tax Liability (Note 4) 27 20
----------------------------------------------------------------------------
729 962
----------------------------------------------------------------------------
Equity
Net investment by Comaplex Minerals Corp. 19,974 21,152
----------------------------------------------------------------------------
Retained earnings 10,920 11,098
Accumulated other comprehensive income (Note 5) 4,535 4,495
----------------------------------------------------------------------------
15,455 15,593
----------------------------------------------------------------------------
Total Equity 35,429 36,745
----------------------------------------------------------------------------
36,158 37,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
GEOMARK CARVED OUT OPERATIONS
Consolidated Statements of Loss, Retained Earnings and Net Investment
(See Note 1: Basis of Presentation)
For the Periods Ended June 30 (unaudited)
Three Months Six Months
($ 000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Minerals Division
Interest 73 77 143 116
----------------------------------------------------------------------------
Oil and Gas Division
Oil and gas sales 507 394 1,064 875
Royalties 41 (47) (59) (53)
Dividend income (Note 3) 128 78 239 160
----------------------------------------------------------------------------
676 425 1,244 982
----------------------------------------------------------------------------
Total Net Revenue 749 502 1,387 1,098
----------------------------------------------------------------------------
Expenses
Oil and gas production costs 151 116 280 305
General and administrative
Minerals division 375 429 701 708
Oil and gas division 43 37 78 71
Stock-based compensation 160 238 333 480
Depletion, depreciation and accretion 93 71 166 146
----------------------------------------------------------------------------
822 891 1,558 1,710
----------------------------------------------------------------------------
Loss Before Taxes (73) (389) (171) (612)
----------------------------------------------------------------------------
Income Taxes (Recovery)
Current - - - -
Future (61) (71) 7 (185)
----------------------------------------------------------------------------
(61) (71) 7 (185)
----------------------------------------------------------------------------
Loss for the Period (12) (318) (178) (427)
Retained earnings, beginning of period 10,932 12,550 11,098 12,659
----------------------------------------------------------------------------
Retained Earnings, End of Period 10,920 12,232 10,920 12,232
----------------------------------------------------------------------------
Net investment by Comaplex Minerals
Corp., Beginning of Period 24,015 7,953 21,152 13,154
Net investment by (to) Comaplex
Minerals Corp. (4,041) (3,180) (1,178) (8,381)
----------------------------------------------------------------------------
Net investment by Comaplex Minerals
Corp., End of Period 19,974 4,773 19,974 4,773
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
GEOMARK CARVED OUT OPERATIONS
Consolidated Statements of Comprehensive Income (Loss)
(See Note 1: Basis of Presentation)
For the Periods Ended June 30 (unaudited)
Three Months Six Months
($ 000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Loss for the period (12) (318) (178) (427)
----------------------------------------------------------------------------
Other Comprehensive Income (Loss)
Unrealized gain (loss) on investments (447) 1,262 46 909
Future taxes on unrealized loss
(gain) on investments 54 (192) (6) (136)
Future tax adjustment on exchange
of investments - 514 - 514
----------------------------------------------------------------------------
Other comprehensive income (loss)
(Note 5) (393) 1,584 40 1,287
----------------------------------------------------------------------------
Comprehensive income (loss) (405) 1,266 (138) 860
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
GEOMARK CARVED OUT OPERATIONS
Consolidated Statements of Cash Flow
(See Note 1: Basis of Presentation)
For the Periods Ended June 30 (unaudited)
Three Months Six Months
($ 000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Operating Activities
Loss for the period (12) (318) (178) (427)
Items not affecting cash
Stock-based compensation 160 238 333 480
Depletion, depreciation and accretion 93 71 166 146
Future income taxes (61) (71) 7 (185)
----------------------------------------------------------------------------
180 (80) 328 14
----------------------------------------------------------------------------
Change in non-cash operating working
capital items
Accounts receivable (140) 65 (47) 138
Prepaid expenses 91 33 127 3
Accounts payable and accrued
liabilities (167) (275) (239) (486)
Asset retirement obligations settled (5) (5) (6) (7)
