Mano River Resources Inc (TSX VENTURE:MNO)(AIM:MANA) ("Mano River" or the
"Company") -
The Board of Mano River Resources Inc. is pleased to release the Accounts of the
Company for the nine months 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
For further information on Mano River Resources and its exploration programme,
you are invited to visit the Company's website at www.manoriver.com or contact
one of the following:
Mano River Resources Inc
Management's Discussion and Analysis
For the nine months ended September 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 and related notes for the nine months ended September 30,
2008. This management discussion and analysis has been prepared based on
information available to Mano as at November 28, 2008. Unless otherwise
indicated all amounts are in US dollars.
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
DESCRIPTION OF BUSINESS
Mano 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 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. Full scale diamond exploration in the DRC started
in 2008.
OPERATIONS
Mano's fundamental strategy is to unlock the value of its exploration assets and
increase shareholder value by driving these assets towards production. The
Company's exploration assets are housed in three divisions: namely iron ore,
diamonds and gold.
The Company is targeting a potential resource of up to 900 million tonnes at its
Putu Iron Ore Project in southeastern Liberia. In quarter two 2008 the Company
signed certain financial and development agreements on the Putu Iron Ore Project
with Severstal and applied to convert its exploration licence into an MDA
(Mineral Development Agreement). In October 2008 Mano announced that the
Government of Liberia had granted the Company a two year extension to its Putu
Iron Ore exploration licence, extending it to September 30, 2010. The resource
definition drilling programme which commenced in quarter two 2008 is progressing
well with over 3,000 metres drilled to-date.
In 2007 diamond assets were transferred into Stellar Diamonds Limited (Stellar).
The intention to list Stellar on London's AIM stock exchange has been postponed.
Mano currently owns 63.17% of Stellar as a result of private equity financings
completed by Stellar. Exploration is currently on hold pending receipt of
proceeds from the current private placement. When funding is secured the
intention is to progress the two near-term diamond 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
diamond grades achieved to date. Valuations on the stones from the first Kono
commercial tender in September 2008 resulted in the sale of 866 carats at an
average value per carat of US$152. The 100% owned Mandala alluvial diamond
project in Guinea has progressed and the DMS processing plant is being
transferred to Mancenta.
The key asset in the Gold division is 100% owned New Liberty Gold project (NLGM)
in Liberia where Mano has been drilling in order to expand the 2007 NI 43-101
estimated gold resource of 1.4 million contained ounces (13.533 million tonnes
of measured and indicated resources grading 3.18 g/t gold). The most recent
drill programme was completed in quarter two and in all 4,485 metres was
drilled. The results received to date are highly encouraging and confirm that
gold mineralisation continues at depth.
EXPLORATION PROJECTS - CURRENT & SUBSEQUENT DEVELOPMENTS
IRON ORE
CURRENT EVENTS
During quarter three of this year progress continued on the 4,000 metre diamond
drill programme at Putu. Five holes were completed this quarter with a
cumulative total depth of 2160.5 metres. The drilling was in tandem with
construction of drill access routes, drill pads, core cutting and general camp
construction. Construction started on a new access road 150 metres down the
southeast slope from the ridge crest. Rehabilitation of the old Zimbabwe Road
started and this will give access to the central portion of the Jiddah Mountain
Ridge. The general geological sequence intersected by drilling to date appears
to be a surface laterite unit followed by oxidized limonite/goethite/haematite
itabarite with decreasing oxidation at depth. The current drill programme should
be completed by the end of quarter four 2008. Dependent on the turn around time
at the lab we hope to receive the final assay results by the end of quarter one
2009.
SUBSEQUENT EVENTS
On November 28, 2008 the Company announced that the joint Boards of Mano & OAO
Severstal would like to confirm 'Closing of the Agreement' on their joint
operation of the Putu project. Financial, legal and technical due diligence is
substantially complete and Severstal Resources has already advanced project
funds, as per the facility in the agreement signed on the 22 May 2008. The
amount received by the Company on the 27 October 2008 was the pre-agreed sum of
US$1 million.
Completion of the deal is formally set for 10 December 2008.
The monetary terms of the original agreement remain unchanged and on completion
Severstal Resources, through its wholly owned subsidiary, will take up its right
to become a 61.5% shareholder in the Company's iron ore subsidiary by investing
US$30M to advance the Putu iron ore project to a definitive feasibility study.
On completion, US$8.3 million will be released to Mano with the balance of
US$4.2 million to be paid two years from the date of completion on the 10
December 2010.
The Company announced on October 24 2008 that the Government of Liberia has
granted a two year extension to its Putu Range Iron Ore exploration licence,
extending it to September 30, 2010. This licence extension enables the Company
to proceed to close the agreement previously signed on the May 22, 2008 with its
chosen iron ore partner, Severstal, having satisfied all material legal
requirements.
DIAMONDS
CURRENT EVENTS
Exploration and trial mining operations at our Kono project in Sierra Leone (a
Joint Venture between Stellar (49%) and Petra Diamonds Limited (51%)), continues
to yield encouraging results. The first parcel of Kono test production (1,064
carats) was sold on tender in September 2008, with the Pol-K shaft parcel of 866
carats achieving an average value per carat of US$152.
As trial mining and regular sales continue, we will further establish the
parameters for a production decision which is expected during quarter one, 2009.
A 3,167 line km airborne electromagnetic geophysical survey has been completed
by Fugro Airborne Surveys, the objective being the discovery of kimberlite pipes
and blows.
Stellar's on-going financial commitment to the Kono project is dependent on the
successful closure of the current private placement. Mano's intention is to
participate in this private placement along with other Stellar shareholders
pending receipt of funds from Severstal.
GOLD
CURRENT EVENTS
There was little activity on the Mano gold projects during quarter three 2008.
Plans for the 2009 season have been prepared but are dependent on closing the
Severstal agreement and receipt of the $12.5 million in cash under its terms.
