This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be
lawfully offered for sale and therein only by persons permitted to sell such securities. No securities regulatory
authority has expressed an opinion about these securities and it is an offence to claim otherwise. The securities
offered hereby have not been and will not be registered under the United States Securities Act of 1933, as amended,
and, subject to certain exceptions, may not be offered, sold or delivered, directly or indirectly in the United States of
America, its territories or possessions. See “Plan of Distribution”.
INITIAL PUBLIC OFFERING
Date: February 12, 2008
Effective Date: , 2008
PROSPECTUS
OROCO RESOURCE CORP.
(the “Company”)
8,000,000 Units at
$0.55 per Unit
The Company is hereby offering to purchasers resident in the provinces of British Columbia, Alberta, Ontario, and
elsewhere where permitted by applicable law, through its agent, PI Financial Corp. (the “Agent”), 8,000,000 units
(the “Units”) at a price of $0.55 per Unit (the “Offering”). Each Unit is comprised of one common share (a
“Common Share”) in the capital of the Company and one half of one transferable common share purchase warrant (a
“Warrant”). Each whole Warrant will entitle the holder thereof to acquire one additional common share of the
Company (a “Warrant Share”) upon payment of the exercise price of $0.90 at any time prior to 4:30 p.m.
(Vancouver time) on the date which is eighteen (18) months from the Closing Date. This Prospectus qualifies the
distribution of the Units.
Per Unit
Total Offering
Number
of Units
Price
To Public(1)
Agent’s
Commission (2)
Net Proceeds to
Company (3) (4)
n/a
8,000,000
$0.55
$4,400,000
$0.044
$352,000
$0.506
$4,048,000
Notes:
(1)
The offering price of the Units and the terms of the Offering have been determined by negotiation between the
Company and the Agent.
(2)
The Company has agreed to pay the Agent a cash commission equal to 8% of the gross proceeds from the sale of Units
sold under the Offering (the “Agent’s Commission”). The Agent will have the option to receive the commission in
cash or, in whole or in part, Units at a deemed price of $0.55 per Unit. The Company has also agreed to grant to the
Agent compensation options (the “Compensation Options”) equal to 10% of the number of Units sold under the
Offering. Each Compensation Option will entitle the Agent to purchase one Common Share at a price of $0.55 per
Common Share at any time and from time to time for a period of eighteen months following the Closing Date. This
Prospectus qualifies the distribution of the Compensation Options to the Agent. The Company has also agreed to pay
to the Agent a corporate finance fee (the “Corporate Finance Fee”) of $25,000 plus GST, of which $12,500 plus GST
has been paid. The Agent will have the option to receive the Corporate Finance Fee in cash or, in whole or in part, in
Units at a deemed price of $0.55 per Unit. The Company must also pay for the Agent’s reasonable expenses associated
with the Offering, including legal expenses and the Agent’s reasonable out-of-pocket expenses and has provided the
Agent with a retainer of $20,000 for such expenses. See “Plan of Distribution”.
(3)
The Agent’s Commission on the sale of the Units will be paid at Closing from the gross proceeds derived from the sale
of Units.
(4)
Before deducting the balance of the expenses of the Offering, estimated to be $20,000.
i
There is currently no market through which these securities may be sold and purchasers may not be able to
resell securities purchased under this Prospectus. Investments in natural resource issuers involve a
significant degree of risk. The degree of risk increases substantially where the issuer’s properties are in the
exploration as opposed to the development stage. All of the properties of the Company are in the exploration
or pre-exploration stage and are without a known body of commercial ore. An investment in these securities
should only be made by persons who can afford the total loss of their investment. See “Risk Factors”.
The TSX Venture Exchange (the “Exchange”) has conditionally accepted the listing of the Common Shares. Listing
will be subject to the Company fulfilling all of the listing requirements of the Exchange. The Company will also
apply to list the Warrants on the Exchange.
As at the date of this Prospectus, members of the Agent’s Pro Group (as defined in Policy 1.1 of the
Exchange) held 900,000 Common Shares purchased at a price of $0.25 per share.
This Offering is being made on a commercially reasonable efforts basis and is subject to the Offering being fully
subscribed within 90 days of the issuance of a receipt for a (final) prospectus. All subscription funds received will
be held by the Agent and if subscriptions for the entire Offering are not received within the 90 day period,
subscription monies will be returned to subscribers without interest or deduction. If the Offering is not fully
subscribed within 90 days from the receipt for a (final) prospectus, the Offering may continue if the securities
regulatory authorities in each of the Provinces of Alberta, British Columbia and Ontario have given their consent to
an extension of time and an amendment has been filed with the securities regulatory authorities and sent to all
subscribers who subscribed during the 90 day period. See “Plan of Distribution”.
The offering date will be a day (the “Offering Date”) determined by the Agent and will be on or before the day
which is 90 days from the Effective Date or such later day as may be approved by the British Columbia Securities
Commission, the Alberta Securities Commission, the Ontario Securities Commission and any person who has
subscribed during that period (the “Offering Period”). During the Offering Period, funds received from
subscriptions will be held by the Agent. If the Offering is not subscribed for during the Offering Period,
subscription funds will be returned to the Subscribers (unless the Subscribers have otherwise instructed the Agent).
