The Board of Mano River Resources Inc.(TSX VENTURE:MNO)(AIM:MANA) is pleased to
release the Accounts of the Company for the financial quarter ended June 30th
2008, together with the Management Discussion & Analysis.
On behalf of the Board of Mano River Resources Inc.
Luis da Silva, President and CEO
MANO RIVER RESOURCES INC.
Management's Discussion and Analysis
For the six months ended June 30, 2008
The following discussion is management's assessment and analysis of the results
and financial condition of Mano River Resources Inc. (the "Company" or "Mano")
and should be read in conjunction with the accompanying unaudited consolidated
financial statements for the six months ended June 30, 2008 and related notes.
Unless otherwise indicated all amounts are in US dollars. The date of this
management's discussion and analysis is August 29, 2008.
Additional information relating to the Company is available on SEDAR at
www.sedar.com or on the Company's website at www.manoriver.com.
OVERVIEW PERFORMANCE
Description of Business
Mano River Resources Inc. is an exploration and development company engaged in
the exploration and development of gold, diamond and iron ore properties in
Africa. The Company, through its subsidiaries, holds interests in mineral
properties located in Liberia, Sierra Leone, Guinea and the Democratic Republic
of Congo (DRC), with the aim of developing them to a stage where they can be
exploited economically or arranging joint ventures whereby partner companies
provide the funding and expertise for development and exploitation.
Forward-looking statements
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different from those
expressed or implied.
Trends
In the past few years commodity prices have increased significantly driven by
burgeoning demand from Asia. However, this increased demand may result in supply
difficulties in the near future. Both the capital expenditures required to build
and sustain new production and the cash operating costs necessary to produce
from new operations have risen substantially over the past two years. Increases
in unit costs are attributable mainly to higher prices for energy, labour,
equipment, consumables and contractors. Obtaining skilled geologists and other
technicians is still difficult leading to higher operating costs especially for
exploration companies. The current credit crunch has meant fewer companies are
listing and although there is limited funding in the market, companies with
highly prospective projects can still attract the investment community. The
Company's majority owned subsidiary Stellar Diamonds Limited (Stellar) has had
to postpone its AIM listing due to market conditions. However, Mano was able to
attract investment from its highly prospective iron ore project in Liberia,
despite the market difficulties, which culminated in a private placement in May
2008 raising gross proceeds of $4 million, with Severstal, a leading steel and
natural resources company. The credit crunch has also negatively impacted the
market value of exploration companies on world markets including both the TSX
Venture Exchange (TSXV) and the London Stock Exchange's Alternative Investment
Market (AIM).
Risks and Uncertainties
The Company is subject to a number of risk factors due to the fundamental nature
of the exploration business in which it is engaged, the countries in which it
primarily operates and not least adverse movements in commodity prices. Mano
seeks to counter such risks as far as possible by selecting exploration areas on
the basis of their recognised geological potential to host high grade gold,
diamond and iron ore deposits. The under-explored Archaean terrain on which the
Company focuses in West Africa is also subject to a second significant risk,
namely, political. While the region has suffered serious civil unrest and armed
conflict in the past (which is the basic reason why it remained under-explored),
conditions have improved markedly in recent years.
Industry
The Company is engaged in the exploration of mineral properties, an inherently
risky business, and there is no assurance that an economic mineral deposit will
ever be discovered. Most exploration projects do not result in the discovery of
commercially mineable ore deposits. The focus of the Company is on areas in
which the geological setting is well understood by management. The technological
tools employed by the Company are regularly updated to better focus our
exploration efforts.
Reserve and resource estimates
The estimation of mineral resources and reserves is in part an interpretive
process and the accuracy of any such estimates is a function of the quality of
available data, and of engineering and geological interpretation and judgement.
No assurances can be given that the volume and grade of reserves recovered, and
rates of production achieved, will not be less than anticipated.
Gold and diamond prices
The price of gold is affected by numerous factors totally beyond the control of
the Company, including central bank sales, producer hedging activities, the
exchange rate of the U.S. dollar relative to other major currencies, demand,
political and economic conditions and production levels. In addition, the price
of gold has been volatile over short periods of time due to speculative
activities. The prices of diamonds, and other minerals that the Company may
explore for, also have the same or similar price risk factors.
Cash flows and additional funding requirements
Mano currently has no revenues from operations. The Company has historically
entered into joint venture agreements with partners to share the risks and the
associated cost of exploration. In addition the Company has raised finance
through the sale of equity capital and the placement of unsecured convertible
debentures. Although Mano has been successful in the past in obtaining finance,
there is no assurance that it will be able to obtain adequate finance in the
future or that such finance will be on terms advantageous to the Company. As
noted above the Company successfully raised $4 million gross through a private
placement with Severstal in May 2008. This agreement provides for total
potential investment by Serverstal of $37.5 million into African Iron Ore Group
Ltd, Mano's 80% owned subsidiary. This agreement remains subject to a number of
conditions before completion and there can be no assurance that such financing
will be obtained. In addition Stellar raised Pounds Sterling 4.7 million gross
through a private placement during the period.
Exchange rate fluctuations
Fluctuations in currency exchange rates can significantly impact cash flows. The
U.S. dollar exchange rate in particular has varied substantially over time,
although in the six months to June 30 the US dollar pound exchange rate has not
varied significantly. While the Company has historically raised a large
proportion of its equity financing in UK pounds most of the Company's
exploration costs, are denominated in U.S. dollars. Fluctuations in exchange
rates may give rise to foreign currency exposure, either favourable or
unfavourable, which may impact financial results. Mano does not engage in
currency hedging to offset the risk of exchange rate fluctuation.
Environmental
Mano's exploration and development activities are subject to extensive laws and
regulations governing environmental protection. The Company is also subject to
various reclamation-related requirements. The Company takes extremely seriously
its commitment towards the local communities and the environment in which it
operates. The Company's policy is to exceed all applicable environmental
regulations, wherever possible. A failure to comply may result in enforcement
actions causing operations to cease or be curtailed, and may include corrective
measures requiring significant capital expenditures.
Laws and regulations
Mano's exploration activities are subject to local laws and regulations
governing prospecting, development, production, exports, taxes, labour
standards, occupational health and safety, mine safety and other matters. Such
laws and regulations are subject to change and can become more stringent, and
compliance can therefore become more costly. The Company applies the expertise
of its management, its advisors, its employees and contractors to ensure
compliance with current laws.
Title to mineral properties
While the Company has undertaken all the customary due diligence in the
verification of title to its mineral properties, this should not be construed as
a guarantee of title. The properties may be subject to prior unregistered
agreements or transfers and title may be affected by undetected defects.
Competition
There is constant competition from other mineral exploration companies, with
operations similar to those of the Company. Many of the mining companies with
which the Company competes have operations and financial resources substantially
greater than those of Mano.