----------------------------------------------------------------------------
(221) (182) (165) (352)
----------------------------------------------------------------------------
Cash Provided By (Used in) Operating
Activities (41) (262) 163 (338)
----------------------------------------------------------------------------
Financing Activities
Net investment by (to) Comaplex
Minerals Corp. (4,135) (3,096) (1,505) (8,482)
----------------------------------------------------------------------------
Cash Provided By (Used in) Financing
Activities (4,135) (3,096) (1,505) (8,482)
----------------------------------------------------------------------------
Investing Activities
Oil and gas property and equipment
expenditures - (184) (157) (348)
Proceeds on oil and gas property
and equipment disposals 60 - 60 -
Loan to related party - - - (12,000)
----------------------------------------------------------------------------
Cash Provided By (Used in) Investing
Activities 60 (184) (97) (12,348)
----------------------------------------------------------------------------
Net Cash Outflow (4,116) (3,542) (1,439) (21,168)
Cash, Beginning of Period 18,728 4,244 16,051 21,870
----------------------------------------------------------------------------
Cash, End of Period 14,612 702 14,612 702
----------------------------------------------------------------------------
Cash interest paid - - - -
Cash taxes paid - - - -
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
GEOMARK CARVED OUT OPERATIONS
Notes to the Consolidated Interim Financial Statements
As at June 30, 2010 and December 31, 2009 and for the three and six month
periods ended June 30, 2010 and 2009 (unaudited)
1. BASIS OF PRESENTATION
The interim financial statements are prepared on a continuity of interest basis
for the Geomark Carved Out Operations (Geomark Operations) that have been
transferred to Geomark Exploration Ltd. ("Geomark" or "the Company") from
Comaplex Minerals Corp. (Comaplex) on July 6, 2010. The interim financial
statements for the Geomark Operations as at and for the three and six months
ended June 30, 2010 should be read in conjunction with the audited financial
statements of Comaplex as at and for the year ended December 31, 2009. The notes
to these interim financial statements do not conform in all respects to the note
disclosure requirements of generally accepted accounting policies (GAAP) for
annual financial statements. These interim financial statements are prepared
using the same accounting policies and methods of computation as disclosed in
the financial statements of Comaplex as at and for the year ended December 31,
2009. The disclosures provided within are incremental to those included with the
annual financial statements.
Comaplex incorporated a 100 percent wholly-owned subsidiary, Geomark, which
capitalized the Geomark Operations' assets and obligations, including a 100
percent wholly-owned subsidiary WMC International Limited.
Subsequent to the carve out of the assets and obligations, Geomark's common
shares were distributed to the shareholders of Comaplex, other than Agnico-Eagle
Mines Limited (Agnico-Eagle) and Perfora Investments S.a.r.l. (Perfora), on the
basis of one Geomark share for every Comaplex share.
These financial statements have been prepared to present the financial position,
results of operations and cash flows for the Geomark Operations, which as of
July 6, 2010 are held by Geomark.
Subsequent to the carve-out of the Geomark Operations and the completion of the
transaction with Geomark, the management of Geomark will determine all
operating, investing and financing activities applicable to the Geomark
Operations. Accordingly, the amounts recorded in these financial statements may
not be indicative of the amounts that will result in future periods.
While the amounts applicable to the Geomark Operations for certain revenues,
expenses, assets and liabilities can be derived directly from the accounting
records of Comaplex, it has been necessary to allocate certain items in the
manner described below.
Presentation of the Balance Sheets
For purposes of the Geomark Operations balance sheets all assets and
liabilities, except for future income taxes, have been derived directly from the
accounting records of Comaplex. Future income taxes are prepared on a legal
entity basis and as such it is not possible to specifically identify only those
activities that relate to the Geomark Operations assets. Management has
separated the future income tax assets and liabilities directly attributable to
the Geomark Operations assets on a reasonable basis based on best estimates for
the purposes of the financial statements. Certain assets and liabilities are
considered to arise from corporate activities and as such have been included
entirely in the Geomark Operations balance sheets.