If the Offering is subscribed for during the Offering Period, then subject to the terms of the Agency Agreement, all
subscription proceeds deposited with the Agent will be delivered to the Company at the Closing. The closing of the
Offering (the “Closing”) is expected to occur on the day which falls 10 days after the Offering Date.
The Agent, as exclusive agent of the Company for the purposes of the Offering, conditionally offers the Units on a
commercially reasonable efforts basis, subject to prior sale, if, as and when issued by the Company and accepted by
the Agent in accordance with the Agency Agreement referred to under “Plan of Distribution”. Subscriptions will be
received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books
at any time without notice. Certificates representing the Units will be available for delivery following closing of the
Offering.
Certain legal matters relating to the securities offered hereby will be passed upon by Morton & Company, Barristers
& Solicitors, on behalf of the Company and by Miller Thomson LLP, Barristers & Solicitors, on behalf of the Agent.
PI FINANCIAL CORP.
Suite 1900 – 666 Burrard Street
Vancouver, BC
V6C 3N1
ii
TABLE OF CONTENTS
GLOSSARY OF NON-TECHNICAL TERMS.......................................................................................................v
PROSPECTUS SUMMARY...................................................................................................................................xv
CORPORATE STRUCTURE ..................................................................................................................................1
Name and Incorporation....................................................................................................................... 1
Intercorporate Relationships ................................................................................................................ 1
GENERAL DEVELOPMENT OF THE BUSINESS .............................................................................................1
History.................................................................................................................................................. 1
Significant Acquisitions and Dispositions ........................................................................................... 2
Trends................................................................................................................................................... 4
NARRATIVE DESCRIPTION OF THE BUSINESS.............................................................................................4
Stated Business Objectives................................................................................................................... 4
Property Description and Location ...................................................................................................... 5
USE OF PROCEEDS ..............................................................................................................................................29
Funds Available ................................................................................................................................. 29
Principal Purposes .............................................................................................................................. 29
SELECTED FINANCIAL INFORMATION AND MANAGEMENT
DISCUSSION AND ANALYSIS ............................................................................................................................30
Summary of Financial Information .................................................................................................... 30
Quarterly Information ........................................................................................................................ 31
Dividends ........................................................................................................................................... 31
Management’s Discussion & Analysis............................................................................................... 31
DESCRIPTION OF SECURITIES DISTRIBUTED............................................................................................33
Authorized and Issued Share Capital ................................................................................................. 33
CONSOLIDATED CAPITALIZATION ...............................................................................................................34
OPTIONS TO PURCHASE SECURITIES...........................................................................................................34
PRIOR SALES.........................................................................................................................................................36
ESCROWED SHARES ...........................................................................................................................................37
Shares Subject to Voluntary Pooling Agreement............................................................................... 39
Shares Subject to Resale Restrictions ................................................................................................ 39
PRINCIPAL SHAREHOLDERS ...........................................................................................................................40
DIRECTORS AND OFFICERS.............................................................................................................................40
Corporate Cease Trade Orders or Bankruptcies................................................................................. 42
Penalties or Sanctions......................................................................................................................... 43
Personal Bankruptcies ........................................................................................................................ 43
Conflicts of Interest............................................................................................................................ 43
EXECUTIVE COMPENSATION..........................................................................................................................44
Long-Term Incentive Plan Awards During the Most Recently Completed Financial Year............... 44
Option/SAR Grants During the Most Recently Completed Financial Year....................................... 44
Aggregated Options/SAR Exercises in Last Financial Year and Financial Year-End Option/SAR
Values................................................................................................................................................. 44
Termination of Employment, Changes in Responsibility and Employment Contracts...................... 45
Compensation of Directors................................................................................................................. 47
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS ..............................................................47
PLAN OF DISTRIBUTION....................................................................................................................................47
Listing of Common Shares................................................................................................................. 49
RISK FACTORS .....................................................................................................................................................49
LEGAL PROCEEDINGS .......................................................................................................................................53
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS..................................53
RELATIONSHIP BETWEEN THE COMPANY AND AGENT........................................................................53
REGISTRAR AND TRANSFER AGENT ............................................................................................................54
MATERIAL CONTRACTS ...................................................................................................................................54
LEGAL MATTERS.................................................................................................................................................55
EXPERTS.................................................................................................................................................................56
iii
RELATIONSHIP BETWEEN THE COMPANY’S PROFESSIONAL
PERSONS AND EXPERTS ....................................................................................................................................56
OTHER MATERIAL FACTS ................................................................................................................................56
PURCHASERS’ STATUTORY RIGHT OF WITHDRAWAL AND RESCISSION........................................56
FINANCIAL STATEMENTS
CERTIFICATE OF OROCO RESOURCE CORP.