Dependence on management
Mano relies heavily on the business and technical expertise of its management
team and there is little possibility that this dependence will decrease in the
near term. In 2007 changes were made to the management and the composition of
the Board which have made the Company stronger and better able to exploit the
value of its exploration assets. In 2008 the financial management of the Company
has been strengthened with the appointment of a CFO for Mano and a Finance
Director for Stellar. Further restructuring of the finance department will
continue in the second half of 2008 in order to strengthen further the financial
controls within the Company. Mano has no key-man insurance.
OPERATIONS - Overview
Mano's fundamental strategy is to unlock the value of its exploration assets and
increase shareholder value. The Company's exploration assets are housed in three
divisions: namely gold, diamonds and iron ore.
In 2007 all diamond assets were transferred into Stellar. The intention is to
list Stellar on AIM but due to market conditions this has been postponed until
conditions improve. Mano currently owns 63.17% of Stellar. On the ground the key
focus for the Diamond division is on progressing the two near-term production
projects at Kono in Sierra Leone and at Mandala in Guinea. The 49% owned Kono
joint venture project with Petra Diamonds has moved into underground trial
mining with good grades achieved to date. Valuations on the stones from the
first commercial tender should be announced shortly. The 100% owned Mandala
alluvial project has progressed and the DMS processing plant is in-transit to
Guinea.
The key asset in the Gold division is New Liberty Gold project (NLGM) in Liberia
where we have been drilling in order to expand the 2007 NI 43-101 estimated gold
resource of 1.4 million ounces (13.533 million tonnes of measured and indicated
resources grading 3.18 g/t gold). The drill programme was completed in Q2 and in
all 4,485 metres of drilling was completed. The results received to date are
highly encouraging and confirm that gold mineralisation continues at depth. The
Company has contracted the services of AMC Consultants (UK) Ltd to review the
possible mining methods of the deposit and to establish the most appropriate
future drill programme.
The Company is targeting a resource of up to 900 million tonnes at its Putu Iron
Ore Project in southeastern Liberia. With increasing demand for iron ore, driven
primarily by the Asian market, the impact on prices has been significant. In Q2
the Company signed certain agreements on Putu Iron Ore with Severstal and
applied to convert its exploration licence into an MDA (Mineral Development
Agreement) and is still waiting for the outcome of this application. A drilling
programme commenced in Q2 in order to delineate the resource.
Exploration Projects - Current Developments
GOLD
2008 Drilling Programme
In Q1 2008, the Company commenced a mineral resource/reserve delineation
drilling programme, focussing initially on the Larjor Zone, the first results of
which are now to hand. In all, 4,485m of drilling have been completed to date
under this programme. Assay results from holes drilled under the Kinjor and
Marvoe zones, further to the east, are expected shortly. The programme comprises
a series of close-spaced drill holes at a depth of around 200m below surface,
together with two holes drilled to about 500m below surface under Larjor to test
for very deep extensions to the mineralisation. Shear-controlled gold deposits
of Archaean age, like New Liberty, are typically characterised by a considerable
third dimension at depth, now being investigated at New Liberty for the first
time.
All eight holes under Larjor intersected the sheared ultramafic schists hosting
the mineralisation at New Liberty, and all of them returned indications of the
presence of the gold zone. Two of the six +/-200m holes returned extremely good
results, namely, intersections of 23m grading 4.85g/t gold and 31m grading 3.59
g/t gold, respectively. The remaining four returned sub-economic but
nevertheless highly anomalous gold zones, the best of which was in K-121 with
27m grading 0.67 g/t gold.
The two deep holes under Larjor both intersected the ultramafic rock units at
the anticipated depth i.e. some 450 to 480m vertically below surface, and both
were mineralised. K120 gave the better results with 19m at 1.2 g/t gold
including a 3m section grading 6.2 g/t. This is considered an extremely
encouraging outcome for the potential to increase resources, given that of the
93 holes forming the basis for the 2007 Feasibility Study, none were drilled
significantly deeper than 100m below surface.
IRON ORE
This quarter claimed a significant milestone for Mano's iron ore division. Not
only did the drilling programme begin in earnest at the 80% owned Putu project
but the Company found in Severstal, the ideal partner with the technical
know-how and expertise, as well as the financial capability, to accelerate the
development of this project. In advance of announcing the Severstal deal on the
23 May 2008, the Company formally indicated in writing to the Ministry of Lands
Mines & Energy (MLME) its intention to convert the current exploration agreement
into a 25 year Mineral Development Agreement (MDA) allowing for exploitation.
The MDA was submitted to the MLME on May 14 2008. During the quarter, in
consultation with the MLME, the Company & its consultants worked towards a full
submission document targeting potential mining scenarios. The Company decided to
change the name of the Liberian subsidiary holding the licence, from "Mano River
Iron Ore Inc." to "Putu Iron Ore Mining Inc.".
After a slow start, simply due to the logistics in-country, the drilling
programme began to advance. The initial programme will see two angled holes
drilled starting at the south-west side of the Mt Jideh ridge; concentrating
initially where a rehabilitated adit sits. In the meantime, and after
consultation with Severstal's geologists and our own consultants the drill
programme pattern was re-visited and the new programme will see an increase in
the planned metres to be drilled from 4,000 metres to approximately 5,000
metres. The drilling is now making excellent progress and is expected to be
completed during Q4 2008. The objective of the drilling programme will be to
prepare an initial resource estimate in accordance with NI 43-101. In
conjunction with the drilling programmes, bulk sampling and test work will be
undertaken in order to evaluate grades, recovery and ore characteristics.
The formal MDA application and submission was filed with the MLME. The MLME must
complete their internal review before the application can be recommended for
approval to the Inter-Ministerial Mineral Technical Committee that oversees the
ratification of such agreements.
On May 23 2008, the Company announced it had signed certain agreements with
Severstal's indirect, wholly owned Dutch subsidiary, Lybica Holding BV.
Severstal is a leading Russian steel and natural resources company.
Terms of the agreement:
- Under a subscription agreement, an indirect, wholly owned subsidiary of
Severstal will make an equity investment of approximately $4 million (U.S.) in
Mano (at 10 pence per share) on May 29, 2008, with an option to make an
additional equity investment in Mano (at 14 pence share) in due course.
- Under a share purchase and subscription agreement (SPSA), an indirect, wholly
owned subsidiary of Severstal will, subject to a number of conditions pay $37.5
million for a 61.5 per cent stake in the Putu Range iron ore project held under
African Iron Ore Group Ltd. (AIOG), Mano's existing 80-per-cent-owned
subsidiary. In addition, the indirect, wholly owned Severstal subsidiary has
agreed to enter into a facility agreement after completion of the acquistion
under which it will provide AIOG with further financing of up to $15 million
(U.S.). The SPSA is conditional on customary conditions to completion, on the
completion of satisfactory due diligence by Severstal Resurs (which manages all
Severstal's mining assets) and on Mano converting its exploration licence into a
mineral development agreement.