Presentation of the Statement of Operations
The Minerals division and Oil & Gas division revenues, oil and gas production
expenses, foreign exchange loss (gain), depletion, depreciation, and accretion,
impairment of oil and gas assets and abandonment of mineral properties are
specifically allocated to the Geomark Operations in Comaplex's accounting
records, and as such, the amounts included in the financial statements have been
derived directly from Comaplex's accounting records.
General and administrative and stock-based compensation expenses have been
derived directly from Comaplex's accounting records for the costs attributable
to the Geomark Operations.
Future income taxes are prepared on a legal entity basis and as such it is not
possible to specifically identify only those activities that relate to the
Geomark Operations assets, as some corporate Comaplex activities are also
included within the legal entity tax filings. Management has separated the
future income tax assets and liabilities attributable to the Geomark Operations
assets on a reasonable basis based on best estimates for the purposes of
preparing the Geomark Operations' financial statements.
Presentation of the Statements of Cash Flow
As discussed above, the cash balances of the Geomark Operations assets can be
specifically identified and as such the statements of cash flow represent the
change in cash flows for the three and six month periods presented.
2. CHANGE IN ACCOUNTING POLICIES
Property and equipment
Petroleum and Natural Gas Properties and Related Equipment
On January 1, 2010, Geomark Operations prospectively changed its policy of
depreciating petroleum and natural gas plant and equipment to using the
declining balance method at 20 percent per year, from the straight-line method.
The change of estimate was due to the declining balance method providing a
better reflection of the estimated service life of the related assets. The
Geomark Operations incurred $57,000 less depreciation under the declining
balance method, than under the straight-line method.
Recent Accounting Pronouncements
The Canadian Accounting Standards Board has confirmed that International
Financial Reporting Standards (IFRS) will replace Canadian GAAP effective
January 1, 2011, including comparatives for 2010, for Canadian publicly
accountable enterprises.
3. RELATED PARTY TRANSACTIONS
The Geomark Operations paid a management fee of $180,000 (2009 - $165,000) to
Bonterra Energy Corp. (Bonterra) a publically traded oil and gas corporation
listed on the Toronto Stock Exchange, that has common directors and management
with the Geomark Operations. The Geomark Operations also shares office rental
costs and reimburses Bonterra for costs related to employee benefits and office
materials. These costs have been included in general and administrative
expenses. Services provided by Bonterra include executive services (president
and vice president, finance duties), accounting services, oil and gas
administration and office administration.
During the six month period ended June 30, 2010, Bonterra sold $102,000 of
drilling royalty credits to the Geomark Operations for $51,000 (2009 - $Nil).
Drilling royalty credits will be used to offset future crown royalties.
Bonterra owns 689,682 (December 31, 2009 - 689,682) common shares in Geomark.
As at June 30, 2010, the Geomark Operations had an account payable to Bonterra
of $82,000 (December 31, 2009 - $105,000).
As at June 30, 2010, the Geomark Operations has loaned Bonterra $12,000,000
(December 31, 2009 - $12,000,000). Effective May 1, 2010 interest is charged at
a rate equal to the Canadian Chartered Bank Prime rate less 5/8 percent. Prior
to May 1, 2010, interest was charged at a rate equal to the Canadian Chartered
Bank Prime rate less 0.25 percent. The loan is subordinated to Bonterra's bank
debt and is unsecured. The loan is payable upon demand subject to availability
under Bonterra's line of credit. As at June 30, 2010, Bonterra has sufficient
room under its line of credit to repay the loan. Interest earned on the loan
during the period was $114,000 (2009 - $79,000).
The Geomark Operations at June 30, 2010 owns 204,633 (December 31, 2009 -
204,633) shares in Bonterra representing just over one percent of the
outstanding shares of Bonterra. The shares have a fair value of $7,111,000
(December 31, 2009 - $7,093,000). In 2010, the Geomark Operations received
dividend income of $239,000 (2009 - $160,000).