CERTIFICATE OF THE AGENT
iv
GLOSSARY OF NON-TECHNICAL TERMS
“2007 Plan” means the Company’s stock option plan adopted on July 31, 2007 by the Company’s board
of directors and providing for the granting of incentive options to the Company’s directors, officers,
employees and consultants in accordance with the rules and policies of the TSX Venture Exchange;
“Agent’s Commission” means the fee equal to 8% of the gross proceeds from the sale of Units under the
Offering payable in cash to the Agent by the Company for services rendered by the Agent in connection
with the Offering and the Agent will have the option to receive the commission in cash or, in whole or in
part, in Units at a deemed price of $0.55 per Unit;
“Agency Agreement” means the Agency Agreement dated February 12, 2008 between the Agent and the
Company relating to the Offering;
“Agent” means PI Financial Corp.;
“Assignment Agreement” means the assignment agreement respecting the Cerro Prieto Property and the
Xochipala Property dated August 26, 2006 among ATM Mining Corp., the Company and Salvador
Rivero Cortina and the addendum agreement to the assignment agreement dated December 15, 2006 and
the addendum agreement to the assignment agreement dated May 18, 2007.
“Cerro Prieto Property” means the 10 hectare San Francisco mining concession, No. 182330 and the
contiguous 205.1784 hectare San Felix mining concession, No. 176213, located 150 kilometres northeast
of the city of Hermosillo in the north central part of the state of Sonora, northwestern Mexico;
“Cerro Prieto North Property” means the 2,508 hectare Cerro Prieto mining concession, title 229932
located in the municipality of Cucurpe, State of Sonora and 1.5 kilometres north of the Cerro Prieto
Property.
“Closing” means the closing of the Offering;
“Closing Date” means such date or dates that the Company and the Agent mutually determine to close
the Offering;
“Commissions” means the British Columbia Securities Commission, the Alberta Securities Commission
and the Ontario Securities Commission;
“Common Share” means a common share in the capital of the Company;
“Company” means Oroco Resource Corp.;
“Compensation Options” means compensation options equal to 10% of the number of Units sold under
the Offering. Each Compensation Option will entitle the Agent to purchase one Common Share at an
exercise price of $0.55 per Common Share at any time and from time to time for a period of 18 months
following the Closing Date.
“Corporate Finance Fee” means the fee of $25,000 plus GST the Company has agreed to pay to the
Agent, of which $12,500 plus GST has been paid, as consideration for corporate finance services
provided in connection with the Offering and the Agent will have the option to receive the Corporate
Finance Fee in cash or, in whole or in part, in Units deemed at a price of $0.55 per Unit;
v
“Effective Date” means the date on which the Securities Commission that is the principal regulator under
National Policy 43-201 “Mutual Reliance Review System for Prospectuses and AIFs” issues a decision
document evidencing that receipts for this Prospectus have been issued by the Securities Commissions;
“Escrow Agreement” means the escrow agreement dated January 8, 2008 between the Company,
Olympia Trust Company, Lohengrin Foundation, David Rose, Ken Thorsen, Stephen Leahy, Kristin
Leahy and Michael Leahy;
“Exchange” means the TSX Venture Exchange;
“Listing Date” means the date on which the Common Shares of the Company are listed for trading on
the Exchange;
“Minas De Oroco” means Minas De Oroco Resources S.A. de C.V, a subsidiary of Polimetalicos,
incorporated on May 31, 2007 pursuant to the laws of Mexico.
“Minera Xochipala” means Minera Xochipala S.A. de C.V., a subsidiary of the Company incorporated
on November 9, 2006 pursuant to the laws of Mexico;
“NI 33-105” means National Instrument 33-105 of the Canadian Securities Administrators;
“NI 45-102” means National Instrument 45-102 of the Canadian Securities Administrators;
“NP 46-201” means National Policy 46-201 of the Canadian Securities Administrators;
“Offering” means the Offering of up to 8,000,000 Units of the Company as described in this Prospectus;
“Offering Period” means the 90 day period following the Effective Date;
“Offering Price” means $0.55 per Unit;
“Polimetalicos” means Minera Polimetalicos Mexicanos S.A., a Panamanian corporation which owns
98% of Minas De Oroco Resources S.A. de C.V. which holds title to the Cerro Prieto Property.