Terms of the non-brokered private placement:
- An indirect, wholly owned subsidiary of Severstal has entered into a
subscription agreement with Mano and subject to the satisfaction or waiver of
various standard conditions to completion, will make an initial investment into
Mano on May 29, 2008, by subscribing for 20 million common shares at 10 pence
per share, raising approximately $4 million (U.S.) prior to expenses. This
represents a premium of 13.7 per cent on the current share price as at May 22,
2008. Following the private placement, Severstal will hold 6.29 per cent of
Mano's issued share capital.
- In addition, 20 million warrants will be granted to an indirectly, wholly
owned subsidiary of Severstal at an exercise price of 14 pence, which shall be
exercisable at any time over a period of 18 months from the completion of the
private placement. Upon exercise of all the warrants, Severstal's holding in
Mano would increase to 11.84 per cent (assuming no further issuances of common
shares prior to that time) and provide the Company with a further $5.54 million
(U.S.) in financing (at the exchange rate of $1.98 (U.S.) per pound sterling at
close of business on May 22, 2008).
- Severstal will also have the right to appoint a nominee to the board of
directors of Mano for a period of three years from the date of closing of the
private placement, provided it maintains a shareholding of at least 5 per cent
in Mano and thereafter provided it maintains a shareholding of at least 10 per
cent in Mano. Any nominee of Severstal shall be subject to approval by the TSX
Venture Exchange.
Terms of the SPSA
The SPSA provides for the acquisition by an indirect, wholly owned subsidiary of
Severstal of 25 per cent of the currently issued and outstanding shares of AIOG
for $12.5 million from Mano River Iron Ore Holdings Ltd., a wholly owned
subsidiary of Mano, and a further 20 per cent of the issued and outstanding
shares of AIOG from the minority interest parties in AIOG, for $10.0 million. It
also provides for the subscription by the Severstal subsidiary for new ordinary
shares in AIOG for a total price of $15 million. These acquisitions and the
subscription will give the indirectly, wholly owned Severstal subsidiary a 61.5
per cent interest in AIOG on completion of the SPSA. Completion is conditional
on, amongst other things, the approval of the TSX Venture Exchange, the
completion of satisfactory due diligence by Severstal and Mano converting its
exploration licence into an MDA.
The SPSA also envisages the provision of a loan facility, by the indirectly,
wholly owned Severstal subsidiary to AIOG, of up to $15 million to finance the
Putu Range iron ore project through to bankable feasibility study. The parties
have undertaken to negotiate in good faith and use reasonable endeavours to
enter into such facility agreement.
The Company's holding in AIOG will be 38.5 per cent on completion of these
transactions. The parties have agreed to negotiate in good faith and use
reasonable endeavours to enter into a shareholders' agreement to govern the
relationship between the parties on or prior to completion.
The share purchase and subscription agreement between Mano and Severstal is
dependent on a number of customary conditions, including Mano's successful
conversion of its exploration licence into a full 25-year mineral development
agreement with the government of Liberia, which is expected to take
approximately four months from the date of the agreement being signed.
DIAMONDS
On June 19 2008, the Company reported that its 49/51 joint venture at Kono with
partner Petra Diamonds had produced its first 1,000 carats of diamonds and made
the following statement regarding the Kono Joint Venture:
"The exploration and trial mining operations at Kono project are progressing
well and continue to deliver encouraging results. Two shafts are being
developed, Pol-K and Bardu, and processing of exploration and development
material to date has yielded 12,132 diamonds weighing a total of 1,049 carats.
"The first commercial tender of diamonds from the Kono project is planned for
August in Johannesburg, through existing Petra marketing channels. This is
likely to comprise approximately 800 carats of diamonds from the Pol-K shaft and
will give an indication of the likely minimum value to be realised from this
kimberlite shaft. A second, larger tender, comprising diamonds produced from the
first Pol-K stope, is being scheduled for October.
"As diamond production from the trial mining stopes increases over the coming
months, revenues from diamond sales are expected to generate regular cash flow
to offset development expenditure."
Construction of the 100 ton per hour processing plant for the Mandala alluvial
project was completed in Cape Town, South Africa, and the plant is being shipped
to Guinea in Q3 2008.
At the Tongo project in Sierra Leone, a number of potentially high grade
kimberlite dykes have been discovered and a 300-ton bulk sample is in the
process of being collected. The objective of this bulk sampling is to determine
with more confidence the grade and diamond value of these kimberlites.
In the DRC the first phase exploration over the 1,308km2 Remec Joint Venture
area yielded encouraging results. A follow up programme will be conducted in Q3
2008 in order to isolate the likely source of kimberlites for the abundant
indicator minerals recovered.
Updated Competent Persons Reports have been received for all diamond properties
and are available on the Company's website and www.sedar.com.
CORPORATE
On May 29 2008, the Company announced that it has successfully completed a
non-brokered private placement of a total of 20,000,000 new common shares at a
price of 10p per share and 20,000,000 warrants at a price of 14p per share with
Severstal, which was previously announced on 23 May 2008, raising gross proceeds
of Pounds Sterling 2m. Admission of the Placing Shares to trading on AIM will
become effective today, 30 May 2008.
On June 11 2008, the Company confirmed that all the resolutions put to
shareholders at the Company's Annual General Meeting were duly passed.
On June 19 2008, the Company reported that its majority owned subsidiary Stellar
Diamonds Ltd would seek to raise up to Pounds Sterling 2 million in a private
placement in Q3 2008.
SELECTED FINANCIAL INFORMATION
The following selected annual financial information is derived from the audited
consolidated financial statements for the three most recently completed
financial years and is prepared in accordance with Canadian generally accepted
accounting principles ("GAAP").
Years ended:
---------------------------------------------------------------------------
US Dollars December 31 January 31 January 31
2007 2007 2006
---------------------------------------------------------------------------
Interest income 148,041 53,181 117,927
---------------------------------------------------------------------------
Dilution gain 6,207,642 - -
---------------------------------------------------------------------------
Net income/(loss) 4,017,642 (959,609) (1,348,265)
---------------------------------------------------------------------------
Basic and diluted income/
(loss) per share 0.014 (0.004) (0.006)
---------------------------------------------------------------------------
Stock option compensation expense 190,003 513,361 397,829
---------------------------------------------------------------------------
Working capital (i)2,868,877 428,368 3,015,165
---------------------------------------------------------------------------
Total assets 45,501,911 28,866,715 22,287,420
---------------------------------------------------------------------------
Total exploration expenditures(i) 6,526,656 8,443,801 4,291,377
---------------------------------------------------------------------------
(i)After deducting negative goodwill
SUMMARY OF SELECTED QUARTERLY INFORMATION
The following is the selected financial information of the Company for the
last eight quarters: (unaudited)
---------------------------------------------------------------------------
US Dollars June 30 March 31 December 31 October 31
2008 2008 2007 2007
---------------------------------------------------------------------------
Interest income 32,676 18,225 79,784 55,272
---------------------------------------------------------------------------
Dilution gain 442,840 1,387,780 6,207,005 -
---------------------------------------------------------------------------
Net income/(loss) (996,109) (745,653) 5,257,878 (466,135)
---------------------------------------------------------------------------
Basic and diluted
income/(loss) per share (0.003) (0.002) 0.018 (0.002)
---------------------------------------------------------------------------
Total assets 51,393,067 48,617,142 45,501,911 46,105,356
---------------------------------------------------------------------------
July 31 April 30 January 31 October 31
US Dollars 2007 2007 2007 2006
---------------------------------------------------------------------------
Interest income 5,213 7,772 14,496 13,322
---------------------------------------------------------------------------
Dilution gain - - - -
---------------------------------------------------------------------------
Net loss (496,668) (277,433) (139,287) (486,319)
---------------------------------------------------------------------------
Basic and diluted
loss per share (0.002) (0.001) (0.001) (0.002)
---------------------------------------------------------------------------
Total assets 46,672,577 29,813,909 28,866,715 27,404,088
---------------------------------------------------------------------------
RESULTS OF OPERATIONS
During the six months ended June 30, 2008, the Company realised a net loss of
$1,741,762, or $0.006 cents loss per share as compared to a loss of $774,101 or
$0.003 loss per share in the six months ended July 31, 2007. Expenses for the
period at $4,537,767 are up significantly over the corresponding period last
year (2007: $787,086). This increase has arisen for a number of reasons:
1. Interest on the convertible debenture of $196,522 and depreciation of
$155,452, did not feature in expenses for the same period last year.