Following the work completed by consultants earlier in the year the main targets
apart from the NLGM project in Liberia are Silverhills, Gondoja and Ndablama.
The Company has contracted the services of AMC Consultants (UK) Ltd to review
the possible mining methods at NLGM associated with this type of archaean,
steeply dipping deposit. On the basis of this the Company is designing an
appropriate in-fill drilling programme to an approximate depth of 300 metres.
CORPORATE
CURRENT EVENTS
On September 9, 2008 the Company was notified by Malcolm Burne, a Non-Executive
Director of the Company, that he purchased 500,000 common shares at 7.25 pence
per share on September 3, 2008. His holding of common shares in the Company has
increased to 900,000 shares, representing approximately 0.28% of the Company's
issued shared capital.
On July 3, 2008 the Company announced that it was notified by David Evans,
Executive Chairman of the Company, that he purchased 200,000 common shares at
10.75 pence per share on June 27, 2008. His holding of common shares in the
Company has increased to 1,200,000 shares, representing approximately 0.38% of
the Company's issued shared capital.
On July 3, 2008 Mano announced that it was notified by Eastbound Resources
Limited, a company controlled by Non Executive Director Guido ('Guy') Pas, that
it had acquired 4,645,672 common shares off market for an average consideration
of 11.84p per share on June 30, 2008. This brings the total number of shares
owned by Eastbound to 28,200,191 shares, and the total number of shares
indirectly and directly controlled by Mr Pas to 30,400,191 shares, which
represents approximately 9.56% of the Company's issued share capital.
SUBSEQUENT EVENTS
On October 31, 2008 the Company announced the following Director share dealings:
- Eastbound Resources Limited, a company controlled by Non Executive Director
Guido ('Guy') Pas, acquired 500,000 common shares for a consideration of 3.75
pence per share on 30 October, 2008. This brings the total number of shares
owned by Eastbound to 28,700,191 shares, and the total number of shares
indirectly and directly controlled by Mr Pas to 30,900,191 shares, which
represents approximately 9.72% of the Company's issued share capital.
- David Evans, Executive Chairman of the Company, purchased 500,000 common
shares at 3.5 pence per share on 30 October, 2008. His holding of common shares
in the Company has increased to 1,700,000 shares, representing approximately
0.53% of the Company's issued share capital.
- Malcolm Burne, a Non-Executive Director of the Company, purchased 500,000
common shares at 3.375 pence per share on 29 October, 2008. His holding of
common shares in the Company has increased to 1,400,000 shares, representing
approximately 0.44% of the Company's issued shared capital.
SUMMARY OF PERFORMANCE
SELECTED FINANCIAL INFORMATION
The following table provides a summary of the unaudited financial information of
the Company for the nine month period ended September 30, 2008 and the annual
audited financial information for the three most recently completed financial
years as derived from the audited consolidated financial statements and is
prepared in accordance with Canadian generally accepted accounting principles
("GAAP").
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Nine months
period ended Year ended Year ended Year ended
US Dollars September 30 December 31 January 31 January 31
2008 2007 2007 2006
----------------------------------------------------------------------------
Interest income 72,316 148,041 53,181 117,927
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Dilution gain 1,830,620 6,207,642 - -
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Net income/(loss) (7,103,984) 4,017,642 (959,609) (1,348,265)
----------------------------------------------------------------------------
Basic and diluted
income/(loss) per share (0.023) 0.014 (0.004) (0.006)
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Stock option
compensation expense 1,314,755 190,003 513,361 397,829
----------------------------------------------------------------------------
Working capital (2,389,117) 2,868,877 428,368 3,015,165
----------------------------------------------------------------------------
Total assets 47,082,223 45,501,911 28,866,715 22,287,420
----------------------------------------------------------------------------
Exploration expenditure
in the year 8,171,920 6,526,656 8,443,801 4,291,377
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SUMMARY OF SELECTED QUARTERLY INFORMATION
The following is the selected financial information of the Company for
the last eight quarters: (unaudited)
----------------------------------------------------------------------------
US Dollars September 30 June 30 March 31 December 31
2008 2008 2008 2007
----------------------------------------------------------------------------
Interest income 21,415 32,676 18,225 79,784
----------------------------------------------------------------------------
Dilution gain - 442,840 1,387,780 6,207,005
----------------------------------------------------------------------------
Net income/(loss) (5,362,222) (996,109) (745,653) 5,257,878
----------------------------------------------------------------------------
Basic and diluted
income/(loss) per share (0.017) (0.003) (0.002) 0.018
----------------------------------------------------------------------------
Total assets 47,082,223 51,393,067 48,617,142 45,501,911
----------------------------------------------------------------------------
October 31 July 31 April 30 January 31
US Dollars 2007 2007 2007 2007
----------------------------------------------------------------------------
Interest income 55,272 5,213 7,772 14,496
----------------------------------------------------------------------------
Dilution gain - - - -
----------------------------------------------------------------------------
Net loss (466,135) (496,668) (277,433) (139,287)
----------------------------------------------------------------------------
Basic and diluted
loss per share (0.002) (0.002) (0.001) (0.001)
----------------------------------------------------------------------------
Total assets 46,105,356 46,672,577 29,813,909 28,866,715
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RESULTS OF OPERATIONS
Review of three months ended September 30, 2008 and the three month period ended
October 31, 2007.