“Polimetalicos Share Purchase Agreement” means the share purchase agreement dated June 19, 2007,
as amended on September 24, 2007 and January 28, 2008, among the Company, Ruben Rodriquez
Villegas and Mrs. Rosa Delia Salazar Parra with regard to the acquisition by the Company of all of the
issued and outstanding shares of Polimetalicos;
“Pooling Agreement” means the Pooling Agreement dated January 8, 2008 between the Company,
Olympia Trust Company, Terry Kirby, Wendy Kirby, Marouska Smith, Sunda Mining Corp., G. Royal
Smith, Colleen Dalziel, Ostia Management Corp., Hayes Davis Investments Inc. and Helena Cortina
Barroso;
“Prospectus” means this prospectus and any appendices, schedules or attachments hereto;
“Report” means the NI 43-101 Report on the Cerro Prieto Property, Magdalena de Kino Area, Sonora
State, Mexico, dated December 14, 2007 and prepared for the Company by Duncan J. Bain, P.Geo.;
“Salvador Property” means the 100 hectare Salvador mining concession, title 230264, located in the
municipality of Leonardo Bravo, in the state of Guerrero, Mexico;
vi
“Selling Firms” means licensed dealers, brokers and investment dealers retained by the Agent as subagents to assist in the placement of subscriptions for Units under the Offering;
“Subscriber” means a person or other entity that subscribes for Units under the Offering;
“Units” means the 8,000,000 Units offered for sale under this Prospectus;
“Warrants” means the one half of one transferable common share purchase warrants comprising the
Units;
“Xochipala Property” means the Celia Generosa mining concession, title 167269, and the contiguous
Celia Gene mining concession, title 160608, located in the municipality of Zumpango del Rio in the state
of Guerrero, Mexico;
“Xochipala Assignment Agreement” means the agreement dated January 11, 2007 pursuant to which
Donaciano Adame Arcos and the representatives and heirs of the estate of Carlos Humberto Adame
Alvarez assigned title of the Xochipala Property to Minera Xochipala.
vii
GLOSSARY OF TECHNICAL TERMS
Adit - A horizontal or nearly horizontal entrance to an underground mine.
Ag - The chemical symbol for silver.
Alteration - Rock or mineral phase changes that are caused by the interaction of hydrothermal liquids and
wall rock.
Andesite - A fine grained igneous rock of intermediate composition.
Arenites (sandstone) - A general name used for consolidated sedimentary rocks composed of sand-sized
fragments.
Assay - A chemical analysis to determine the quantity of one or more components of rock, soil or
sediment associated with epithermal mineralization.
Au - The chemical symbol for gold.
Basalt - A dark-colored fine-grained extrusive igneous rock.
Batholith - A large mass of igneous rock that has melted and intruded surrounding strata at great depths.
Baucarit Formation - The sequence of mafic lava flows and breccias interbedded with poorly indurated
red clastic sediments in Sonora.
Block Caving - A method of underground mining in which large blocks or ore are undercut, causing the
ore to break or cave under its own weight.
Block Faulting - A type of normal faulting in which the crust is divided into structural or fault blocks of
different elevations and orientations.
Chalcopyrite (CuFeSz)– Copper, iron sulphide mineral.
mineral.
The most economically important copper
Carbonate - A group of minerals usually consisting of a divalent cation and CO32-. Shells and corals are
made of carbonate.
Channel Samples - Material for the sample is taken at regular intervals along the channel.
Clastic - Consisting of fragments of minerals, rocks, or organic structures that have been moved
individually from their places of origin.
Collar - The beginning point of a shaft or drill hole, the surface or the mouth of a mine shaft.
Compartment Shaft - A shaft excavated to an oblong shape.
Concentrates - A fine product separated in the milling process that contains high quantities of valuable
metals.
Concessions - Defined geographic area to which legal exploration and mining rights have been ascribed.
Conglomerate - Clastic sedimentary rock. Non-angular pebbles of singular or varied composition with a
finer grained sandy or calcareous matrix.
Country Rock - The rock which surrounds the ore deposit. Also referred to as wall rock, in particular that
rock on either side of a vein.
viii
Cretaceous - A geological period between approximately 66 and 135 million years ago and which
identifies a formation date of strata.
Crosscut - Any horizontal opening made at right angles or nearly right angles to the strike of the orebody
or to the main direction of advance, as opposed to drifts, which are driven along strike.
Deltaic - Relating to, or like, a delta.
Detachment Faulting - Is associated with large-scale lithospheric extensional tectonics. Detachment
faults often have very large displacements (10s of km) and juxtapose unmetamorphosed hanging walls
against medium to high-grade metamorphic footwalls. They are thought to have formed as either initially
low-angle structures or by the rotation of initially high-angle normal faults.
Dip -The angle that a rock unit, fault, strata, or other rock structure makes with a horizontal plane.
Drift - In underground mining, a horizontal passageway driven along the strike or long axis of the
orebody.
Dumps - Piles or heaps of ore, coal, or waste at a mine.
Dyke - Steeply dipping sheet-like body of intrusive igneous rock.
Epithermal - A term applied to low temperature (100-250°C) hydrothermal processes generally
occurring from surface to 3 km depth.
Feldspar Phenocrysts - A group of common silicate minerals containing aluminum as well as sodium,
potassium and calcium in varying proportions, which have formed large crystals due to slow cooling at
depth, and then have rapidly been moved to near surface resulting in fine crystals formed from the
remaining magma.
Felsic - Pertaining to siliceous, feldspar-rich rocks.
Fire Assay-Atomic Absorption - The assaying of metallic ores, usually gold and silver, by melting in a
furnace heat, removal of slag and weighing of a resulting metal bead.
Footwall - The lower or underlying contact of an inclined vein, or the wall rock which lies on the lower
side of a dipping (inclined)vein.