2. Stock based compensation of $1,314,755 (2007:$170,656) relates to stock
options granted in January 2008, which in fact relate to 2007,but were not
granted last year due to an extended close period.
3. Directors fees ($212,473) and Management fees ($384,909) are higher than last
year reflecting the additional cost of the independent Stellar Board and the
recruitment of key management personnel in Q4, 2007 and Q1, 2008.
4. Professional fees of $1,537,684 (2007:$422,354) included expenses related to
the proposed listing of Stellar on London's AIM market such as legal, and audit
and accounting services, fees to implement a new accounting and reporting system
and consultancy fees.
5. Administrative and office expenses at $609,179 (2007:$4879) includes the cost
of the London office not in the figures last year, additional staff costs,
travel ($152,486), public relations ($73,262) and salaries and wages ($120,534).
The expenses for the period were partly off-set by:
1. A "dilution gain" amounting to $1,830,620 arising from the issue of shares by
Stellar Diamonds Ltd to private investors at a price higher than the initial
price at which the Company transferred the diamond properties to Stellar in
2007.
2. The non-controlling interest of $605,444 represents the minority's share of
Stellar's loss for the period.
3. Interest income of $50,901 for the period is $37,916 greater than last year
($12,985).
4. An unrealised gain on the convertible debenture has been recognised in the
period of $309,040.
BALANCE SHEET, LIQUIDITY AND CAPITAL RESERVES
The Company had working capital at June 30 2008, of $1,514,226 compared with
$2,868,877 at 31 December 2007. The reduction in working capital of $1,354,651
is due to lower cash and cash equivalents together with higher commitments to
related parties and joint venture partners.
Property, plant and equipment increased by $1,669,376 over the year end figure
due primarily spent on the mine plant for Mandala Guinea.
Deferred exploration expenditure at $35,016,127 is $5.1 million above the
December 31, level. Main areas of exploration spend including: $1.2 million on
the Kono/Petra diamond joint venture in Sierra Leone; $1 million spent at the
Putu iron ore project in Liberia; and $1.7 million in Liberia on the New Liberty
Gold Mine and Kpo/MCA diamond projects; $0.2 million was spent on early stage
exploration at our diamond licences in the REMEC area of the DRC; $0.2 million
was spent in Sierra Leone at the Tongo project where bulk sampling is scheduled
to start in the near future.
Share capital increased by $3.9 million following the successful private
placement with Severstal in May 2008.
Cash outflow from operating activities during the six months ended June 30, 2008
is $2,224,310 (2007: ($750,806) after adjusting for the non-cash activities.
Cash outflow on investing activities amounted to $6,826,345 and included
$5,144,577 spent on exploration projects and $1,824,828 on the purchase of
capital assets for the mine plant at Mandala. The comparative figure spent on
investing activities during the six month period to July 31 2007, was
$2,975,699.
Cash in-flow from financing activities for the period is $8,195,491 compared to
$13,856,211 for the six months ended July 31 2007. Besides the $3.9 million
raised by the Severstal private placement, $4.7 million was raised through a
private placement of Stellar Diamonds shares.
Cash and cash equivalents at June 30, 2008 is $3.2 million down from $11.3
million in July 2007.
OTHER INFORMATION
Outstanding share data
The Company is authorised to issue an unlimited number of common shares without
par value. As at August 30, 2008 there were 317,810,818 common shares
outstanding.
Outstanding share options at June 30, 2008 are outlined below. This includes
9,045,000 share options granted during the period.
Exercise price
Number of Per share
Common Shares (Cdn$) Expiry date
---------------------------------------------------
905,000 0.100 August 14, 2008
2,720,000 0.240 March 23, 2009
2,620,000 0.215 July 25, 2010
2,980,000 0.230 July 31, 2011
600,000 0.230 March 16, 2012
300,000 0.230 May 31, 2012
9,045,000 0.200 Jan 23, 2013
---------------------------------------------------
18,945,000
---------------------------------------------------
As at June 30, 2008, 20,000,000 warrants were outstanding at an exercise price
of 14p with an expiry date of November 29, 2009. These warrants were granted to
Severstal as part of the private placement completed on May 29, 2008.
Off balance sheet arrangements
The Company does not have any off-balance sheet arrangements and does not
contemplate having them in the foreseeable future.
Related party transactions
During the six months ended June 30, 2008 the Company incurred billings of
$875,881 (July 30, 2007 - $188,948) from related parties for management fees,
directors fees and professional services. All transactions with related parties
have occurred in the normal course of operations. As at June 30, 2008 the amount
due to related parties totaled $569,202. These balances have no fixed terms of
repayment and have arisen from the accrued provision of services referred to
above and reimbursable expenses.
Disclosure controls and procedures
Management is responsible for establishing and maintaining a system of controls
and procedures over the public disclosure of financial and non-financial
information regarding the Company. Management is also responsible for the design
and maintenance of effective internal control over financial reporting to
provide reasonable assurance regarding the integrity and reliability of the
Company's financial information and the preparation of its financial statements
in accordance with the Canadian generally accepted accounting principles.
Management maintains appropriate information systems, procedures and controls to
ensure integrity of the financial statements and maintains appropriate
information systems, procedures and controls to ensure that information used
internally and disclosed externally is complete and reliable.
Management of the Company, including our Chief Executive Officer and Chief
Financial Officer, do not expect that our disclosure controls and internal
control procedures will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within Mano River have been detected.
However, given the nature of the business and geographical displacement, the
management is committed to continuously mitigate any risks and systematically
improve operating controls where and when possible in the cost effective manner.