The Company earned interest income of $21,415 down $33,857 versus the October
2007 figure reflecting a lower average cash balance in the September quarter. In
light of the current market situation it is not possible to continue to explore
all the projects on the Company's books. Therefore, management has reviewed its
portfolio of projects and their carrying values and has decided to cancel the
licences on those projects deemed uneconomic. This has resulted in an impairment
charge of $5,161,333 (AAR Liberia diamond project $429,072; Guinea Iron Ore
$46,500; gold projects, Missamana/Gueliban (Guinea) $3,847,532 and Pampana
(Sierra Leone) $838,229) in quarter three 2008, versus a nil charge in quarter
three 2007. The projects that have been impaired in quarter three have received
minimal funding over the past two years and are not key assets within the
Company's project portfolio. In quarter three 2008 the unrealised gain on the
convertible debentures arose of $409,170 due to the weakening of the UK pound in
which the debentures are denominated in versus the US dollar. There was no
unrealised gain/loss on the convertible debentures in quarter three 2007.
Depreciation recorded in quarter one 2008 for the Mandala plant equipment was
reversed in quarter three as the equipment is now unlikely to be in operation
during the current fiscal year. The loss in the quarter of $5,362,222 (quarter
three 2007:$466,135) is $4,896,087 above the quarter three 2007 loss and as
explained above is mainly due to the project impairment charge in the period.
Review of the nine months ended September 30, 2008 and the nine month period
ended October 31, 2007.
During the nine months ended September 30 2008, the Company incurred a net loss
of $7,103,984 or $0.023 loss per share as compared to a loss of $1,240,236 or
$0.004 loss per share in the nine months ended October 31, 2007. The increase in
loss of $5,863,748 has arisen for a number of reasons which are detailed below:
1. Project impairment charge of $5,161,333 did not feature in nine months ended
October 31 2007;
2. Stock based compensation of $1,314,755 relates to stock options granted in
January 2008, which in fact relate to 2007, but were not granted due to an
extended close period under London AIM stock exchange rules. A minimal charge
was recorded in 2007 of $170,656.
3. Directors fees ($258,787) and Management fees ($536,947) are higher than last
year reflecting the additional cost of the independent Stellar Board and the
recruitment of key management personnel in quarter four 2007 and quarter one
2008.
4. Professional fees of $1,678,447 (2007:$666,937) included expenses related to
the proposed listing of Stellar on London's AIM stock exchange 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 $825,404 (2007:$7,785) includes the
cost of the London office not in the figures last year, additional staff costs
and higher public and investor relations. The main cost items are travel
($335,424), salaries and wages ($174,592), public and investor relations
($131,159), office and property costs ($135,539).
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 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 $742,155 represents the minority
shareholders' share of Stellar's loss for the period.
3. Interest income of $72,316 for the period is marginally above last years
income ($68,257).
4. An unrealised gain on the convertible debentures has been recognised in the
period of $718,210 as the underlying currency is the UK pound which has weakened
during the period.
BALANCE SHEET, LIQUIDITY AND CAPITAL RESERVES
The Company had a negative working capital at September 30 2008, of ($2,389,117)
compared with a positive working capital of $2,868,877 at 31 December 2007. The
reduction in working capital of $5,257,994 is due to lower cash and cash
equivalents ($3,099,280) arising from increased exploration expenditure, and
higher commitments to related parties and joint venture partners.
Property, plant and equipment increased by $1,822,364 over the 2007 year end
figure due primarily to the money spent on the diamond processing plant for the
Mandala project in Guinea.
Resource properties at $6,440,092 are down $2,448,500 on December 31, 2007
figure due to the impairment charge recorded at September 30, 2008.
Deferred exploration costs of $35,377,137 are $5,459,087 above the December 31,
level. The main project expenditure includes: $2.0 million on the Kono/Petra
diamond joint venture in Sierra Leone; $1.6 million spent at the Putu iron ore
project in Liberia; $1.5 million in Liberia on the New Liberty Gold Mine, $0.7
million on Kpo/MCA diamond projects; and $0.7 million on the Mandala project in
Guinea. At September 30, 2008 an impairment charge of $2,712,833 was recorded
against deferred explorations costs.
Share capital increased by $3.9 million following the successful private
placement with Severstal in May 2008.
Cash outflow from operating activities during the nine months ended September
30, 2008 is $2,360,727 (2007: $1,279,960) after adjusting for the non-cash
activities. Cash outflow on investing activities amounted to $8,961,438 and
included deferred exploration expenditure of $8,171,920 and $1,866,503 on the
purchase of capital assets principally for the diamond processing plant for the
Mandala project. The comparative figure spent on investing activities during the
nine month period to October 31, 2007 was $5,859,819.
Cash in-flow from financing activities for the nine months to-date is $8,195,491
compared to $13,999,460 for the nine months ended October 31, 2007. Besides the
$3.9 million raised in the Severstal private placement, $4.7 million was raised
through a private placement in Stellar. Interest paid on the convertible
debentures amounted to $412,037.
Cash and cash equivalents at September 30, 2008 is $1,000,907, down from
$4,100,187 at December 31, 2007.
OTHER INFORMATION
Outstanding share data
The Company is authorised to issue an unlimited number of common shares without
par value. As at November 28, 2008 there were 317,810,818 common shares
outstanding.
Outstanding share options at September 30, 2008 are outlined below. This
includes 9,045,000 share options granted during the period.
Exercise price
Number of Per share
Common Shares (Cdn$) Expiry date
----------------------------------------------------------------------------
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
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18,265,000
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As at September 30, 2008, 20,000,000 share purchase warrants were outstanding at
an exercise price of 0.14 with an expiry date of November 29, 2009. These
warrants were issued to Severstal as part of the private placement completed on
May 29, 2008.
Convertible debentures
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.
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 nine months ended September 30, 2008 the Company incurred billings of
$1,078,153 (October 31, 2007 - $311,785) from related parties for management
fees, directors fees and professional services. The increase over 2007 is due to
the formation of the Stellar Board of Directors which has been treated as a
related party for purposes of the consolidation as well as higher management and
director fees. All transactions with related parties have occurred in the normal
course of operations. As at September 30, 2008 the amount due to related parties
totaled $580,942 (December 31, $174,367). These balances have no fixed terms of
repayment and have arisen from the accrued provision of services referred to
above and reimbursable expenses.
