Lero Gold Corp. ("Lero" or "the Company") (TSX VENTURE:LER) - a base and
precious metal exploration company with assets in Kyrgyzstan and Kazakhstan
today reports its results for the period ended December 31, 2007. All amounts
are reported in United States dollars unless otherwise indicated. Canadian
dollars are referred to herein as CAD$.
HIGHLIGHTS February 2007
Acquisition of the Karchiga copper volcanogenic massive sulphide (VMS) project
in Kazakhstan
March 2007
Granting of the Barkol exploration licence in Kyrgyzstan to Lero
June 2007
Lero completed a second private placement with Gold Fields Exploration B.V.
("Gold Fields") to raise CAD$233,420 to invest specifically into the Barkol
exploration licence
Lero entered into an agreement for the sale of all of the shares of Tournon to a
subsidiary of Delta Industrial B.V.I. The sale of the shares did not complete,
as announced by the Company on November 26, 2007
Lero completes comprehensive re-interpretation of geophysical and geochemical
data at the Taldybulak licence
Lero commenced a greater than 5,000m drilling programme in the Talas area in
Kyrgyzstan
July 2007
Lero commenced a 1,800m confirmatory drilling programme at Karchiga project in
Kazakhstan
December 2007
Lero completed a private placement of 10,000,000 common shares at a price of
CAD$0.25 per share to raise CAD$2,500,000
Oriel Resources plc disposed of 100 per cent. of its interest (30,000,000 common
shares or approximately 49.35 per cent. of the issued share capital at that
time) in the Company
February 2008
Lero completes 1,879m diamond drilling programme at the Karchiga project
March 2008
Lero appointed two new Directors and officers, Dr. Alexander Yakubchuk, as
Director and Chief Executive Officer, and Massimo Carello, as a Non-Executive
Director. Darryl Yea resigned as Non-Executive Chairman of the Company.
April 2008
European Minerals Corporation ("EMC") announces intention to acquire Lero Gold Corp.
Lero enters into a CAD$60 million private placement
Directors accepted David Swan's resignation from the position of Chief Financial
Officer and Company Secretary
Lero appoints Randy Reichert as Chief Operating Officer, Petro Mychalkiw as
Chief Financial Officer and Tania Tchedayeva as Company Secretary
Dr Sergey V Kurzin, Chairman of Lero Gold Corp. commented:
"During 2007 and into 2008, several important and strategic relationships were
built, key management appointments were made and significant resource
calculations were reported for our Kyrgyz and Kazakh-based exploration projects.
Given the potential merger with EMC, Gold Field's involvement in the Taldybulak
project, the reported resource estimates for the Karchiga and Taldybulak-Talas
projects and the potential merger with EMC, I believe the Company is well
positioned to significantly grow its profile of base metal exploration and
development opportunities within the Central Asian region."
MANAGEMENT'S DISCUSSION AND ANALYSIS
A full Management's Discussion and Analysis of the results for the year ended
December 31, 2007 ("MD&A") and Financial Statements ("Financials") for the
Company for the year ended December 31, 2007 are available on SEDAR
(www.sedar.com) or on the Company's website (www.lerogold.com). These can also
be obtained on application to the Company. The following information has been
extracted from the MD&A and the Financials.
FINANCIAL RESULTS
Results for the Year
The Company has incurred a net loss for fiscal year 2007 of $4.2 million
compared to $2.8 million for 2006, an increase of $1.4 million.
Interest income for fiscal year 2007 was $94,000 compared to $55,000 for fiscal
year 2006. The increase is due to the Company holding increased cash balances in
fiscal year 2007.
Other income of $94,000 for 2007 represents a withheld deposit following the
non-completion of the disposal of the Company's wholly-owned subsidiary Tournon,
which through its wholly-owned subsidiary Oriel in Kyrgyzstan LLP, holds the
Company's exploration and mining licence for the Tokhtazan and Akdjol areas in
western Kazakhstan.
Administration costs for fiscal year 2007 were $1.9 million compared to $1.6
million for fiscal year 2006. The increase of $0.3 million is in line with
Management's expectations and reflects the costs of increasing the Company's
management team commensurate with the requirements of a listed entity. Fiscal
year 2007 administration costs includes stock based compensation of $0.6 million
compared to $0.8 million in 2006. During 2007, following the Reverse Takeover
Transaction, the Company awarded options to members of its Board, Management and
employees.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2007 the Company had unrestricted cash of $2.9 million (2006 -
$3.5 million).
At December 31, 2007, the Company's consolidated working capital comprising
cash, accounts receivable and prepaid expenses and less accounts payable and
accrued liabilities was $1.7 million compared to $3.4 million at December 31,
2006. The decrease in working capital arose as a result of cash used in
operations during the year exceed receipts from the issue of shares. The
Company's liability of $1.1m to Oriel Resources Plc at December 31, 2007 was
included in current liabilities as it was repaid in full in April 2008.