As at June 30, 2008 management recognised the limitation of segregation of
duties due to the size of the organisation. The management is mitigating such
risks by introducing compensatory controls to detect and remediate control
deficiencies.
OUTLOOK
The proposed listing of Stellar at the end of Q2 2008 was postponed due to the
continuing downturn in the financial markets. The Company is targeting Q4 2008
for an AIM listing subject to favourable market conditions. Stellar is currently
considering an interim private placement, the results of which will be announced
shortly. By Q4 Stellar expects to have realised its first operating revenues, a
significant milestone for the Company.
In the gold division, the Company is reviewing its approach to NLGM following
the recent drill programme. When confirmed, the objectives will be to upgrade
the current 1.4M oz resource to Measured category and define a new substantial
resource in the Indicated category. Following this, a new feasibility study will
be prepared with the objective of taking NLGM to a production decision. The
Board now has the skills to take projects like NLGM into production with a
Chairman that has proven experience in successfully bringing developments to
fruition and a mining engineer as CEO.
On the Putu iron ore project the Company applied for a 25 year MDA in May, 2008.
This process is on-going but in the mean time the current drilling programme is
continuing.
The Board is considering all options for taking the Company forward including
Corporate transactions. The recently announced deal with Severstal a leading
Russian steel and natural resources company gives Mano an excellent partner to
take the Putu project forward to feasibility and ultimately production. The
additional funds that will become available once the conditions of the deal are
met will give the Company sufficient cash resources to implement its operational
objectives at New Liberty.
On Behalf of the Board,
MANO RIVER RESOURCES INC.
LUIS G. CABRITA da SILVA, President and CEO
Interim Consolidated Financial Statements
Mano River Resources Inc.
For The Six Months Ended June 30, 2008
and Six Months ended July 31, 2007
(Stated in U.S. Dollars)
(Unaudited)
MANO RIVER RESOURCES INC.
6th Floor, 890 West Pender Street, Vancouver, B.C. V6C 1J9
Telephone: (604) 689-1700 Fax: (604) 687-1327
NOTICE TO READER
In accordance with National Instrument 51-102 released by the Canadian
Securities Administrators, the Company discloses that its auditors have not
reviewed the unaudited interim consolidated financial statements for the six
months ended June 30, 2008.
The accompanying unaudited interim financial statements of the Company have been
prepared by and are the responsibility of the Company's management.
Mano River Resources Inc.
Consolidated Balance Sheet
As at June 30, 2008
(Stated in U.S. dollars)
---------------------------------------------------------------------------
Six months Year
ended ended
June 30, December 31,
2008 2007
$ $
(unaudited) (audited)
---------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 3,248,663 4,100,187
Amounts receivable 225,318 296,591
Due from joint venture partners (Note 3) 112,281 112,281
---------------------------------------------------------------------------
3,586,262 4,509,059
Investments (Note 4) 230,590 184,090
Property, plant and equipment 3,671,496 2,002,120
Resource properties (Note 5) 8,888,592 8,888,592
Deferred exploration costs (Note 5) 35,016,127 29,918,050
---------------------------------------------------------------------------
Total Assets 51,393,067 45,501,911
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,085,424 1,010,169
Interest payable on convertible debenture
(Note 8) - 181,296
Due to related parties (Note 7) 569,202 174,367
Due to joint venture partners (Note 3) 417,410 274,350
---------------------------------------------------------------------------
2,072,036 1,640,182
Convertible debenture (Note 8) 1,841,320 2,260,738
---------------------------------------------------------------------------
Total Liabilities 3,913,356 3,900,920
---------------------------------------------------------------------------
Non-controlling interest (Note 9) 9,424,017 7,147,317
---------------------------------------------------------------------------
Shareholders' equity
Share capital (Note 6) 38,511,124 34,596,114
Equity component of convertible debenture
(Note 8) 2,748,180 2,637,802
Contributed surplus 3,219,220 1,904,465
Accumulated other comprehensive loss (21,755) (21,755)
Translation reserve 3,639 -
Deficit (6,404,714) (4,662,952)
---------------------------------------------------------------------------
Total shareholders' equity 38,055,694 34,453,674
---------------------------------------------------------------------------
Total Liabilities, non-controlling interest and
shareholders' equity 51,393,067 45,501,911
---------------------------------------------------------------------------
Nature of operations and continuation of business (Note 1)
Approved by the Board
(Signed) LUIS G. CABRITA da SILVA, DIRECTOR
--------------------------------------------------
Luis G. Cabrita da Silva
(Signed)DAVID B. EVANS, DIRECTOR
David B. Evans
--------------------------------------------------
Mano River Resources Inc.
Consolidated Statement of Cash Flow
For the six months ended June 30, 2008
(Stated in U.S. dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
June 30, July 31, June 30, July 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------------------
Expenses
Administrative and
office expenses 420,136 3,025 609,179 4,879
Directors fees 59,446 25,899 212,473 34,399
Foreign exchange
loss/(gain) 84,294 (17,386) 89,265 (35,196)
Management fees 226,580 56,934 384,909 128,979
Interest on
convertible debenture 102,303 - 196,522 -
Professional fees 977,757 323,485 1,537,684 422,354
Stock-based compensation - 66,102 1,314,755 170,656
Transfer agent and
filing fees 13,912 43,822 37,528 61,015
Depreciation 3,706 - 155,452 -
---------------------------------------------------------------------------
1,888,134 501,881 4,537,767 787,086
---------------------------------------------------------------------------
Dilution gain on
shares issued by
controlled company (442,840) - (1,830,620) -
Unrealised gain on
convertible debenture 770 - (309,040) -
Interest Income (32,676) (5,213) (50,901) (12,985)
---------------------------------------------------------------------------
Loss before
non-controlling
interest (1,413,388) (496,668) (2,347,206) (774,101)
Non-controlling
interest 417,279 - 605,444 -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Loss and
comprehensive loss (996,109) (496,668) (1,741,762) (774,101)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic and diluted
loss per share (0.003) (0.002) (0.006) (0.003)
Basic and diluted
weighted average
number of shares
outstanding 305,063,565 297,810,818 303,102,590 297,137,116
---------------------------------------------------------------------------
Mano River Resources Inc.