Impairment
The Company reviews the carrying values of its mineral property interests
whenever events or changes in circumstances indicate that the carrying value of
the assets may exceed the estimated net recoverable amounts. An asset's carrying
value is written down when the carrying value is not recoverable and exceeds its
fair value. Impairment reviews for deferred exploration and acquisition costs
are carried out on a project by project basis, with each project representing a
potential single cash generating unit. An impairment review is undertaken when
indicators of impairment arise but typically when one of the following
circumstances apply:
(i) title to the asset is compromised;
(ii) variations in metal prices that render the project uneconomic; and
(iii) unexpected geological occurrences that render the resource uneconomic.
Where estimates of future cash flows are not available and where other factors
suggest impairment, Management assesses if the carrying value is recoverable and
records an impairment if so indicated. The impairment review undertaken during
quarter three identified certain projects that were considered uneconomic and
were written off and those projects where there was a reasonable probability
that the carrying value of the project exceeded its fair value. The following
amounts have been written off at September 30, 2008:
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Impairment
in the
Carrying Net Income/(loss)
Country value $ Recoverable $ Statement $
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Acquisition Costs Sierra Leone 1,695,000 1,186,500 508,000
----------------------------------------------------------------------------
Guinea 6,873,592 4,933,592 1,940,000
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Total 8,888,592 6,440,092 2,448,500
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----------------------------------------------------------------------------
Impairment
in the
Carrying Net Income/(Loss)
Country value $ Recoverable $ Statement $
----------------------------------------------------------------------------
Deferred Exploration
Costs Liberia 24,462,659 24,033,587 429,072
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Sierra Leone 9,775,838 9,446,109 329,729
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Guinea 3,969,926 2,015,894 1,954,032
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DRC 490,800 490,800 -
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Total(i) 38,699,223 35,986,396 2,712,833
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(i) Pre 2007 recovery relating to sale of mineral property on consolidation
of Stellar ($1,084,825).
The total impairment charge recorded in the Income/(Loss) Statement is
$5,161,333. This relates to the following projects: AAR Liberia diamond project
$429,072; Guinea Iron Ore project $46,500, Missamana/Gueliban gold project
(Guinea) $3,847,532 and Pampana gold project (Sierra Leone) $838,229. The
projects that have been impaired in quarter three have received minimal funding
over the past two years and are not key assets within the Company's project
portfolio.
Going Concern
Mano
At September 30, 2008 the Company has $1,000,907 in cash and cash equivalents.
As mentioned under Iron Ore - Subsequent events, the Company announced on
November 28 that it expects the closing of the agreement with Severstal to take
place on December 10, 2008. As part of Severstal's commitment to completing the
agreement with Mano they advanced $1 million to the Company on October 27, 2008
as part of the agreed loan facility.
The current cash and cash equivalent holding is sufficient to meet the Company's
working capital requirements up until the end of February 2009. As stated in a
release dated November 28, 2008 the Directors have a high expectation that the
Severstal agreement will be completed on December 10 which will provide for
US$30 million into AIOG to advance the Putu iron ore project to a definitive
feasibility study and simultaneously release US$8.3 million to Mano plus US$4.2
million to be paid two years from the date of completion on the 10 December
2010. These funds will be used primarily to advance the gold and diamond
strategy.
Stellar
Stellar, Mano's 63.17% majority owned subsidiary is currently raising finance
capital through a private placement which is scheduled to close by the end of
quarter four 2008. Exploration is currently on hold pending receipt of proceeds
from this private placement. It is the intention of Mano to contribute to this
placement along with other Stellar shareholders pending receipt of funds from
Severstal.
FORWARD-LOOKING STATEMENTS
Certain information included in this document 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. Factors that could cause actual results or events to
differ materially from current expectations include but are not limited to: the
grade and recovery of ore which is mined varying from estimates; estimates of
future production, mine development costs, timing of commencement of operations;
changes in exchange rates; access to capital; fluctuations in commodity prices;
and adverse political and economic developments in the countries in which we
operate. Although the Company believes that the assumptions inherent in the
forward-looking statements are reasonable, forward-looking statements are not
guarantees of future performance and accordingly undue reliance should not be
put on such statements due to the inherent uncertainty therein.
TRENDS
Up until recently commodity prices had increased significantly on the back of a
steady increase in the worldwide demand for commodities driven by burgeoning
demand from Asia, in particular China and India. Despite the increased prices,
both the capital expenditure required to build and sustain new production and
the ongoing cash operating costs had also risen substantially. 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 financial crisis has seen demand for commodities fall and
in turn a significant fall in prices has taken place. With access to capital
more difficult, fewer companies are now listing on stock markets. The Company's
majority owned subsidiary Stellar has decided to postpone its listing on
London's AIM stock exchange due to the difficult market conditions for raising
finance. Although there is limited funding available, companies with highly
prospective projects can still attract the investment. Mano was able to attract
investors for its highly prospective Putu iron ore project in Liberia,
concluding agreements with Severstal, a leading steel and natural resources
company. The financial crisis has also negatively impacted the market value of
exploration and mining companies on world markets.
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. In
recent months the fall in commodity prices has affected the economics of both
existing and potential mines. Mano seeks to counter exploration risk 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. Mano's newest exploration territory, the DRC, is currently
experiencing increased unrest, but fortunately for now, this is not affecting
the areas where the Company has its exploration projects. In addition the DRC
forms only a small part of the diamond focus for Stellar. The following risk
factors should be given special consideration when evaluating an investment in
the Company's shares:
(1) Exploration, development and operating risk
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.
(2) 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. The Company
contracts the services of independent professional experts to prepare resource
and reserve estimates.