The Geomark Operations at June 30, 2010 owns 346,000 (December 31, 2009 -
346,000) common shares in Pine Cliff Energy Ltd. (Pine Cliff). Pine Cliff has
common directors and management with the Geomark Operations. Pine Cliff shares
trade on the TSX Venture Exchange. As of June 30, 2010, the common shares have a
fair value of $118,000 (December 31, 2009 - $100,000). The Geomark Operations'
ownership of 346,000 common shares represents less than one percent of the total
issued and outstanding common shares of Pine Cliff.
These transactions are in the normal course of operations and are measured at
the exchange amount, which is the amount of the consideration established and
agreed to by the related parties.
4. INCOME TAXES
The Geomark Operations has recorded a future income tax liability. The liability
relates to the following temporary differences:
June 30, 2010 December 31,
($ 000s) Amount 2009 Amount
----------------------------------------------------------------------------
Future income tax liabilities:
Capital assets 28 28
Investments (233) (228)
Asset retirement obligations 46 46
Other 30 32
Attributed crown royalty income 102 102
----------------------------------------------------------------------------
(27) (20)
----------------------------------------------------------------------------
5. ACCUMULATED OTHER COMPREHENSIVE INCOME
Other
January 1, Comprehensive June 30,
($ 000s) 2010 Income 2010
----------------------------------------------------------------------------
Unrealized gains on available-for-sale
investments 4,495 40 4,535
----------------------------------------------------------------------------
Other
January 1, Comprehensive December
2009 Income 31, 2009
----------------------------------------------------------------------------
Unrealized gains on available-for-sale
investments 931 3,564 4,495
----------------------------------------------------------------------------
6. BUSINESS SEGMENT INFORMATION
The Geomark Operations' activities are represented by two industry segments
comprised of mineral exploration and oil and gas production:
Three Months Six Months ended
ended June 30 June 30
----------------------------------------------------------------------------
($ 000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Gross revenue
Mineral exploration 73 77 143 116
Oil and Gas 635 472 1,303 1,035
----------------------------------------------------------------------------
708 549 1,446 1,151
----------------------------------------------------------------------------
Depletion, depreciation, accretion,
and abandonment
Mineral exploration - - - -
Oil and Gas 93 71 166 146
----------------------------------------------------------------------------
93 71 166 146
----------------------------------------------------------------------------
Net earnings (loss)
Mineral exploration (301) (468) (714) (770)
Oil and Gas 289 150 536 343
----------------------------------------------------------------------------
(12) (318) (178) (427)
----------------------------------------------------------------------------
Property and equipment
expenditures
Mineral exploration - - - -
Oil and Gas - 184 157 348
----------------------------------------------------------------------------
- 184 157 348
----------------------------------------------------------------------------
Total assets (2009 amounts as of December 31, 2009)
Mineral exploration 26,682 28,241
Oil and Gas 9,476 9,466
----------------------------------------------------------------------------
36,158 37,707
----------------------------------------------------------------------------
7. FINANCIAL AND CAPITAL RISK MANAGEMENT
Financial Risk Factors
The Geomark Operations undertakes transactions in a range of financial
instruments including:
- Cash deposits;
- Receivables;
- Loan to related party;
- Investments;
- Payables;
The Geomark Operations' activities result in exposure to a number of financial
risks including market risk (commodity price risk, interest rate risk and
foreign exchange risk) credit risk and liquidity risk. Financial risk management
is carried out by senior management under the direction of the Directors.
The Geomark Operations does not enter into risk management contracts to sell its
oil and gas commodities. Commodities are sold at market prices at the date of
sale in accordance with the Board directive.
Capital Risk Management
The Geomark Operations' objectives when managing capital, which the Geomark
Operations defines to include equity and working capital balances, are to
safeguard the Geomark Operations' ability to continue as a going concern, so
that it can continue to provide returns to its Shareholders and benefits for
other stakeholders and to maintain an optimal capital structure to reduce the
cost of capital. Geomark Operations has a large working capital balance to fund
its future exploration activities.