The Company's spending incurred on its Tokhtazan, Taldybulak and Karchiga
prospects during the year have been financed through equity or debt
contributions from shareholders as and when required. Although the Company has
been successful in the past in raising equity, there can be no assurance that
any funding required by the Company in the future will be made available to it
and, if such funding were to be made available, that it would be offered on
reasonable terms. If the Company were unable to raise such financing, it may not
be able to continue as a going concern. As a result, material adjustments would
be required to the carrying value of assets and liabilities and the balance
sheet classifications used and the reported amounts of income and expenses.
In July 2006, the Company completed private placements linked to the RTO raising
total gross proceeds of CAD$4.165 million. Issue costs totalled $0.4 million and
have been recorded as a reduction of share capital.
In September 2006, the Company exercised an option to acquire the entire issued
share capital of Kami Associates Limited. The cash element of the consideration
was $1.5 million.
In November 2006, the Company completed a private placement with Gold Fields
Limited for the gross proceeds of CAD$2.5 million. In connection with this
private placement the Company is required to spend at least CAD$2.0 million of
the placement funds on further exploration of the Company's Taldybulak project.
In June 2007, the Company completed a private placement of 466,840 common shares
at a price of C$0.50 per share to Gold Fields Exploration B.V., a subsidiary of
Gold Fields, for proceeds of $201,093, net of share issue costs of $5,730.
In December, 2007, the Company completed a private placement of 10,000,000
common shares at a price of C$0.25 per share for proceeds of $2,246,353, net of
share issue costs of $267,726.
REVIEW OF OPERATIONS
TALDYBULAK-TALAS EXPLORATION LICENCE
Within the Taldybulak-Talas Exploration Area, Lero currently holds four licence
areas. The Taldybulak copper-gold porphyry deposit is the Company's primary
exploration property.
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Licence Areas Area (km2) Date Granted Expiry Date
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Barkol 223 16 March 2007 16 March 2009
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Taldybulak 42 14 February 2005 31 December 2010
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Kentash 46 14 February 2005 31 December 2009
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Korgontash 66 30 March 2005 31 December 2009
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For avoidance of confusion;
1. The Taldybulak copper-gold porphyry deposit within the Taldybulak-Talas
Exploration Licence area is a separate deposit from the Taldybulak
Levoberezhny gold deposit previously owned by Central Asia Gold Limited,
And
2. The Talas Copper Gold Limited Liability Company, the holder of the
Lero's Taldybulak licence is a separate company from Talas Gold Mining
Company, which is the owner of the Jerooy Gold Project.
Taldybulak copper-gold porphyry deposit
A 2007 - 2008 drilling programme was completed to better delineate the extent
and geometry at Taldybulak Central and assess the additional tonnage potential
through the testing of peripheral targets along strike to the east, north west
and south of the central high grade core.
Results from the recently completed geological modelling and resource evaluation
studies have confirmed the potential for a large open-pittable Cu-Au porphyry
target at Taldybulak Central. These results have given Lero a solid foundation
from which to calculate an NI 43-101 compliant resource estimate for Taldybulak
Central and to further expand and advance exploration activities in 2008.
The resource estimate has been calculated at various gold cut-off grades and
incorporates all drilling data obtained for the Taldybulak-Talas copper-gold
project by end Q1 2008. At a 0.30g/t gold cut-off, the Indicated resource is
79Mt @ 0.63g/t Au and 0.17% Cu with the Inferred resources totalling 163Mt @
0.58g/t Au and 0.14% Cu.
Taldybulak-Talas Copper-Gold Project, Mineral Resource Estimate.
------------------------------------------------------------------------
------------------------------------------------------------------------
Indicated
-------------------------------------------------------
Au_eq Au_eq
Cut-off Au g/t Mt Au g/t Au Moz Cu % Cu Mlb g/t Moz
------------------------------------------------------------------------
------------------------------------------------------------------------
0.20 107 0.53 1.83 0.17 388 0.95 3.24
------------------------------------------------------------------------
0.30 79 0.63 1.61 0.17 301 1.07 2.71
------------------------------------------------------------------------
0.40 61 0.72 1.40 0.18 238 1.17 2.27
------------------------------------------------------------------------
0.50 45 0.81 1.18 0.18 181 1.27 1.84
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Inferred
-------------------------------------------------------
Au_eq Au_eq
Cut-off Au g/t Mt Au g/t Au Moz Cu % Cu Mlb g/t Moz
------------------------------------------------------------------------
------------------------------------------------------------------------
0.20 286 0.43 3.99 0.14 876 0.78 7.18
------------------------------------------------------------------------
0.30 163 0.58 3.03 0.14 492 0.92 4.82
------------------------------------------------------------------------
0.40 115 0.68 2.50 0.13 336 1.01 3.73
------------------------------------------------------------------------
0.50 87 0.75 2.10 0.13 247 1.07 3.00
------------------------------------------------------------------------
------------------------------------------------------------------------
Note: Au_eq equals Au g/t + 2.5x Cu %
Metal equivalent: metallurgical recoveries and net smelter returns are
assumed to be 100%
Kentash Project Area
Limited work has been performed on the Kentash licence to date however stream
sediment geochemistry completed during 2006 returned high copper and gold
values, indicating potential for further occurrences of mineralisation along the
corridor linking Andash and Taldybulak.