Franklinite (FeMn2O4) - A black weakly magnetic iron-manganese oxide common in lead-zinc-silver
oxide mineral deposits.
Galena (PbS) - The most important ore of lead.
Geological - Pertaining to geology, the study of the planet earth – the materials of which it is made, the
processes which act on these materials, the products formed, and the history of the planet and its life
forms since its origin.
Glance - Any of several sulfide minerals that are mostly dark colored, having a metallic luster.
Grade - The metal content of mineralized rock, usually measured in troy ounces per ton, grams per
tonne, or as a percent of the entire mass of ore.
Granite - A coarse-grained plutonic rock containing mainly quartz-feldspar, with minor iron-magnesium
minerals.
Granitic - Pertaining to granite.
ix
Granodiorite - Coarse-grained plutonic rock containing more iron-magnesium minerals than granite but
less than diorite.
Ground geophysical surveys - Study of the earth by physical methods such as electromagnetic or
magnetic techniques, which measure those physical properties and permit the separation of various rock
types, structures and minerals based on their responses.
Hangingwall - In an inclined orebody, the upper or overlying wall rock, especially in dipping deposits.
Haulage Drift – A drift serving to conveying, in cars or otherwise, or movement of workers, supplies,
ore, and waste rock both underground and on the surface.
Head Grade - The average grade of ore fed into a mill.
Hemimorphite (Zn4Si2O7(OH)2.H2O) - A zinc oxide mineral formed from the breakdown of sphalerite
and other zinc minerals. It is common in the oxidized and supergene zones over hydrothermal deposits,
where it is associated with smithsonite.
Host Rocks - The rock within which an ore deposit occurs.
Hydrothermal - Of or pertaining to a high temperature solution of water and other materials such as
dissolved gases, metals and minerals or to the products of this action, such as a mineral deposit
precipitated from a hot aqueous solution.
Induced Coupled Plasma Mass Spectrometry (ICP-MS) - An analytical technique where samples are
dissolved into a solution and that solution is heated to produce an inized gas; elements within that gas are
measured using a spectrometer; it is useful as a low cost technique for measuring many elements (up to
35) from a single sample.
Induced polarization (IP) - A technique of electrical geophysical surveying which is based on
measuring the decay of electrical currents induced into the ground.
In-fill drilling - Additional drilling done between completed holes to provide greater detail, to be used in
an estimate of grade and tonnage of an ore body.
Interbedded siltstones - Multiple layers of a fine sand-coarse clay sediment interlayered, usually by
raising and lowering of sea levels, with coarser or finer sediments; this material has since become a
sedimentary rock.
Intrusion - A body of igneous rock that involves other rock; a mass of igneous rock that, while molten,
was forced into or between other pre-existing rocks and crystallized at depth.
Jurassic - The second period of the Mesozoic Era (after the Triassic and before the Cretaceous), thought
to have covered the span of time between approximately 190 million years and 135 million years ago;
also, the corresponding system of rocks.
Kaolinization - Replacement or alteration of minerals, especially feldspars and micas, to form kaolin, a
clay mineral, as a result of weathering or hydrothermal alteration.
Laramide Orogeny - A time of deformation, typically recorded in the eastern Rocky Mountains of the
United States, whose several phases extended from late Cretaceous until the end of the Paleocene.
Lead sulphide – See “galena”
x
Level - Underground mine workings at given elevation above sea level or distance below the surface.
Levels are often spaced at constant intervals, compatible with the mining scheme. The term may also
include a bench in a pit.
Lower Cretaceous - Applied to the third and final period of the Mesozoic Era, from 146 to 98 million
years ago.
Lower Tertiary - Applied to the first period of the Cenozoic Era, from 65 to 24 million years ago.
Magnetic survey - Is a common type of geophysical survey carried out using a magnetometer, to
measure the diference in magnetism of different rock types and structures.
Marine embayment - A semi-circular area eroded from a shoreline of a shallow sea or ocean by
currents or waves removing material from the land.
Mesothermal mineralizing system - Of a hydrothermal mineral deposit, formed at depth of from 3 to 5
km below the surface of formation, at temperatures of 200-300°C.
Mesothermal-epithermal system - A hydrothermal system containing both the near-surface epithermal
system and its associated minerals, and a mesothermal system, and its associated minerals.
Metallurgical - The study of extracting metals from their ores.
Metamorphic core complex - The central part (core) of a large mass of metamorphic rock, whose less
metamorphosed outer zones have been removed by erosion.
Metamorphosed - A process whereby rocks undergo physical or chemical changes or both to achieve
equilibrium with conditions other than those under which they were originally formed (weatheringg
arbitrarily excluded from meaning). Agents of metamorphism are heat, pressure, and chemically active
fluids.
Mimetite (Pb5(AsO4)3Cl) - A lead-arsenic oxide mineral occurring in oxidized zones of lead-ore
deposits.
Mineral Reserve – An estimate of ore grade and tonnage based on those geological parameters such as
rock type, minerals present, structures such as faults and folds and their continuity, and economic
parameters, commodity price and mining method.