Geomark believes that it is adequately capitalized to allow it to continue its
future mineral exploration and oil and gas activities.
The following section (a) of this note provides a summary of the underlying
economic positions as represented by the carrying values, fair values and
contractual face values of the financial assets and financial liabilities.
The following section (b) addresses in more detail the key financial risk
factors that arise from the Geomark's activities including its policies for
managing these risks.
a) Financial assets, financial liabilities
The carrying amounts, fair value and face values of the Geomark Operations'
financial assets and liabilities other than cash are shown in Table 1.
Table 1
As at June 30, 2010 As at December 31, 2009
----------------------------------------------------------------------------
Carrying Fair Face Carrying Fair Face
($ 000s) Value Value Value Value Value Value
----------------------------------------------------------------------------
Financial assets
Cash 14,612 14,612 14,612 16,051 16,051 16,051
Accounts receivable 406 406 421 359 359 453
Loan to related
party 12,000 12,000 12,000 12,000 12,000 12,000
Investments 7,229 7,229 - 7,193 7,193 -
----------------------------------------------------------------------------
Financial
liabilities
Accounts payable
and accrued
liabilities 524 524 524 763 763 763
----------------------------------------------------------------------------
Financial instruments consisting of accounts receivable, loan to related party
and accounts payable and accrued liabilities carried on the consolidated balance
sheet are carried at amortized cost. Cash and investments are carried at fair
value. All of the fair value items are transacted in active markets. Geomark
Operations classifies the fair value of these transactions according to the
following hierarchy based on the amount of observable inputs used to value the
instrument.
Level 1 - Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level 2 - Pricing inputs are other than quoted prices in active markets included
in Level 1. Prices in Level 2 are either directly or indirectly observable as of
the reporting date. Level 2 valuations are based on inputs, including quoted
forward prices for commodities, time value and volatility factors, which can be
substantially observed or corroborated in the marketplace.
Level 3 - Valuations in this level are those with inputs for the asset or
liability that are not based on observable market data.
Geomark Operations' cash and investments have been assessed on the fair value
hierarchy described above and are all considered Level 1.
b) Risks and mitigations
Market risk is the risk that the fair value or future cash flow of the Geomark
Operations' financial instruments will fluctuate because of changes in market
prices. Components of market risk to which Geomark Operations is exposed are
discussed below.
Commodity price risk
The Geomark Operations' principal operation is the exploration of mineral
properties. The Geomark Operations also engages in the production and sale of
oil and natural gas. Fluctuations in prices of these commodities may directly
impact the Geomark Operations' performance and ability to continue with its
operations.
The Company's management, at the direction of the Board of Directors, currently
does not use risk management contracts to set price parameters for its
production.
Sensitivity Analysis
The Geomark Operations is still in the exploration stage of development of its
mineral exploration properties and therefore generates nominal cash flow or
earnings from these properties. In addition, the Geomark Operations' petroleum
and natural gas operations provide only moderate cash flow and as such, changes
of $1.00 U.S. per barrel in the price of crude oil, $0.10 per MCF in the price
of natural gas and $0.01 change in the Cdn/U.S. exchange rate would have no
significant impact on net earnings or comprehensive income.
Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument
or cash flows associated with the instrument will fluctuate due to changes in
market interest rates. Interest rate risk arises from interest bearing financial
assets and liabilities that Geomark Operations uses. The principal exposure to
the Geomark Operations is on its cash balances and its loan to related party
which have a variable interest rate which gives rise to a cash flow interest
rate risk.
Geomark Operations' cash consists of Canadian and U.S. investment chequing
accounts. Since these funds need to be accessible for the development of capital
projects, management does not reduce its exposure to interest rate risk through
entering into term contracts of various lengths. As discussed above, the Geomark
Operations generally manages its capital such that its budgeted capital
requirements to current working capital ratio are at least six months.
Sensitivity Analysis
Based on historic movements and volatilities in the interest rate markets and
management's current assessment of the financial markets, the Geomark Operations
believes that a one percent variation in the Canadian prime interest rate is
reasonably possible over a 12-month period.