In 2007, Lero completed a widely-spaced soil geochemical survey over the entire
Kentash licence. This returned some gold, copper and molybdenum anomalism in 3
areas which will be further assessed in 2008. In 2007, the widely-spaced IP
survey revealed chargeability anomalies in the central part of the license to be
further assessed in 2008.
Korgontash Project Area
The Tokhtonnisai copper-gold skarn project lies within the Korgontash licence
area, Talas Oblast, north western Kyrgyzstan. A trenching programme was
completed in 2006 with the objective of validating the width and grade of a
copper-gold anomaly outlined at Tokhtonnisai during the Soviet era. A total of
10 trenches twinning Soviet era trenches were sampled. Some very encouraging
results were obtained from the trenching programme. During June 2006, 4 lines of
DD-IP geophysics were completed across the prospect. The results indicated a
steeply north dipping chargeable body extending to the NE beneath cover and
beyond the limit of the current sampling. Lero drilled two 150m diamond drill
holes to test the trench and geophysical targets during November 2006. Drilling
failed to adequately test the targets as it appears that the mineralisation dips
at a shallower angle than had been interpreted, however, broad widths of low
grade mineralisation were intersected in hole TTDD-01.
In 2007, Lero covered the area north of the contact with granitoid batholiths
with widely spaced soil geochemical survey. This survey revealed gold and copper
anomalism east of Tokhtonnisai and west of the Aktash exclusion licence. Due to
late completion of the survey in November 2007 these targets were not followed
up, but they will be more thoroughly assessed in 2008.
In 2007, Lero drilled 3 additional diamond drill holes at the Tokhtonnisai
prospect, which returned some good intercepts, generally in line with the
previous Soviet data (Table below).
Significant Tokhtonnisai drill results in 2007
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ID Type From (m) To (m) Length (m) Au (g/t) Cu (%)
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TTDD07-03 Drill hole 158.8 196.6 38 0.57 1.2
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TOKHTAZAN EXPLORATION LICENCE AREA
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Project Area
Area Licence Holder (km2) Date Renewed Expiry date
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Akdjol Oriel in Kyrgyzstan LLP 108 14 February, 2005 31 December, 2009
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Tokhtazan Oriel in Kyrgyzstan LLP 4 14 February, 2005 31 December, 2009
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In 2006, Lero initiated a trench sampling program at the Tokhtazan, Akdzhol and
Kurpsai prospects which returned promising gold values that warrant further
trenching and drilling. Three diamond drill holes were completed in late 2006
returning a best intersection of 5m at 6.2g/t at the south east of the deposit.
The 2007 programme consisted of chip and channel sampling, which returned
results in line with historical intercepts. The Company is actively seeking to
dispose of this asset.
Within the Akdjol licence the company performed 3,140 cubic metres of trenching
and road cut sampling, with some 2,532 samples collected. Within the Tokhtazan
licence, 1,540 cubic metres of trenching and road cutting were performed, with
640 samples collected.
KARCHIGA EXPLORATION LICENCE
In February 2007, Lero Gold Corp. entered into an agreement to purchase 73.9% of
"Eildon Enterprises Ltd" the registered and beneficial owner of 94.75% of the
capital of GRK MLD LLP ("MLD"), a limited liability partnership incorporated
under the laws of the Republic of Kazakhstan. Upon completion of this
transaction Lero indirectly owns 70% of MLD.
The Karchiga copper-gold licence area, which covers a total area of 47.3km (2),
is a mid-Palaeozoic aged metamorphosed volcanogenic massive sulphide deposit
(VMS) located in the extreme north east of the Republic of Kazakhstan, within
40km of the Chinese border The project is readily accessible and is situated on
gentle undulating terrain.
Mineralisation at Karchiga occurs as shallow dipping tabular bodies of massive
and disseminated chalcopyrite-pyrrhotite-pyrite ranging from 2 to 25m thick that
are hosted by highly metamorphosed amphibolite and micaceous schist. The
mineralisation appears to be geologically continuous for 1km of strike length
and robust.
The 2007 programme consisted of geophysical surveys, geological mapping and
geochemical sampling to identify new mineralised targets along the 10km of
strike length of the VMS horizon. Eight widely-spaced IP profiles were completed
during 2007 and revealed the presence of additional chargeable targets which
require in-fill geophysical profiling. The soil geochemical assays are pending.