(3) Political and country risks
The political risk in sub-Saharan Africa is significant due to prolonged periods
of economic and political instability in the area. However, in recent years
there has been considerable progress in rebuilding the government institutions
and economy in the three key countries in which we operate, namely Liberia,
Guinea and Sierra Leone. These countries will continue to need the support of
the international community for security and economic assistance to ensure they
are successful in creating a prosperous future for their citizens.
(4) 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, iron ore and other minerals that the Company
may explore for, also have the same or similar price risk factors.
(5) Cash flows and additional funding requirements
Mano currently has no revenues from operations although revenues from diamond
production will be recognised when the 49% owned Kono diamond project in Sierra
Leone enters full scale production in 2009 as currently projected. 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 $3.9 million through a
private placement with Severstal in May 2008. The agreement with Severstal also
provides for a total of $30 million into AIOG and on completion, US$8.3 million
is expected to be released to Mano with US$4.2 million to be paid two years from
the date of completion on the 10 December 2010.
(6) 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.
Since quarter two the US dollar has strengthened considerably vis-a-vis the
pound. 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.
(7) 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 meet all applicable environmental
regulations. A failure to comply may result in enforcement actions causing
operations to cease or be curtailed, the imposition of fines and penalties, and
may include corrective measures requiring significant capital expenditures. In
addition, certain types of operations require the submission and approval of
environmental impact assessments. As far as the Company is aware it has complied
with all environmental regulations in relation to the licences it holds.
(8) 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.
(9) 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.
(10) 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.
(11) 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, a Finance Director
for Stellar and a Financial Controller. Mano has no key-man insurance.
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING AND CONTROLS
The unaudited interim consolidated financial statements of the Company for the
three months and nine months periods ended September 30, 2008 have been prepared
by management in accordance with Canadian Generally Accepted Accounting
Principles (GAAP) and have been approved by the Company's Board of Directors.
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 Canadian generally accepted accounting principles.
Management maintains appropriate information systems, procedures and controls to
ensure the integrity of the financial statements and 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 a cost effective manner.
Management recognise the limitation of segregation of duties due to the size of
the organisation and are committed to mitigating such risks by introducing
compensatory controls.
The Board is responsible for ensuring that Management fulfils its
responsibilities for financial reporting and internal control. The Board carries
out this responsibility principally through its Audit Committee. The Audit
Committee is appointed by the Board and meets periodically with management and
the external auditor to discuss internal controls over the financial reporting
process, auditing matters and financial reporting issues, to satisfy itself that
each party is properly discharging its duties and responsibilities and to review
the Consolidated Financial Statements.
OUTLOOK
On the Putu iron ore project in Liberia the Company has been awarded a two year
extension to its exploration licence. The key priority in 2009 is to
substantially advance the resource drilling programme and metallurgical testing.
The process to receive a 25 year Mineral Development Agreement is on-going with
talks likely to resume in 2009. We believe our partner on Putu, Severstal, gives
Mano the financial and technical ability necessary to take the Putu project
forward to feasibility.
As soon as Stellar secures its financing requirements it will focus on fast
tracking the Kono project, in Sierra Leone, operated by its partner Petra, and
the Mandala project in Guinea, through to commercial production and cash flow. A
listing by Stellar on London's AIM stock exchange has been postponed until
market conditions improve. Mano's strategy in diamonds is to continue to dilute
its investment in Stellar as Stellar becomes more autonomous and creates value
enhancing options for Mano.
In the gold division, the Company's objectives, once funds from Severstal have
been received, are to upgrade the current 1.4 million ounce gold resource at the
NLGM project in Liberia to Measured category
and define a substantial new 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 Company has the skills to take projects like NLGM into
production with a Board that has proven experience in successfully bringing
developments to fruition.
The outlook for the mining and exploration industry is uncertain over the short
term. Therefore, the Company is reviewing all costs and refocusing its
activities on its key projects and dropping those projects it deems uneconomic.
Finalising the Severstal agreement is the key priority for the Company as this
will secure our medium term funding requirements and enable the Company to
implement its operational initiatives.
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 Nine Months Ended September 30, 2008
and Nine Months ended October 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 nine
months ended September 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 September 30, 2008
(Stated in U.S. dollars)
----------------------------------------------------------------------------
Nine months Year
ended ended
September 30, December 31,
2008 2007
$ $
(unaudited) (audited)
----------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 1,000,907 4,100,187
Amounts receivable 168,373 296,591
Due from joint venture partners (Note 3) 87,140 112,281