Consolidated Statement of Cash Flow
For the six months ended June 30, 2008
(Stated in U.S. dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three Three Six Six
months months months months
ended ended ended ended
June 30, July 31, June 30, July 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------------------
Operating Activities
Loss and comprehensive
loss (996,109) (496,668) (1,741,762) (774,101)
Items not involving cash:
Dilution gain on shares
issued by controlled
company (442,840) - (1,830,620) -
Non-controlling interest (417,279) - (605,444) -
Stock-based compensation - 66,102 1,314,755 170,656
Interest on convertible
debentures 102,303 - 196,522 -
Unrealised loss on
convertible debt 770 - (309,040) -
Depreciation of fixed
assets 3,705 - 155,451 -
Changes in Non-Cash
Working Capital:
Amounts receivable and
prepaid expenses 128,990 (98,942) 105,492 (183,093)
Due to related parties 313,835 (99,743) 394,835 (35,333)
Accounts payable and
accrued liabilities (23,828) 179,366 95,501 71,065
---------------------------------------------------------------------------
(1,330,453) (449,885) (2,224,310) (750,806)
---------------------------------------------------------------------------
Investing Activities
Deferred exploration
expenditures (3,112,486) (1,953,789) (5,144,577) (2,621,318)
Due from/(to) joint
venture partners (495,590) (458,631) 143,060 (354,381)
Purchase of capital assets (1,737,628) - (1,824,828) -
---------------------------------------------------------------------------
(5,345,704) (2,412,420) (6,826,345) (2,975,699)
---------------------------------------------------------------------------
Financing Activities
Issuance of share capital
(net of costs) 3,915,010 - 3,915,010 437,836
Convertible debenture - 4,641,860 - 4,641,860
Interest paid on
convertible debenture (205,316) - (412,037) -
Proceeds from issue of
shares in subsidiary 1,026,520 8,092,790 4,692,518 8,776,515
---------------------------------------------------------------------------
4,736,214 12,734,650 8,195,491 13,856,211
---------------------------------------------------------------------------
Foreign exchange
differences on translation
of overseas operations (334) - 3,640 -
---------------------------------------------------------------------------
Net cash inflow (1,940,277) 9,872,345 (851,524) 10,129,706
Cash, Beginning of Period 5,188,940 1,442,881 4,100,187 1,185,520
---------------------------------------------------------------------------
Cash, End of Period 3,248,663 11,315,226 3,248,663 11,315,226
---------------------------------------------------------------------------
Mano River Resources Inc.
Notes to consolidated financial statements
For the six months ended June 30, 2008
1. Nature of operations
Mano River Resources Inc. ("Mano River" or "the Company") commenced operations
on July 10, 1996 and is engaged in the acquisition, exploration and development
of gold, iron and diamond properties. The Company is in the development stage
and has no source of cash flows other than loans from related parties or equity
offerings.
These consolidated financial statements are prepared on a going concern basis
which assumes that the Company will be able to realise assets and discharge
liabilities in the normal course of business. The Company's ability to continue
on a going concern basis depends on its ability to successfully raise additional
financing. If the Company cannot obtain additional financing it may be forced to
realise its assets at amounts significantly lower than the current carrying
value.
Uncertainty also exists with respect to the recoverability of the carrying value
of certain resource properties. The ability of the Company to realise its
investment in resource properties is contingent upon resolution of the
uncertainties and continuing confirmation of the Company's title to the resource
properties.
In August 2007, the Company changed its fiscal year end from January 31, to
December 31, effective as of December 31, 2007.
2. Significant accounting policies
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada and reflect the following significant
accounting policies. The United States dollar has been identified as the
Company's currency of measurement and is used for external reporting purposes.
(a) Principles of consolidation
These financial statements include the accounts of Mano River Resources Inc. and
its principal subsidiaries, Mano Gold Investments Ltd. (formerly Mano River
Resources Ltd.) including sub-group Mano River Iron Ore Holdings Ltd.
("MARIOH"), and Mano Diamonds Ltd.
African Iron Ore Ltd. is 80% owned by MARIOH. One-half of the remaining 20% is
held by Eastbound Resources Ltd., a company controlled by a director of the
Company.
The financial statements of entities which are controlled by the Company through
voting equity interests, referred to as subsidiaries, are consolidated. Variable
interest entities ("VIEs"), which include, but are not limited to, special
purpose entities, trusts, partnerships, and other legal structures, as defined
by the Accounting Standards Board in Accounting Guideline ("AcG") 15,
Consolidation of Variable Interest Entities ("AcG 15"), are entities in which
equity investors do not have the characteristics of a "controlling financial
interest" or there is not sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support. VIEs are
subject to consolidation by the primary beneficiary who will absorb the majority
of the entities' expected losses and/or expected residual returns. As of June
30, 2008, the Company does not hold an interest in any VIEs.
All intercompany balances and transactions have been eliminated upon consolidation.
The shares not legally owned by the Company in the listed subsidiaries, other
than African Iron Ore (Liberia) Ltd.(where the Company holds an 80% interest),
and Stellar Diamonds Ltd.(Stellar), (where the Company holds 63.17%) are held by
a third party company. This third party has no beneficial interest in the shares
and is holding the shares for the Company's benefit until the Company and the
third party agree on their ultimate distribution. As the Company retains the
beneficial interest in these shares no non-controlling interest exists at June
30, 2008.
(b) Non-controlling interests
Non-controlling interests exist in less than wholly-owned subsidiaries of the
Company and represent the outside interest's share of the carrying values of the
subsidiaries. When the subsidiary company issues its own shares to outside
interests, a dilution gain or loss arises as a result of the difference between
the Company's share of the proceeds and the carrying value of the underlying
equity.
(c) Cash
Cash and cash equivalents include cash, and those short-term money market
instruments that are readily convertible to cash with an original term of less
than 90 days.
(d) Property, plant and equipment
Property, plant and equipment is comprised of office furniture, automobiles and
various equipment used in the field, that are stated at cost and depreciated at
30% per annum on a declining balance basis.
(e) Long-term investments
Investments are recorded at cost, subject to a provision for any impairment that
is determined to be other than temporary.
(f) Resource properties and deferred exploration costs
The Company follows the method of accounting for its mineral properties whereby
all costs related to acquisition, exploration and development are capitalised by
property. The carrying value of pre-production and exploration properties is
reviewed periodically and either written off when it is determined that the
expenditures will not result in the discovery of economically recoverable
mineral reserves or transferred to producing mining property, plant and
equipment when commercial development commences.
The recoverability of amounts shown for pre-production and exploration
properties is dependent upon the discovery of economically recoverable mineral
reserves, confirmation of the Company's interest in the underlying mineral
claims, the ability of the Company to finance the development of the properties
and on the future profitable production or proceeds from the disposition
thereof.
The success and ultimate recovery of the Company's exploration costs of its
mineral exploration properties is influenced by significant financial risks,
legal and political risks, commodity prices, and the ability of the Company to
discover economically recoverable mineral reserves and to bring such reserves
into future profitable production.
(g) Measurement uncertainty
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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant balances and transactions affected by management
estimates include the valuation of investments, resource properties, deferred
exploration costs, future income tax and stock-based compensation. Actual
results could differ from those estimates.
The amounts used to estimate fair values of stock options issued are based on
estimates of future volatility of the Company's share price, expected lives of
the options, expected dividends to be paid by the Company and other relevant
assumptions.
By their nature, these estimates are subject to measurement uncertainty and the
effect of changes in such estimates on the consolidated financial statements of
future periods could be significant.
(h) Loss per share
The basic loss per share is computed by dividing the loss and comprehensive loss
by the weighted average number of common shares outstanding during the year. The
diluted loss per share reflects the potential dilution by including other common
share equivalents, such as outstanding stock options and share purchase
warrants, in the weighted average number of common shares outstanding during the
year. Options and warrants as disclosed in Note 6 are anti-dilutive and
therefore have not been taken into account in the per share calculations.