In 2007, Lero drilled 21 confirmatory holes totalling 1,879 m and 3 trenches
within the historically identified resource at Karchiga. The exploration results
have confirmed the dimensions of the known mineralisation and historic Soviet
assays completed between 1941 and 1984.
On 22 April 2008, Lero reported a National Instrument 43-101 compliant resource
estimate for the Karchiga VMS deposit. The resource incorporates the 1,879m of
confirmation diamond drilling completed by Lero in Q4 2007 and 86 historical
Soviet diamond drill holes and trenches totalling 10,330m. At a 0.50% copper
cut-off, the Indicated resource is 4.75Mt @ 2.46% Cu while the Inferred
resources total 2.81Mt @ 1.81% Cu.
Karchiga Copper Project, Resource Estimate April 2008
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Indicated Sulphide Inferred Oxide Inferred Sulphide
---------------------------------------------------------------------------
Cut-off Tonnes Cu Copper Tonnes Cu Copper Tonnes Cu Copper
(%) Cu (Mt) (%) (Mlb) (Mt) (%) (Mlb) (Mt) (%) (Mlb)
---------------------------------------------------------------------------
0.3 5.10 2.32 261 0.86 1.30 26.9 2.21 1.77 86.5
---------------------------------------------------------------------------
0.5 4.75 2.46 258 0.71 1.49 26.3 2.10 1.85 86.3
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BARKOL EXPLORATION LICENCE
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Project Area Licence Holder Area (km2) Date Granted Expiry date
---------------------------------------------------------------------------
Barkol Talas Cu-Au LLP 223 16 March, 2007 16 March, 2009
---------------------------------------------------------------------------
In March 2007, Lero was granted the 223km2 Barkol exploration licence, located
immediately to the west of the Taldybulak project and was acquired at no cost to
the company. The Barkol licence contains numerous occurrences of known
mineralisation, with one copper-gold-molybdenum deposit occurring within a 2km2
excision from the licence. Lero has undertaken an estimated annual expenditure
commitment on the Barkol licence of US$200,000, with exploration work due to
commence spring 2007.
During 2007, Lero completed soil geochemical sampling over areas of historically
mapped alteration. This returned some anomalous results for Au, Cu and other
base metals. These areas were also covered by widely-spaced IP geophysical
survey, which returned some chargeability anomalism in the areas west of Chonur
exclusion licence and in the central western part of the Barkol licence. These
anomalisms will be followed up during 2008.
RESULTS OF OPERATIONS
OVERVIEW OF OPERATIONS
Acquisition of Karchiga
On February 1, 2007, the Company completed the acquisition of 73.9% of Eildon
Enterprises Ltd ("Eildon") the registered and beneficial owner of 94.75% of the
capital of GRK MLD LLP ("MLD"), a limited liability partnership incorporated
under the laws of the Republic of Kazakhstan. On completion, the Company owns
70% of MLD. MLD holds the rights to subsoil use for exploration and mining of
copper on the Karchiginskoye Deposit in the Vostochno-Kazakhstanskaya (Eastern
Kazakhstan) Area of the Republic of Kazakhstan, referred to as the Karchiga
property. In terms of property license agreement the Company has an expenditure
commitment on the Karchiga property of $2,500,000 over the period ending January
16 2009. The consideration paid was 2,000,000 common shares of the Company with
a fair value of $765,630 plus a finder's fee of $65,000 and the assumption of
liabilities totalling $104,321. Under the terms of the subsoil use license, the
Company has agreed to repay certain historic costs totalling $718,374 that the
Republic of Kazakhstan incurred for a geological survey of the license area. The
payment of the liability is contingent on commercial production of the Karchiga
project.
The allocation of the purchase price is summarized below:
Book value Fair value Fair value
adjustments
$ $ $
Net assets acquired:
Receivables and prepaid expenses 2,181 - 2,181
Cash and cash equivalents 676 - 676
Other creditors (7,172) - (7,172)
Mineral property rights and interests 7,182 932,084 939,266
-----------------------------------
2,867 932,084 934,951
-----------------------------------
-----------------------------------
Consideration satisfied by:
Fair value of shares 765,630
Transaction costs 65,000
Liabilities assumed 104,321
Total cost of acquisition 934,951
Lero Gold Corp.
Consolidated Balance Sheets
As at December 31, 2007 and 2006
---------------------------------------------------------------------------
2007 2006
$ $
ASSETS
Current assets
Cash and cash equivalents 2,931,125 3,498,671
Receivables and prepaid expenses 92,068 159,411
------------ -----------
3,023,193 3,658,082
Equipment 137,145 73,974
Mineral property rights and interests 6,223,693 5,284,426
------------ -----------
9,384,031 9,016,482
------------ -----------
------------ -----------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 265,366 221,631
Due to related party 1,136,771 1,111,762
------------ -----------
1,401,137 1,323,393
------------ -----------
SHAREHOLDERS' EQUITY
Share capital 12,972,339 9,816,698
Contributed surplus 1,449,866 830,015
Deficit (7,318,740) (3,135,322)
Other comprehensive income 878,429 171,698
------------ -----------
7,981,894 7,683,089
------------ -----------
9,384,031 9,016,482
------------ -----------
------------ -----------
Lero Gold Corp.