----------------------------------------------------------------------------
1,256,420 4,509,059
Investments (Note 4) 184,090 184,090
Property, plant and equipment 3,824,484 2,002,120
Resource properties (Note 5) 6,440,092 8,888,592
Deferred exploration costs (Note 5) 35,377,137 29,918,050
----------------------------------------------------------------------------
Total Assets 47,082,223 45,501,911
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and
accrued liabilities 1,650,760 1,010,169
Interest payable on convertible
debenture (Note 8) 62,500 181,296
Due to related parties (Note 7) 580,942 174,367
Due to joint venture partners (Note 3) 1,351,335 274,350
----------------------------------------------------------------------------
3,645,537 1,640,182
Convertible debenture (Note 8) 1,504,150 2,260,738
----------------------------------------------------------------------------
Total Liabilities 5,149,687 3,900,920
----------------------------------------------------------------------------
Non-controlling interest (Note 9) 9,287,307 7,147,317
----------------------------------------------------------------------------
Shareholders' equity
Share capital (Note 6) 38,511,124 34,596,114
Equity component of convertible
debenture (Note 8) 2,676,180 2,637,802
Contributed surplus 3,219,220 1,904,465
Accumulated other comprehensive loss (21,755) (21,755)
Translation reserve 27,396 -
Deficit (11,766,936) (4,662,952)
----------------------------------------------------------------------------
Total shareholders' equity 32,645,229 34,453,674
----------------------------------------------------------------------------
Total Liabilities, non-controlling
interest and shareholders' equity 47,082,223 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 Statements of Income/(Loss) and Comprehensive Income/(Loss)
For the nine months ended September 30, 2008
(Stated U.S. dollars)
----------------------------------------------------------------------------
Nine
Three months Three month months Nine months
ended ended ended ended
Sept. 30, Oct 31, Sept. 30, Oct. 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------------------------------------------
Expenses
Administrative and
office expenses 216,225 2,906 825,404 7,785
Directors fees 46,314 20,509 258,787 54,908
Foreign exchange
loss/(gain) 190,074 20,422 279,339 (14,774)
Management fees 152,038 92,188 536,947 221,167
Interest on convertible
debenture 96,719 105,864 293,241 105,864
Professional fees 140,763 244,583 1,678,447 666,937
Stock-based compensation - - 1,314,755 170,656
Transfer agent and
filing fees 37,364 34,935 74,892 95,950
Project impairment
(Note 10) 5,161,333 - 5,161,333 -
Depreciation (111,312) - 44,140 -
----------------------------------------------------------------------------
5,929,518 521,407 10,467,285 1,308,493
----------------------------------------------------------------------------
Dilution gain on
shares issued by
controlled company - - (1,830,620) -
Unrealised gain on
convertible debenture (409,170) - (718,210) -
Interest Income (21,415) (55,272) (72,316) (68,257)
----------------------------------------------------------------------------
Loss before
non-controlling interest (5,498,933) (466,135) (7,846,139) (1,240,236)
Non-controlling interest 136,711 - 742,155 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss and
comprehensive loss (5,362,222) (466,135) (7,103,984) (1,240,236)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic and diluted
loss per share (0.017) (0.002) (0.023) (0.004)
Weighted average number
of shares outstanding 317,810,818 297,810,818 306,934,906 297,137,116
----------------------------------------------------------------------------
Mano River Resources Inc.
Consolidated Statements of Cash Flow
For the nine months ended September 30, 2008
(Stated U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three Nine Nine
months months months months
ended ended ended ended
Sept. 30, Oct 31, Sept. 30, Oct. 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------------------------------------------
Operating Activities
Loss and comprehensive loss (5,362,222) (466,135) (7,103,984 (1,240,236)
Items not involving cash:
Dilution gain on
shares issued by
controlled company - - (1,830,620 -
Non-controlling interest (136,711) - (742,155) -
Stock-based compensation - - 1,314,755 170,656
Interest on
convertible debentures 96,719 - 293,241 -
Unrealised loss on
convertible debt (409,170) - (718,210) -
Project impairment 5,161,333 5,161,333
Depreciation of
fixed assets (111,311) - 44,140 -
Changes in Non-Cash
Working Capital:
Amounts receivable and
prepaid expenses 66,726 20,369 153,359 (162,724)
Due to related parties (295,335) 18,779 406,575 (16,554)
Accounts payable and
accrued liabilities 376,594 (102,167) 660,839 (31,102)
----------------------------------------------------------------------------
(613,377) (529,154) (2,360,727) (1,279,960)
----------------------------------------------------------------------------
Investing Activities
Deferred exploration
expenditures (2,551,771) (2,320,604) (8,171,920) (4,941,922)
Due from/(to) joint
venture partners 933,925 (563,516) 1,076,985 (917,897)
Purchase of
capital assets (41,675) - (1,866,503) -
----------------------------------------------------------------------------
(1,659,521) (2,884,120) (8,961,438) (5,859,819)
----------------------------------------------------------------------------
Financing Activities
Issuance of share capital
(net of costs) - - 3,915,010 437,836
Convertible debenture - - - 4,641,860
Interest paid on
convertible debenture - - (412,037) -
Proceeds from issue of
shares in subsidiary - 143,249 4,692,518 8,919,764
----------------------------------------------------------------------------
- 143,249 8,195,491 13,999,460
----------------------------------------------------------------------------
Foreign exchange
differences on
translation of
overseas operations 25,143 - 27,396 -
----------------------------------------------------------------------------
Net cash inflow (2,247,756) (3,270,025) (3,099,280) 6,859,681
Cash, Beginning of Period 3,248,663 11,315,226 4,100,187 1,185,520
----------------------------------------------------------------------------
Cash , End of Period 1,000,907 8,045,201 1,000,907 8,045,201
----------------------------------------------------------------------------
Mano River Resources Inc.