Mineral Resources – An estimate of grade and tonnage in a mineralized zone, with less available data
than that for a mineral reserve.
Mineralization - The presence of minerals or the geological process by which concentration of economic
or potentially economic minerals occurs.
Mo - Chemical symbol for molybdenum.
Muck - Ore or rock that has been broken by blasting.
Mylonitization - Deformation of a rock by extreme microbrecciation, due to mechanical forces applied in
a definite direction, without noteworthy chemical reconstitution of granulated minerals.
Ore - A mineral or accumulation of minerals which can be commercially mined at a profit.
Oxide facies - Assemblage of rock, features reflecting the oxidized environment in which rock was
formed.
xi
Oxide ores - Metalliferous minerals formed in an oxidizing environment, or those altered by weathering
and the action of surface waters, and converted, partly or wholly, into oxides, carbonates, or sulfates.
Paleosurface - The surface of the Earth at some time prior to the present.
Pb - The chemical symbol for lead.
Polymictic conglomerate - A conglomerate of clastic sedimentary rock, whose clasts are made up of
many rock types or of more than one mineral species.
Porphyry - An igneous rock of any composition that exhibits porphyritic texture, that is, large coarsegrained crystals formed by slow cooling at depth followed by rapid upward movement resulting in
formation of fine-grained crystals from the remaining magma.
ppm - Abbreviation for parts per million, equivalent to a g/t.
Probable reserves - An estimate of the grade and tonnage of a mineralized zone based on geological and
economic parameters.
Pyrite (FeS2)– Iron sulphide mineral. The most common and abundant sulphide minerals and often
associated with copper and gold.
Pyroclastics - Relating to fragmental rock material blown into the atmosphere by explosive volcanic
activity.
Quartz - A common rock forming mineral composed of silicon and oxygen.
Raise - Vertical or inclined opening advanced upward from a level, subsequently used as a manway, ore
pass, or for ventilation.
Ramp - The development of moderately inclined accessways from the surface to mining levels for
haulage of ore, materials, waste, workers, and equipment.
Reverse circulation drill - A machine used to collect chip sized samples of rock; the samples are
collected by high pressure air being forced down an outer tube, forcing rock fragments up into an inner
tube, to be collected.
Rhyolite - A fine grained or glassy acidic extrusive igneous (volcanic) rock.
Rhyolite/dacite pyroclastics - An acidic volcanic rock composed of
explosive volcanism.
fragments produced during
Rhyolite/dacite tuff beds - A mixture of rhyolite and dacite ash settling to the ground and forming
layers, and then under pressure becoming a rock.
Rhyolite-dacite ash flow tuffs - Volcanic ash of rhyolite-dacite composition flowing down the slope of a
volcano.
Sandstones (arenites) - A medium-grained clastic sedimentary rock composed of fragments of sand size
set in a fine-grained matrix (silt or clay) and more or less firmly united by a cementing material
(commonly silica, iron oxide, or calcium carbonate).
Secondary veins - An incidental vein, considered to be of less value than the main vein.
Sedimentary layers - Rocks formed from the consolidation of sediments derived from the erosion of preexisting rocks.
xii
Sedimentary Rocks - Rocks formed from the consolidation of material derived from pre-existing rocks
by processes of denudation, transportation and sedimentation.
Shaft - Vertical or inclined opening that starts at surface or underground. It is used to convey people
and/or materials into the mine and/or hoist ore (waste) and /or men from the mine and/or conduct
ventilation air into or from the mine.
Shear zone - A strain resulting from stresses that cause or tend to cause contiguous parts of the body to
slide relatively to each other in a direction parallel to their plane of contact.
Sierra Madre Occidental - The Sierra Madre Occidental is an extensive volcanic terrain starting near the
US-Mexico border and trending southeast into the states of Zacatecas and Jalisco.
Sierras y Valles Parallelos - Parallel Ranges and Valleys Province is similar in structural style to the
Basin and Range to the east. This province contains Mexico's oldest rocks, 1.75 to 1.675 billion year old
Precambrian intrusives of northwestern Sonora (Anderson & Silver, 1979). Younger Precambrian rocks
in the Parallel Ranges and Valleys Province include dolomite, limestone, sandstone, and shale (Stewart et
al., 1984). Unlike the Sierra Madre Occidental province, ore-bearing volcanic intrusives are not covered
by Late Tertiary volcanics and are more readily identified at the surface.
Siliceous - Relating to, or derived from silica; containing or resembling silica or a silicate; silicic.
Silicification - Hydrothermal alteration charaterised by replacement of existing minerals by silica.
Siliclastic - Pertaining to clastic noncarbonate rocks which are almost exclusively silicon-bearing, either
as forms of quartz or as silicates.
Smelting - The chemical reduction of a metal from its ore by a process usually involving fusion, so that
earthy and other impurities separate as lighter and more fusible slags and can readily be removed from the
reduced metal.
Sphalerite (ZnS) - A sulphide mineral of zinc.