Consolidated Statements of Operations and Deficit
For the years ended December 31, 2007 and 2006
---------------------------------------------------------------------------
2007 2006
$ $
Income (expenses)
Impairment of geological information - (383,143)
Interest income 90,378 55,221
Other income 93,690 -
Amortization and depreciation (23,090) (163,109)
General and administration (1,925,537) (1,593,084)
Mineral property exploration and evaluation
expenditures (2,389,382) (893,253)
Foreign exchange (loss)/gain (29,477) 143,322
-----------------------------
Net loss (4,183,418) (2,834,046)
Deficit, beginning of year (3,135,322) (301,276)
-----------------------------
Deficit, end of year (7,318,740) (3,135,322)
-----------------------------
-----------------------------
Basic and diluted net loss per share (0.07) (0.07)
-----------------------------
-----------------------------
Weighted average number of shares outstanding
- basic and diluted 60,605,170 40,578,730
-----------------------------
-----------------------------
Lero Gold Corp.
Consolidated Statements of Comprehensive Income (Loss) and Accumulated
Other Comprehensive Income For the years ended December 31, 2007 and 2006
---------------------------------------------------------------------------
2007 2006
$ $
Net loss for the year (4,183,418) (2,834,046)
Other Comprehensive Income
Foreign currency translation 706,731 171,698
-------------------------
Comprehensive loss for the year (3,476,687) (2,662,348)
-------------------------
-------------------------
Accumulated other comprehensive income -
beginning of year 171,698 -
Other comprehensive income 706,731 171,698
-------------------------
Accumulated other comprehensive income
- end of year 878,429 171,698
-------------------------
-------------------------
Lero Gold Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2007 and 2006
---------------------------------------------------------------------------
2007 2006
$ $
Cash flows from operating activities
Net loss (4,183,418) (2,834,046)
Adjustments to reconcile net loss to
cash flow from operating activities:
Foreign exchange gain/(loss) 29,477 (143,322)
Stock based compensation 615,851 830,015
Impairment of geological information - 383,143
Amortization and depreciation 23,090 163,109
Forgiveness of debt 39,424 -
Changes in non-cash working capital:
Receivables and prepaid expenses 69,524 46,927
Accounts payable and accrued liabilities (72,226) 689,630
------------------------
Cash used in operating activities (3,478,277) (864,544)
------------------------
Cash flows from investing activities
Acquisition of Kami, net of cash acquired - (1,446,773)
Cash acquired on acquisition of ELE, net of
transaction costs - 12,663
Acquisition of Karchiga, net of cash acquired (64,324) -
Acquisitions of equipment (86,261) (19,046)
Payment of historical costs (700,000) -
------------------------
Cash used in investing activities (850,585) (1,453,156)
------------------------
Cash flows from financing activities
Common shares issued 2,447,446 5,375,407
Proceeds from exercise of warrants 541,313 60,923
Proceeds from exercise of options 65,826 -
Loan funding - 65,000
------------------------
Cash flow from financing activities 3,054,585 5,501,330
------------------------
Effect of exchange rate changes 706,731 171,698
------------------------
(Decrease)/Increase in cash and cash equivalents (567,546) 3,355,328
Cash and cash equivalents - beginning of year 3,498,671 143,343
Cash and cash equivalents - end of year 2,931,125 3,498,671
------------------------
------------------------
Lero Gold Corp.
Notes to Consolidated Financial Statements For the years ended December 31, 2007
and 2006 (In thousands of US Dollars)
1. Nature and continuance of operations
Lero Gold Corp. ("Lero", or the "Company), is a Canadian registered gold and
base metals exploration company based in the United Kingdom that is seeking and
evaluating gold and base metal projects in the former Soviet Union countries.
Lero was incorporated under the Company Act (British Columbia) on December 19,
1994 under the name "The Electric Mail Company Inc". On March 29, 2004, the
Company was transitioned under The Business Corporations Act (British Columbia)
and its name was changed to ELE Capital Corporation. During the year ended
December 31, 2006 the Company changed its name to Lero Gold Corp.
The consolidated financial statements reflect the acquisition from Oriel
Resources plc ("Oriel") of certain assets by Lero on July 24, 2006, including a
100% interest in Tournon Finance Limited ("Tournon"). As the shareholders of
Tournon acquired control of Lero following the Tournon acquisition, this
transaction, described as a reverse takeover, has been accounted for as an
acquisition of Lero by Tournon (See Note 3). Tournon was incorporated in the
British Virgin Islands under the International Companies Act of the British
Virgin Islands on December 8, 2004.