Consolidated Statements of Shareholders' Equity
For the nine months ended September 30, 2008
(Stated U.S. dollars)
(Expressed in U.S. dollars)
Common shares
Number Amount Contributed Share
surplus subscriptions
----------------------------------------------------------------------------
$ $ $
Balance at
January 31, 2006 253,418,318 28,643,487 1,201,101 -
Net loss for the year - - - -
Cash transactions:
Private placement at
$0.08 per share 39,562,500 5,502,741 - -
Exercise of options
at $0.086 140,000 12,050 - -
----------------------------------------------------------------------------
39,702,500 5,514,791 - -
Non-cash transactions: -
Share subscription - - 788,461
Stock-based
compensation - - 513,361 -
----------------------------------------------------------------------------
Balance as at
January 31, 2007 293,120,818 34,158,278 1,714,462 788,461
Net income for
the period - - - -
Cash transactions:
Equity component
of convertible
debenture - - - -
Exercise of options
at $0.093 4,690,000 437,836 - -
----------------------------------------------------------------------------
4,690,000 437,836 - -
Non-cash transactions: -
Share subscription - - (788,461)
Stock-based compensation - - 190,003 -
----------------------------------------------------------------------------
Balance at
December 31, 2007 297,810,818 34,596,114 1,904,465 -
Net loss for the year - - - -
Non-cash transaction:
Equity component of - - - -
convertible debenture
Shares issued on private
placement 20,000,000 3,915,010 - -
Stock-based compensation - - 1,314,755 -
Translation reserve
on foreign operations - - - -
----------------------------------------------------------------------------
Balance at
September 30, 2008 317,810,818 38,511,124 3,219,220 -
----------------------------------------------------------------------------
Equity Total
component of Accumulated other Trans- share-
convertible comprehensive lation holders
debenture Deficit income Reserve equity
----------------------------------------------------------------------------
$ $ $ $ $
Balance at
January 31, 2006 - (7,720,985) (21,755) - 22,101,848
Net loss for
the year - (959,609) - - (959,609)
Cash transactions:
Private placement
at $0.08 per share - - - - 5,502,741
Exercise of options
at $0.086 - - - - 12,050
----------------------------------------------------------------------------
- - - 5,514,791
Non-cash
transactions:
Share subscription - - - - 788,461
Stock-based
compensation - - - - 513,361
----------------------------------------------------------------------------
Balance as at
January 31, 2007 - (8,680,594) (21,755) - 27,958,852
Net income for
the period - 4,017,642 - - 4,017,642
Cash transactions:
Equity component
of convertible
debenture 2,637,802 - - - 2,637,802
Exercise of options
at $0.093 - - - - 437,836
----------------------------------------------------------------------------
2,637,802 - - - 3,075,638
Non-cash
transactions: - -
Share subscription - - (788,461)
Stock-based
compensation - - - - 190,003
----------------------------------------------------------------------------
Balance at
December 31, 2007 2,637,802 (4,662,952) (21,755) - 34,453,674
----------------------------------------------------------------------------
Net loss for
the year - (7,103,984) - - (7,103,984)
Non-cash
transaction:
Equity component of
convertible
debenture 38,378 - - - 38,378
Shares issued
on private
placement - - - - 3,915,010
Stock-based
compensation - - - - 1,314,755
Translation
reserve
on foreign
operations - - - 27,396 27,396
----------------------------------------------------------------------------
Balance at
September 30, 2008 2,676,180 (11,766,936) (21,755) 27,396 32,645,229
----------------------------------------------------------------------------
Mano River Resources Inc.
Notes to consolidated financial statements
For the nine months ended September 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. (AIOG) is 80% owned by MARIOH. One-half of the remaining
20% is held by Eastbound Resources Ltd., a company controlled by G Pas 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
September 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 it's subsidiaries, other than:
AIOG - 80% held,
Stellar Diamonds Ltd. (Stellar) - 63.17% held,
Weasua Diamonds Ltd - 50% held,
Basama Diamonds Ltd - 49% held,
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 September 30, 2008 in respect of these shares.
(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 nine month period ended September 30, 2008, certain exploration and
development expenditures were carried out by joint venture partners.
The amount owing to Petra Diamonds, who is the operator of the Kono joint
venture diamond project in Sierra Leone, is $1,168,336 as at September 30, 2008.
The amount owing to Kpo Resources Inc, the joint venture entity of a diamond
project in Liberia, is $182,999 as at September 30, 2008.
As at September 30, 2008 the amount due from joint venture partners amounted to
$87,140.
4. Investments
Sept. 30, Oct. 31,
2008 2007
$ $
----------------------------------------------------------------------------
Mifergui-Nimba 184,090 184,090
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 September 30, 2008
and do not consider that there has been any indication of impairment.
5. Resource properties and deferred exploration costs
Sept. 30, Oct. 31,
2008 2007
$ $
----------------------------------------------------------------------------
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
---------------------------
8,888,592 8,888,592
Provision for impairment (2,448,500) -
---------------------------
---------------------------
Closing balances 6,440,092 8,888,592
---------------------------
---------------------------
A provision for impairment on certain of these acquisition costs was made
at September 30, 2008 (see Note 10).
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Nine
Three months Three months months months
ended ended ended ended
Sept. 30, Oct. 31, Sept. 30, Oct. 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------------------------------------------
Deferred exploration
expenditures
Feasibility 55 - 55 4,992
Assays incl.
shipment 72,625 74,800 110,447 118,067
Communications incl.
equipment 39,412 21,001 114,311 79,521
Community relations 46,241 26,814 146,101 100,243
Consultants 468,429 388,281 917,837 499,688
Data, images,
reports and maps 37 4,388 5,435 10,014
Drilling 319,767 650,925 1,530,734 650,925
Geologists' support - 91,352 11,045 157,910
Infrastructure incl.
roads and bridges 15,056 13,267 83,253 87,450
Licenses and permit
fees 69,732 71,620 112,107 230,471
Metallurgy - - - 14,887
Project/field
office costs,
incl. field equip. 270,747 553,003 648,632 695,400
Reconnaissance
and geochemical - 19,667 - 53,461
Salaries and wages 573,600 316,951 1,858,415 931,200
Subsistence 33,135 26,441 149,219 100,246
Transportation
incl. vehicles 130,372 62,094 309,291 217,039
Net Trans-Hex
JV expenditure - - - -
Kono (Petra)
joint venture 988,135 - 2,175,038 990,408
Transfer to
Mifergui-Nimba
investment 46,500 - - -
----------------------------------------------------------------------------
Net expenditure
during the period 3,073,843 2,320,604 8,171,920 4,941,922
Write off of
project expenditure &
Impairment provision (2,712,833) - (2,712,833) -
Balance, Beginning
of period 35,016,127 26,012,712 29,918,050 23,391,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, End
of period 35,377,137 28,333,316 35,377,137 28,333,316
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A provision for impairment on certain of these deferred exploration costs
was made at September 30, 2008 (see Note 10).
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) on May 29, 2008 20,000,000 3,915,010
----------------------------------------------------------------------------
Balance at September 30, 2008 317,810,818 38,511,124
----------------------------------------------------------------------------
During the nine month period ended September 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 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 were granted at an exercise price of Pounds Sterling 0.14p, which are
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 Pounds
Sterling 2,800,000 in financing (equivalent to $5.1 million).