A one percent change in the Canadian prime rate would increase or decrease
annual net earnings and comprehensive income by $198,000.
Foreign exchange risk
The Geomark Operations has no foreign operations and currently makes all of its
product sales in Canadian currency. The Geomark Operations has an insignificant
U.S. cash balance. Geomark Operations does not mitigate Cdn $/U.S. $ exchange
rate risk by using risk management contracts.
Credit risk
Credit risk is the risk that a contracting party will not complete its
obligations under a financial instrument and cause the Geomark Operations to
incur a financial loss. Geomark Operations is exposed to credit risk on all
financial assets included on the balance sheet. To help mitigate this risk:
- The Geomark Operations only maintains its cash balances with low risk exposure
which frequently results in receiving lower interest rates on investments.
- The investments are only with entities that have common management with the
Geomark Operations.
Accounts receivable balance at June 30, 2010 ($406,000) and December 31, 2009
($359,000) primarily consist of product sales with major oil and gas marketing
companies, all of which have always paid within 30 days, federal and provincial
government refunds and credits, and interest from a major Canadian Bank.
The Geomark Operations assesses quarterly if there has been any impairment of
the financial assets of the Geomark Operations. The Geomark Operations wrote-off
$84,000 of receivables that had a full allowance in a previous period. No
impairment provision was required on the oil and gas financial assets. The
Geomark Operations does not have any significant credit risk exposure to any
single counterparty or any group of counterparties having similar
characteristics.
The carrying value of accounts receivable approximates their fair value due to
the relatively short periods to maturity on this instrument. The maximum
exposure to credit risk is represented by the carrying amount on the balance
sheet. There are no material financial assets that the Geomark Operations
considers past due.
Liquidity risk
Liquidity risk includes the risk that, as a result of Geomark Operations'
operational liquidity requirements:
- The Geomark Operations will not have sufficient funds to settle a transaction
on the due date;
- The Geomark Operations will not have sufficient funds to continue with its
exploration projects;
- The Geomark Operations will be forced to sell assets at a value which is less
than what they are worth; or
- The Geomark Operations may be unable to settle or recover a financial asset at
all.
To help reduce these risks, the Geomark Operations:
- Has a significant working capital base;
- Holds current investments that are readily tradable should the need arise; and
- Maintains a continuous evaluation approach as to the financing requirements
for its exploration programs.
8. CONTINGENT RECEIVABLE
In December 2009, Comaplex acquired Meliadine Resources Ltd. from Perfora
Investments S.a.r.l. (Perfora) (a wholly owned subsidiary of Resource Capital
Fund III L.P.), by issuance of 12,750,000 common shares of Comaplex. As part of
the Purchase and Sale Agreement, Perfora is required to pay additional
consideration to Comaplex for the issued common shares upon their sale based on
a sliding scale for price of shares sold.
The contingent consideration has been transferred to Geomark as part of the
Geomark Operations assets, pursuant to an acquisition agreement between
Comaplex, Agnico-Eagle and Geomark (the "Arrangement"). Agnico-Eagle acquired on
July 6, 2010 all of the issued and outstanding common shares of Complex on the
basis of one Comaplex share for 0.1576 of an Agnico-Eagle share. Should Perfora
sell its 2,009,400 Agnico-Eagle common shares (12,750,000 times 0.1576 exchange
ratio) for in excess of $53.93 per share, Geomark will receive $13,500,000. This
amount is reduced to $Nil should Perfora receive $34.90 or less per Agnico-Eagle
common share.
Due to the contingent nature of the receivable, no amount has been recorded in
the June 30, 2010 financial statements of the Geomark Operations. Subsequent to
June 30, 2010, Geomark Operations received the full $13,500,000 contingent
receivable. Geomark will record the amount as a capital contribution.
Additional information relating to the Company may be found on www.sedar.com and
by visiting our website at www.geomark.ca.
Geomark Exploration Ltd. (TSXV:GME)
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