The consolidated financial statements reflect the acquisition by Lero on
February 1, 2007 of 73.9% of Eildon Enterprises Ltd ("Eildon") the registered
and beneficial owner of 94.75% of the capital of GRK MLD LLP ("MLD"), a limited
liability partnership incorporated under the laws of the Republic of Kazakhstan
(See Note 3).
The Company is in the development stage and is in the process of exploring its
mineral properties and has not yet determined whether these properties contain
reserves that are economically recoverable. The recoverability of amounts shown
for mineral properties and related deferred exploration expenditures are
dependant upon the discovery of economically recoverable reserves, confirmation
of the Company's interest in the underlying mineral claims, the Company's
ability to obtain the necessary financing to complete the development of the
properties and upon future profitable production or proceeds from the
disposition thereof.
These consolidated financial statements have been prepared with the assumption
that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business. Continued operations of the
Company are dependent on the Company's ability to receive continued financial
support as needed, and ultimately on generating profitable operations in the
future. The financial statements do not include adjustments to amounts and
classifications of assets and liabilities that might be necessary should the
Company be unable to continue operations.
2. Basis of presentation and significant accounting policies
These consolidated financial statements have been prepared by the Company in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP").
These consolidated financial statements and their accompanying notes are
presented in United States dollars. Canadian dollars are referred to as "C$".
The Company has adopted the following significant accounting policies:
a) Changes in accounting policies
January 1, 2007, the Company adopted five new accounting standards issued by the
Canadian Institute of Chartered Accountants (CICA): Handbook Section 1530,
Comprehensive Income, Handbook Section 3855, Financial Instruments - Recognition
and Measurement, Handbook Section 3251, Equity, Handbook Section 3861, Financial
Instruments - Disclosure and Presentation and Handbook Section 3865, Hedges.
These standards were adopted prospectively and accordingly, comparative amounts
for prior periods have not been restated.
i. 3861 Financial Instruments -- Disclosures and Financial Instruments -
Presentation: Section 3861 establishes standards for presentation of financial
instruments and non-financial derivates and identifies the information that
should be disclosed about them. Under the new standards, policies followed for
periods prior to the effective date generally are not restated and therefore,
the comparative figures have not been restated.
ii. On adopting these new standards, the Company designated its cash and term
deposits as held-for-trading, which are measured at fair value. Marketable
securities are designated as available for sale which are measured at fair
value. Receivables are classified under loans and receivables, which are
measured at amortized cost. Accounts payable and accrued liabilities, and due to
related parties are classified as other financial liabilities, which are
measured at amortized cost.
iii. Financial assets classified as loans and receivables, as well as other
financial liabilities, have a fair value equivalent to their carrying value due
to the short term nature of their maturity.
iv. 1530 Comprehensive Income: The new standard is effective for fiscal years
beginning on or after October 1, 2007 and establishes standards for reporting
comprehensive income, defined as a change in value of net assets that is not due
to owner activities, by introducing a new requirement to temporarily present
certain gains and losses outside of net income. The Company's other
comprehensive income represents changes in shareholders' equity arising from the
net unrealized foreign currency gain/(loss) on the Company's net investment in
foreign operation.
v. 3251 Equity: The new standard establishes standards for the presentation of
equity and changes in equity during the reporting period.
vi. 3855 Financial Instruments - Recognition and Measurement: Section 3855
requires that all financial assets and financial liabilities (including
derivatives) be measured at fair value on initial recognition except for certain
related party transactions. Measurement in subsequent periods depends on whether
the financial asset or liability has been classified as held-for-trading,
available-for- sale, held-to-maturity, loans and receivables or other
liabilities.
Financial instruments classified as held-for-trading are measured at fair value
and unrealized gains and losses are included in net income in the period in
which they arise.
Available-for-sale assets are those non-derivative financial assets that are
designated as available-for-sale or are not classified as held-for-trading,
held- to-maturity, or loans and receivables. Available-for-sale assets are
measured at fair value with unrealized gains and losses recorded in other
comprehensive income until realized, at which time they will be recognized in
net income.
vii. Other accounting implications arising upon the adoption of Section 3855
include the use of the effective interest method ("EIM") for any transaction
costs or financing fees earned or incurred for financial instruments measured at
amortized cost, and the recognition of the fair value of the obligation
undertaken in issuing a guarantee that meets the definition of a guarantee
pursuant to Accounting Guidelines 14, Disclosure of Guarantees (AcG 14). No
subsequent re-measurement at fair value is required unless financial guarantee
qualifies as a derivative. If the financial guarantee meets the definition of a
derivative, it is re-measured at fair value at each balance sheet date.
viii. 3865 Hedges: The new standard establishes standards for when and how hedge
accounting may be applied.
ix. These new standards replace accounting standard 3861 Financial Instruments
Disclosure
a) Basis of consolidation
These consolidated financial statements include the accounts of the Company and
all of its subsidiaries. All inter-company transactions and balances have been
eliminated on consolidation.