Stopes - Any excavation in a mine, other than development workings, made for the purpose of extracting
ore, and accessed by a raise from a drift or haulageway.
Stratigraphy - That part of the descriptive geology of an area or district that pertains to the
discrimination, character, thickness, sequence, age, and correlation of the rocks of the district.
Strike - General trend or direction of geological units or structures.
Stringer - A mineral veinlet or filament, usually one of a number, occurring in a discontinuous
subparallel pattern in host rock.
Structural - Pertaining to geological structure, i.e. folds, faults, etc.
Sub-level - A drift being explored or mined between main levels.
Sulphide minerals - An important group of ore minerals composed of sulphur together with one or more
metallic elements e.g. Chalcopyrite, pyrite, galena, sphalerite.
Tailings - That material, considered uneconomic, resulting from the washing, concentration, or treatment
of ore.
Terrigenous shallow marine - Rock eroded from the land or continent into a shallow marine basin.
xiii
Tertiary - The geological time period ranging from 65 million years ago until 1.8 million years ago.
Tonalite - An igneous intrusive rock, of felsic composition, with a coarse-grained texture.
Trenching - Exposure of unweathered rock, particularly to expose a mineralized zone; by use of manual
labour, backhoe or excavator.
Vein - Sheet-like body of minerals formed by fracture-filling or replacement of the host rock.
Veinlets - A small irregular vein structures.
Volcanic - Structures, activities and rock types associated with volcanic eruptions.
Wallrock - The rock adjacent to, enclosing, or including a vein, layer, or dissemination of ore minerals.
Waste - Non-ore material mined.
Zn - The chemical symbol for zinc.
xiv
PROSPECTUS SUMMARY
The following is a summary of the principal features of this distribution and should be read together with
the more detailed information and financial data and statements contained elsewhere in this Prospectus.
The Company:
The Company is engaged in the business of exploration and development of mineral
properties. The Company holds an interest in four mineral properties in Mexico. The
Company’s objective is initially to explore and develop the Cerro Prieto Property, to
conduct preliminary assessment work on the Xochipala Property, the Salvador Property
and the Cerro Prieto North Property and to acquire and develop other mineral properties.
See “Narrative Description of the Business”.
The Property:
The Company will be utilizing a portion of the proceeds of this Offering to carry out
Phase 1 of an exploration program on the Cerro Prieto Property. The Cerro Prieto
Property is comprised of 2 contiguous mining concessions covering an area of 215
hectares located in the north central part of Sonora, northwestern Mexico.
The Offering:
8,000,000 Units are being offered at a price of $0.55 per Unit for aggregate gross
proceeds of $4,400,000. See “Plan of Distribution”.
Use of Proceeds:
The Company will receive aggregate gross proceeds of up to $4,400,000 from the sale of
Units pursuant to this Prospectus. These funds will be combined with the Company’s
working capital deficiency of approximately $1,461,441 less the balance of the purchase
price of the Cerro Prieto Property of $1,495,455 for a net difference of $34,014 as at
January 31, 2007, for a total of $4,434,014. The Company intends to apply such
proceeds as follows:
Funds to be
Used
($)
To pay balance of purchase price of Cerro Prieto Property
$1,495,455[1]
To pay for the Phase 1 exploration program on the Cerro
Prieto Property
$1,023,500
To provide general working capital to fund ongoing
operations
$884,735
To provide funding sufficient to meet administrative
costs for 12 months
$505,824
Agent’s fees, commission and expenses
$400,000
To pay for the preliminary exploration expenses on the
Cerro Prieto North, Xochipala and Salvador Properties
$47,500
To pay all legal and audit costs
$43,000
To pay the balance of the estimated remaining costs of
the Offering
$20,000
Property Maintenance
$14,000
Total:
$4,434,014
The Company intends to spend the funds available to it as stated in this Prospectus.
xv
There may be circumstances, however, where for sound business reasons a reallocation
of funds may be necessary.
[1]
USD$1,500,000 using an exchange rate of 0.99697 USD per Canadian dollar.
Risk Factors:
An investment in the Units should be considered highly speculative and investors may
incur a loss on their investment. The Company has no history of earnings and to date has
not defined any commercial quantities of mineral reserves on its properties. While the
Company has followed standard industry accepted due diligence procedures to ensure
that it has valid title to its properties, there is no guarantee that the Company's ownership
interest is 100% certain or that it cannot be challenged by claims from unknown third
parties claiming an interest in its properties. The Company and its assets may also
become subject to uninsurable risks. The Company's activities may require permits or
licenses which may not be granted to the Company. The Company competes with other
companies with greater financial resources and technical facilities. The Company may
be affected by political, economic, environmental and regulatory risks beyond its control.
The Company is currently largely dependent on the performance of its directors and
officers and there is no assurance the Company can retain their services. In recent years
both metal prices and the price of publicly traded securities prices have fluctuated
widely. See the section entitled “Risk Factors” for details of these and other risks
relating to the Company’s business.