(b) On March 31, 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 nine months period ended October 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 $239,560.
(c) Stock options
As at September 30, 2008 the following stock options were outstanding:
Number of
stock options Exercise price
Outstanding per share Expiry date
---------------------------------------------------------------------------
Cdn$
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
---------------------------------------------------------------------------
---------------------------------------------------------------------------
18,040,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(d) Stock warrants
As at September 30, 2008, 20,000,000 warrants were outstanding at an exercise
price of Pounds Sterling 0.14p 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 nine month period ended September 30, 2008, the Company incurred
billings of $1,078,153 (2007: $311,785) from related parties for management fees
and professional services. The increase over 2007 is due to the formation of the
Stellar Board of Directors which has been treated as a related party for the
purposes of the consolidation as well as higher management and director fees.
All transactions with related parties have occurred in the normal course of
operations. As at September 30, 2008, the amount due to related parties totalled
$580,942 (2007:$117,153). These balances have no fixed terms of repayment and
have arisen from the accrued provision of services and reimbursable expenses.
8. Convertible debentures
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 September 30,
2008 the Company has determined the fair value of the liability to make future
payments of principal and interest to be $1,504,150 and the fair value of the
holders' conversion option to be $2,676,180. 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 component.
During the nine months ended September 30, 2008, the Company incurred interest
expense relating to the convertible debenture of $293,241. Interest has been
paid up to August 1, 2008 and therefore an accrual of $62,500 is included at the
period end.
9. Non-controlling interest
Mano Non Controllin Carrying value September 30,
Ownership Interest of net equity 2008
% % $ $
Stellar Diamonds Ltd. 63.17 36.83 24,275,128 8,941,302
African Iron Ore Ltd. 80.00 20.00 2,472,918 346,005
---------
9,287,307
---------
(a) In 2007, 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 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 nine months to September 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) in 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 G Pas a director of the
Company.
10. Provision for impairment
The Company reviews the carrying values of its mineral property interests
whenever events or changes in circumstances indicate that the carrying value of
the assets may exceed the estimated net recoverable amounts. An asset's carrying
value is written down when the carrying value is not recoverable and exceeds its
fair value. Impairment reviews for deferred exploration and acquisition costs
are carried out on a project by project basis, with each project representing a
potential single cash generating unit. An impairment review is undertaken when
indicators of impairment arise but typically when one of the following
circumstances apply:
(i) title to the asset is compromised;
(ii) variations in metal prices that render the project uneconomic; and
(iii) unexpected geological occurrences that render the resource uneconomic.
Where estimates of future cash flows are not available and where other factors
suggest impairment, Management assesses if the carrying value is recoverable and
records an impairment if so indicated. The impairment review undertaken during
quarter three identified certain projects that were considered uneconomic and
were written off and those projects where there was a reasonable probability
that the carrying value of the project exceeded its fair value. The following
amounts have been written off at September 30, 2008:
----------------------------------------------------------------------------
Impairment
in the
Carrying Net Income/(loss)
Country value $ Recoverable $ Statement $
----------------------------------------------------------------------------
Acquisition
Costs Sierra Leone 1,695,000 1,186,500 508,000
----------------------------------------------------------------------------
Guinea 6,873,592 4,933,592 1,940,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total 8,888,592 6,440,092 2,448,500
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Impairment
in the
Carrying Net Income/(loss)
Country value $ Recoverable $ Statement $
----------------------------------------------------------------------------
Deferred
Exploration
Costs Liberia 24,462,659 24,033,587 429,072
----------------------------------------------------------------------------
Sierra Leone 9,775,838 9,446,109 329,729
----------------------------------------------------------------------------
Guinea 3,969,926 2,015,894 1,954,032
----------------------------------------------------------------------------
DRC 490,800 490,800
----------------------------------------------------------------------------
Total(i) 38,699,223 35,986,390 2,712,833
----------------------------------------------------------------------------
(i) Pre 2007 recovery relating to sale of mineral property on consolidation
of Stellar ($1,084,825).
The total impairment charge recorded in the Income/(Loss) Statement is
$5,161,333. This relates to the following projects: AAR Liberia diamond project
$429,072; Guinea Iron Ore project $46,500, Missamana/Gueliban gold project
(Guinea) $3,847,532 and Pampana gold project (Sierra Leone) $838,229. The
projects that have been impaired in quarter three have received minimal funding
over the past two years and are not key assets within the Company's project
portfolio.
11. 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
September 30, 2008, the Company held approximately $755,380 (2007 - $6,350,062)
cash in bank accounts denominated in U.K. pounds. The Company has taken no
action to reduce its exposure to foreign currency risk.
12. Subsequent Events
On November 28, 2008 the Company announced that the joint Boards of Mano & OAO
Severstal would like to confirm 'Closing of the Agreement' on their joint
operation of the Putu project. Financial, legal and technical due diligence is
substantially complete and Severstal Resources has already advanced project
funds, as per the facility in the agreement signed on the 22 May 2008. The
amount received by the Company on the 27 October 2008 was the pre-agreed sum of
US$1 million.
Completion of the deal is formally set for 10 December 2008.
The monetary terms of the original agreement remain unchanged and on completion
Severstal Resources, through its wholly owned subsidiary, will take up its right
to become a 61.5% shareholder in the Company's iron ore subsidiary by investing
US$30M to advance the Putu iron ore project to a definitive feasibility study.
On completion, US$8.3 million will be released to Mano with the balance of
US$4.2 million to be paid two years from the date of completion on the 10
December 2010.
The Company announced on October 24 2008 that the Government of Liberia has
granted a two year extension to its Putu Range Iron Ore exploration licence,
extending it to September 30, 2010. This licence extension enables the Company
to proceed to close the agreement previously signed on May 22, 2008 with its
chosen iron ore partner, Severstal, having satisfied all material legal
requirements.
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