In accordance with the guidance relating to reverse takeover accounting and
disclosures, the consolidated financials statements as a December 31, 2006
reflected the results of operations and cash flows of Tournon until the date of
the reverse takeover on July 24, 2006 and included those of Lero subsequent to
the date of the reverse takeover on July 24, 2006.
The consolidated financials statements as at December 31, 2007 also reflect the
results of operations and cash flows of Eildon and its subsidiary GRK MLD LLP
from the date of acquisition on February 1, 2007.
b) Functional and reporting currency
The Company's reporting currency is the United States dollar. The Company and
its subsidiaries operate in Canada and in the countries of the Former Soviet
Union. The financial results of subsidiaries have been translated into United
States Dollars using the current rate method. The current rate method provides
that all assets and liabilities are translated at the year-end rate of exchange
and all revenue and expense items are translated at the average rate of exchange
prevailing during the period. Exchange gains and losses arising from this
translation, representing the net unrealized foreign currency translation
gain/(loss) on the Company's net investment in those foreign operations, are
recorded as a component of Other Comprehensive Income, as the Company is
reporting in a currency other than its functional currency in accordance with
Canadian GAAP.
c) Cash and cash equivalents
Cash and cash equivalents include cash and other short instruments with an
original maturity of three months or less.
d) Mineral property interests and rights
The Company records mineral properties at the lower of cost or estimated
recoverable value. The Company includes option acquisition and exercise costs as
components of the cost of mineral properties. The carrying value of mineral
properties are reviewed for impairment whenever events or changes in
circumstances indicate the carrying value may not be recoverable.
e) Mineral property exploration and evaluation expenditures
Mineral property exploration and evaluation expenditure incurred are charged to
operations in the period in which they are incurred. When a project reaches a
stage whereby a positive assessment of its technical feasibility and economic
viability can be reasonably determined, such as the result of a pre-feasibility
study, then to the extent that they are recoverable, all further exploration and
development costs will be capitalized as a deferred development and exploration
costs in the balance sheet.
f) Equipment
Equipment is recorded at cost less accumulated depreciation. Depreciation is
provided to write off the cost or valuation, less estimated residual values, of
all equipment evenly over their estimated useful lives.
Equipment and vehicles 10% - 33 % per annum
Office equipment and furniture 20% - 100% per annum
g) Environmental protection and asset retirement obligation costs
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of property, plant and equipment,
when those obligations result from the acquisition, construction, development or
normal operation of the assets. Initially, the fair value of the liability for
an assets retirement obligation is recognized in the period incurred. The net
present value is added to the carrying amount of the associated asset and
amortized over the asset's useful life. The liability is accreted over time
through periodic charges to earnings and it is reduced by actual costs of
reclamation. The Company's estimates of reclamation costs could change as a
result of changes in regulatory requirements and assumptions regarding the
amount and timing of the future expenditures. Expenditures relating to ongoing
environmental programs are charged against operations as incurred or capitalized
and amortized depending on their relationship to future earnings. At December
31, 2007, the Company's asset retirement obligation was not material.
h) Income taxes
The Company uses the liability method of accounting for income taxes. Under the
liability method, future tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of liabilities and their respective tax bases and for
tax losses and other deductions carried forward. Upon business acquisitions, the
liability method results in a grossing up of mining interests to reflect the
recognition of the future tax liabilities for the tax effect of such
differences. Future tax assets and liabilities are measured on an undiscounted
basis at the tax rates that are expected to apply when the related asset is
realized or liability is settled, based on tax rates and laws enacted or
substantively enacted at the balance sheet date. A reduction in respect of the
benefit of a future tax asset (a valuation allowance) is recorded against any
future tax asset if it is not likely to be realized. The effect on future tax
assets and liabilities of a change in tax rates is recognized in income in the
period in which the change is substantively enacted.
i) Stock compensation
The Company uses the fair value method of accounting for all stock option
awards. Under this method, the Company recognizes a compensation expense for all
stock options based on the fair value of the options on the date of grant, which
is determined by using an option pricing model. The fair value of the options is
expensed over the vesting period of the options.
j) Loss per share
Earnings per share calculations are based on the weighted average number of
common shares and common share equivalents issued and outstanding during the
year. Diluted earnings per share is calculated using the treasury method which
requires the calculation of diluted earnings per share by assuming that
outstanding stock options, warrants, and restricted share units with an average
market price that exceeds the average exercise prices of the options and
warrants for the year, are exercised and the assumed proceeds are used to
repurchase shares of the Company at the average market price of the common
shares for the year. The loss per share for the year ended December 31, 2006
were calculated, based on the number of shares issued in the reverse take over
and not the number of shares outstanding in the accounting parent, in accordance
with Canadian GAAP.
k) Measurement uncertainty and risk management
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
may differ from those estimates. Significant areas requiring the use of
management estimates relate to the determination of impairment of mineral
properties, carrying value of mineral properties, future income tax effects and
the determination of fair value for stock based transactions.