(i) Foreign currency translation
The Company's foreign currency transactions and the financial position and
results of operations of the Company's integrated subsidiaries are translated
into U.S. dollars using the temporal method. Under this method, monetary assets
and liabilities are translated at the rate in effect at the balance sheet date.
Other balance sheet items, revenues and expenses are translated at the rates
prevailing on the respective transaction dates.
(j) Stock-based compensation
The Company follows Canadian Institute of Chartered Accountants Handbook Section
3870, Stock-Based Compensation, which requires that all stock-based awards made
to non-employees and employees be measured and recognised using a fair value
based method. Accordingly, the fair value of options at the date of grant is
accrued and charged to operations, with an offsetting credit to contributed
surplus, on a straight-line basis over the vesting period. If the stock options
are ultimately exercised, the applicable amounts of contributed surplus is
transferred to share capital.
(k) Joint ventures
The Company has entered into certain joint venture agreements whereby the
Company earns or allows a third party to earn an interest in certain mineral
properties. These joint venture agreements generally provide for the acquiring
party to incur exploration costs to earn an interest. Currently certain joint
ventures in which the Company has an interest are used to hold the property
interest solely; while certain others have operations or exploration programs
conducted by the joint venture.
(l) Income taxes
The Company accounts for income taxes whereby future income tax assets and
liabilities are computed based on differences between the carrying amount of
assets and liabilities on the balance sheet and their corresponding tax values
using the enacted income tax rates at each balance sheet date. Future income tax
assets also result from unused loss carryforwards and other deductions. The
valuation of future income tax assets is reviewed annually and adjusted, if
necessary, by use of a valuation allowance to reflect the estimated realisable
amount.
3. Due to/from joint venture partners
During the six month period ended June 30, 2008, certain exploration and
development expenditures were carried out by joint venture partners.
The amount owing to Petra Diamonds as at June 30, 2008, who is the operator of
the Kono joint venture diamond project in Sierra Leone, is $417,410.
As at June 30, 2008 the amount due from joint venture partners amounted to $112,281.
4. Investments
June 30, July 31,
2008 2007
$ $
----------------------------------------------------------------
Mifergui-Nimba 230,590 184,090
----------------------------------------------------------------
----------------------------------------------------------------
The Mifergui-Nimba investment consists of 8,654 shares representing a 3.7%
interest in a Guinean company that holds an interest in a mining license over a
Guinean iron ore property. The company is a private company with no available
market value. Management has reviewed the carrying value at June 30, 2008 and do
not consider that there has been any indication of impairment.
5. Resource properties and deferred exploration costs
June 30, July 31,
2008 2007
$ $
(unaudited) (unaudited)
-----------------------------------------------------------------------
Acquisition costs:
Liberia, West Africa:
Bea 210,000 210,000
Kpo 110,000 110,000
Sierra Leone, West Africa:
Pampana, Sonfon and Nimini South 1,695,000 1,695,000
Guinea, West Africa
Missamana/Gueliban 1,940,000 1,940,000
Bouro/ Mandala 4,933,592 4,933,592
-----------------------------------------------------------------------
Closing balances 8,888,592 8,888,592
-----------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
June 30, July 31, June 30, July 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------------------
Deferred exploration
expenditures
Feasibility - - - 4,992
Assays incl. shipment 5,530 23,402 37,822 43,267
Communications incl.
equipment 42,356 38,912 74,899 58,520
Community relations 53,471 24,665 99,860 73,429
Consultants 345,339 79,455 449,408 111,407
Data, images, reports
and maps 279 926 5,398 5,626
Drilling 857,470 - 1,210,967 -
Geologists' support 2,588 47,653 11,045 66,558
Infrastructure incl.
roads and bridges 24,120 60,048 68,197 74,183
Licenses and permit
fees 40,543 138,309 42,375 158,851
Metallurgy - 14,887 - 14,887
Project/field office
costs, incl. field
equip. 214,523 65,523 377,885 142,397
Reconnaissance and
geochemical - 20,677 - 33,794
Salaries and wages 801,477 320,626 1,284,815 614,249
Subsistence 62,682 36,688 116,084 73,805
Transportation incl.
vehicles 113,855 91,607 178,919 154,945
Net Trans-Hex JV
expenditure (281,204) - - -
Kono (Petra) joint
venture 829,457 990,408 1,186,903 990,408
Transfer to
Mifergui-Nimba
investment - - (46,500) -
---------------------------------------------------------------------------
Net expenditure during
the period 3,112,486 1,953,786 5,098,077 2,621,318
Balance, Beginning of
period 31,903,641 24,058,926 29,918,050 23,391,394
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balance, End of period 35,016,127 26,012,712 35,016,127 26,012,712
---------------------------------------------------------------------------
---------------------------------------------------------------------------
6. Share capital
(a) Authorised
Unlimited number of common shares without par value.
(b) Issued
Shares Amount
-------------------------------------------------------------------------
$
Balance at January 31, 2005 213,405,818 21,461,793
Shares issued on private placement (net of
costs) 40,000,000 7,180,800
Shares issued on exercise of warrants 12,500 894
-------------------------------------------------------------------------
Balance at January 31, 2006 253,418,318 28,643,487
Shares issued on private placement (net of
share issue costs) 39,562,500 5,502,741
Shares issued on exercise of stock options 140,000 12,050
-------------------------------------------------------------------------
Balance at January 31, 2007 293,120,818 34,158,278
Shares issued on exercise of stock options 4,690,000 437,836
-------------------------------------------------------------------------
Balance at December 31, 2007 297,810,818 34,596,114
-------------------------------------------------------------------------
Shares issued on private placement (net of share
issue costs) 20,000,000 3,915,010
-------------------------------------------------------------------------
Balance at June 30, 2008 317,810,818 38,511,124
-------------------------------------------------------------------------
During the six months period ended June 30, 2008:
(a) On May 29, 2008 the Company completed a private placement of 20,000,000
common shares with a wholly owned subsidiary of Severstal, a leading Russian
steel and natural resources company, at Pounds Sterling 0.10p ($0.20 USD) each
for the gross proceeds of Pounds Sterling 2,000,000 ($4,000,000). Associated
costs charged to shareholders equity amounted to $84,990. In addition, 20
million warrants will be granted at an exercise price of 14 pence, which shall
be exercisable at any time over a period of 18 months from the completion of the
private placement. Upon exercise of all the warrants, Severstal's holding in
Mano will increase to 11.84 per cent (assuming no further issuances of common
shares prior to that time) and provide the Company with a further Pounds
Sterling 2,800,000 in financing (equivalent to $5.6 million).
Application has been made for the new common shares issued to be admitted to the
London Alternative Investment Market (AIM) and dealings in the new common shares
is expected to commence on Sept. 30, 2008, as the new common shares are subject
to a four-month hold period under Canadian securities laws and the policies of
the TSX Venture Exchange.