CAUTIONARY NOTE REGARDS FORWARD-LOOKING STATEMENTS
Certain statements in this MD&A constitute forward-looking statements. The words
"anticipate", "continue", "estimate", "expect", "may", "will", "should",
"believe", "potential" and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements, including but not
limited to statements with respect to anticipated rates of production, the
estimated costs and timing of the Company's planned work programs and reserves
determination involve known and unknown risks, uncertainties and other factors
which may cause the actual rates of production, costs and results to be
materially different from estimated rates of production, costs or results
expressed or implied by such forward-looking statements.
The Company believes the expectations reflected in these forward looking
statements are reasonable but no assurance can be given that these expectations
will prove to be correct and such forward-looking statements should not be
unduly relied upon. Factors that could cause actual results to differ materially
from those anticipated in these forward-looking statements include, among
others, uncertainties associated with estimating reserves, competition for,
among other things, capital, acquisitions of reserves, undeveloped properties
and skilled personnel, risks related to international operations, general risks
associated with mining operations, risks associated with equipment procurement
and equipment failure and volatility in market prices. Although the Company has
attempted to take into account important factors that could cause actual costs
or operating results to differ materially, there may be other factors that cause
costs of the Company's program or results not to be as anticipated, estimated or
intended.
Additional information relating to the Company is available on SEDAR at
www.sedar.com
Notes to Editors:
1. Lero Gold Corporation (TSX VENTURE:LER) is a base and precious metal
exploration company led by a senior management team with extensive expertise in
mineral exploration and advanced project management.
In July, 2006 Oriel Resources Plc completed its previously announced transfer
and sale of its gold related assets into Lero Gold Corporation ('Lero')
(formerly ELE Capital Corporation -- 'ELE'). Lero resumed trading on TSX Venture
Exchange (TSX-V) on Thursday July 27, 2006 under the trading symbol "LER". Lero
Gold is currently seeking and evaluating advanced exploration stage gold and
base metal projects in Kazakhstan and Kyrgyzstan. Lero is currently exploring
advanced staged gold deposits in the Tien Shan gold belt in the Kyrgyz Republic
and Rudny Altai belt in the Republic of Kazakhstan.
2. Information Concerning Estimates of Measured, Indicated and Inferred
Resources. This market announcement also uses the terms 'indicated resources'
and 'inferred resources'. Lero Gold Corp. advises investors that although these
terms are recognised and required by Canadian regulations (under National
Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S.
Securities and Exchange Commission does not recognise them. Investors are
cautioned not to assume that any part or all of the mineral deposits in these
categories will ever be converted into reserves. In addition, 'inferred
resources' have a great amount of uncertainty as to their existence, and
economic and legal feasibility. It cannot be assumed that all or any part of an
Inferred Mineral Resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral Resources may not form the basis
of feasibility or pre-feasibility studies, or economic studies except for
Preliminary Assessment as defined under 43-101. Investors are cautioned not to
assume that part or all of an inferred resource exists, or is economically or
legally mineable.
3. Resource estimations were carried out by Julian Woodcock and reviewed by
Matthew Boyes (Senior Geologist and a Qualified Person under National Instrument
43-101). Assays are conducted at the internationally certified Alex Stewart Lab
in Bishkek, Kyrgyzstan. Lero Gold Corporation operates a stringent QA/QC policy
that includes external certified standard samples and blanks in each individual
batch sent for analysis. Wardell Armstrong International is currently reviewing
methodology and interpolation parameters used in the block model.
4. For avoidance of confusion;
a. The Taldybulak-Talas copper gold porphyry is a separate deposit from the
Taldybulak Levoberezhny gold deposit previously owned by Central Asia Gold
Limited, and
b. The Talas Copper Gold Limited Liability Company, the holder of the Lero owned
Taldybulak licence, is a separate company from Talas Gold Mining Company which
owned the Jerooy Gold project.
5. In November 2006, Lero granted Gold Fields Exploration B.V. an option to
enter into a joint venture agreement with the Company under which Gold Fields
Exploration B.V. has the right to;
a. earn up to a 60% interest in exploration licences on the Kentash, Taldybulak
and Korgontash tenements in the Talas Region by funding exploration expenditures
of up to CAD$10 million, and
b. increase its interest in the project by a further 10% (to a total of 70%) by
funding the expenditure of up to a further CAD$10 million on a feasibility
study. Thereafter, Gold Fields Exploration B.V. and Lero will contribute to the
project requirements on a pro-rata basis through to development, if appropriate.
6. Gold Fields Exploration B.V. is an indirect wholly owned subsidiary of Gold
Fields Limited.
7. The TSX Venture Exchange does not accept responsibility for adequacy or
accuracy of this release.
Lero Gold Corp (TSXV:LER)
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