(b) During the six months ended June 30, 2008, 2,375,000 common shares of
Stellar Diamonds Ltd. Mano's majority owned subsidiary, were issued at Pounds
Sterling 1 each for gross proceeds of Pounds Sterling 2,375,000 ($4,724,571).
Associated costs charged to shareholders equity amounted to $32,053. All other
professional fees incurred on the postponed AIM listing of Stellar Diamonds Ltd.
during the period, have been charged to the consolidated statement of
income/(loss).
During the six months period ended July 31, 2007:
(a) The Company issued 2,100,000 common shares on exercise of stock options at a
price of Cdn$0.11 per share and 100,000 common shares at a price of Cdn$0.10 per
share. Cash proceeds of $198,276 for exercise of these stock options were
received by the Company on January 31, 2007 and recorded as subscriptions under
shareholders' equity.
(b) 590,000 stock options were exercised at a price of CDN$0.10 per share and
15,000 options expired unexercised; and 2,000,000 stock options were exercised
at a price of CDN$0.11 per share and 1,000,000 options expired unexercised.
Total option exercise proceeds were $239,560.
(c) Stock options
As at June 30, 2008 the following stock options were outstanding:
Number of
stock options Exercise price
Outstanding per share Expiry date
-------------------------------------------------------------
Cdn$
905,000 0.100 August 14, 2008
2,720,000 0.240 March 23, 2009
2,620,000 0.215 July 25, 2010
2,755,000 0.230 July 31, 2011
600,000 0.230 March 16,2012
300,000 0.230 May 20, 2012
9,045,000 0.230 January 17, 2013
-------------------------------------------------------------
-------------------------------------------------------------
18,945,000
-------------------------------------------------------------
-------------------------------------------------------------
(d) Stock warrants
As at June 30, 2008, 20,000,000 warrants were outstanding at an exercise price
of 14p with an expiry date of November 29, 2009. These warrants were granted to
Severstal as part of the private placement completed on May 29, 2008.
7. Related party transactions
During the six month period ended June 30, 2008, the Company incurred billings
of $875,881 (2007: $188,948) from related parties for management fees and
professional services. The increase over 2007 is mainly due to the formation of
the Stellar Board which has been treated as a related party for the purposes of
the consolidation. All transactions with related parties have occurred in the
normal course of operations. As at June 30, 2008, the amount due to related
parties totalled $569,202 (2007:$98,374). These balances have no fixed terms of
repayment and have arisen from the accrued provision of services and
reimbursable expenses.
8. Convertible debenture
On September 27, 2007 the Company entered into convertible subscription
agreements to raise Pounds Sterling 2.3 million with certain lenders. The
convertible debentures are repayable on August 1, 2010 and bear interest at 9%
per annum. The principal amount is convertible by the holders into common shares
of the Company at a conversion price of Pounds Sterling 0.14 per share at any
time prior to maturity. Alternatively, the Company has the option to demand the
conversion after a period of three years, if the common shares of the Company
have traded at an average 30% premium to the conversion price for a minimum
period of 21 trading days previous to the conversion date.
The convertible debentures have been segregated into debt and equity components.
The financial liability component, representing the value allocated to the
liability at inception, is recorded as a long-term liability. The remaining
component, representing the value ascribed to the holders' option to convert the
principal balance into common shares, is classified in shareholders' equity as
"Equity component of convertible debenture". These components have been measured
at their respective fair values on the date the convertible debenture was
originally issued.
As the debentures are convertible into common shares at the option of the
holder, they have been accounted for in their component parts. At June 30, 2008
the Company has determined the fair value of the liability to make future
payments of principal and interest to be $1,841,320 and the fair value of the
holders' conversion option to be $2,748,180. The fair value of the conversion
option was based on using the Black-Scholes option pricing model with the
following assumptions: no dividends were paid, a weighted average volatility of
the Company's share price of 172%, a weighted average annual risk free rate of
4.64% and an expected life of three years. The residual was allocated to the
debt.
During the six months ended June 30, 2008, the Company incurred interest expense
relating to the convertible debenture of $196,522. Interest has been paid up to
August 1, 2008 therefore a prepayment of $34,219 is included in amounts
receivable.
9. Non-controlling interest
Mano Ownership Carrying value of net June 30,
% equity 2008
$
Stellar Diamonds Ltd. 63.17 24,739,952 9,078,012
African Iron Ore Ltd. 80.00 2,472,918 346,005
9,424,017
---------
(a) The Company transferred its diamonds properties which had a book value of
$8,276,081 to Stellar in exchange for 19,239,541 shares of Stellar. The exchange
was recorded at book value as it was a transaction between companies under
common control. In 2007, Stellar completed two private placements in order to
raise funds to finance the development of its diamond interests. In the first
placement 1,211,890 shares were issued at an effective price of Pounds Sterling
0.87 per share. 918,484 of those shares were issued for cash consideration,
raising proceeds of Pounds Sterling 800,000 (US$1,571,438), while the remaining
293,406 shares were issued to the subscribers in consideration for forfeiture of
certain benefits as a result of the diamond reorganisation. In the second
placement 4,822,044 shares were issued at a price of Pounds Sterling 0.871 per
share for proceeds of Pounds Sterling 4,200,000 (US$8,611,361). In addition,
Stellar issued 2,411,022 warrants with a two year term and an exercise price of
Pounds Sterling 1.20 pence per share as well as 260,390 adviser's options with a
two year term and an exercise price of Pounds Sterling 0.871 per share. As a
result of these shares issuances by Stellar, the Company recorded a dilution
gain of $6,207,005 in the year ended December 31, 2007.
In the six months to June 30, 2008 Stellar issued a further 2,375,000 common
shares at a price of Pounds Sterling 1 per share for gross proceeds of Pounds
Sterling 2,375,000 ($4,724,571). As a result of this issuance, Stellar recorded
a dilution gain of $1,830,620.
Gains on shares issued by affiliated companies arise when the ownership interest
of the Company in a controlled entity is diluted as a result of shares issuances
of the investee company. The Company does not receive any cash proceeds (nor is
required to make any payments) from these transactions
(b) African Iron Ore Ltd., the holding company for the Company's iron ore
interests, is 80% owned by Mano. One-half of the remaining 20% is held by
Eastbound Resources Ltd., a company controlled by a director of the Company.
10. Fair value of financial instruments
The Company's financial assets and liabilities are cash, amounts receivable,
investments, accounts payable and due to related parties. The fair values of
these financial instruments are estimated to approximate their carrying values
due to their immediate or short-term nature except for investments whose fair
value is not readily determinable. Due to the nature of the Company's
operations, there is no significant credit or interest rate risk. As at June 30,
2008, the Company held approximately $3,033,531 cash in bank accounts
denominated in U.K. pounds. The Company has taken no action to reduce its
exposure to foreign currency risk.
11. Subsequent Events
There were no subsequent events to report.
Meridian Mining UK Socie... (TSXV:MNO)
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