Summary
of Financial
Information:
The following selected financial information is subject to the detailed information
contained in the financial statements of the Company and notes thereto appearing
elsewhere in the Prospectus. The selected financial information is derived from the
audited financial statements of the Company for the period from incorporation (July 7,
2006) to May 31, 2007 and the unaudited financial statements for the six month period
ended November 30, 2007.
Interest Income
Loss for the Period
Total Assets
Total Liabilities
Shareholders Equity
Six Month Period
Ended
November 30, 2007
(unaudited)
$
Nil
(100,744)
3,745,783
1,674,322
2,071,461
Period From
Incorporation to
May 31, 2007
(audited)
$
2,014
(203,045)
3,430,993
2,165,288
1,265,705
See “Selected Financial Information and Management’s Discussion and Analysis”.
xvi
CORPORATE STRUCTURE
Name and Incorporation
The Company was incorporated under the British Columbia Business Corporations Act on July 7, 2006
under the name Oroco Resource Corp. The Company’s registered office is located at Suite 789, 999 West
Hastings Street, Vancouver, British Columbia, V6C 2W2. The Company’s head office is located at Suite
789, 999 West Hastings Street, Vancouver, British Columbia, V6C 2W2. The Company is engaged in the
exploration and development of mineral properties in Mexico. See “Narrative Description of the
Business”.
Intercorporate Relationships
The Company owns 49 of 50 issued and outstanding shares of Minera Xochipala, a Mexican corporation.
One share is owned by German Gonzalez Canas and held in trust for the Company pursuant to a
declaration of trust dated April 19, 2007.
The Company has the right to purchase from Ruben Rodriguez and Rosa Salazar Para 100% of the 1,000
issued and outstanding shares of Polimetalicos Mexicanos S.A., a Panamanian corporation, which owns
49 out of the 50 issued and outstanding common shares of Minas De Oroco Resources S.A. de C.V, a
Mexican corporation. The remaining share of Minas De Oroco is held by Ruben Rodriguez.
GENERAL DEVELOPMENT OF THE BUSINESS
History
The Company is engaged in the business of mineral exploration in Mexico and its objective is to locate
and develop economic mineral properties. The Company commenced operations in July, 2006, the year
of its incorporation. Pursuant to a share purchase agreement dated June 19, 2007 between the Company
and Ruben Rodriquez and Rosa Salazar Parra (the “Polimetalicos Share Purchase Agreement”), the
Company has the right to purchase all of the issued and outstanding shares of Polimetalicos.
Polimetalicos is a Panamanian corporation which owns 98% of Minas De Oroco which has acquired a
100% interest in the Cerro Prieto Property, the title to has been transferred from Ruben Rodriguez and
Rosa Salazar Parra to Minas De Oroco. The Cerro Prieto Property is comprised of the contiguous San
Felix and San Francisco mining concessions covering a total area of 215 hectares. The property is located
near the town of Magdalena de Kino, in the north central part of the state of Sonora, northwestern
Mexico. The Company also holds interests in three additional mineral properties, the Xochipala Property,
the Cerro Prieto North Property and the Salvador Property, as described below.
In August 2006, the Company carried out sampling of geological, topographical and historical features on
the Cerro Prieto Property. In December 2006, the Company cleared rock falls and cave-ins from the
underground workings at the Cerro Prieto Property. In January 2007, the Company carried out surveying
and a detailed sampling program in the existing underground workings on the Cerro Prieto Property.
The Company intends to use the proceeds of the Offering to carry out additional exploration on the Cerro
Prieto Property as well as preliminary exploration programs on the Cerro Prieto North, Xochipala and
Salvador Properties as set out in the section entitled “Use of Proceeds.”
1
Significant Acquisitions and Dispositions
Assignment Agreement
ATM Mining Corp. (“ATM”) is a private company which was incorporated for the purpose of acquiring
an interest in mineral properties. In June, 2006 Salvador Rivero Cortina (“Rivero”) introduced ATM to
Ruben Rodriquez Villegas and Mrs. Rosa Delia Salazar Parra (collectively the “Cerro Prieto Vendors”),
the owners of the Cerro Prieto Property. In that same month, Rivero introduced ATM to Mrs. Celia
Alvarez Duran Vda. De Adame, the executrix and one of the heirs to the estate of Carlos Humberto
Adame Alvarez which, with Donaciano Adame Arcos, owned the concessions comprising the Xochipala
Property. Commencing in July of 2006, ATM conducted two site visits to and conducted due diligence on
the Cerro Prieto Property and the Xochipala Property. In August, 2006 ATM reached agreements in
principle with the Cerro Prieto Vendors and the Xochipala Vendors (as defined herein) regarding the
terms on which the Cerro Prieto Property and the Xochipala Property respectively would be acquired.
On August 26, 2006, the Company entered into the Assignment Agreement with ATM and Rivero
pursuant to which ATM assigned to the Company all of ATM’s rights and interests in and to the Cerro
Prieto Property and the Xochipala Property in consideration for the Company:
(1) making a cash payment of $135,000 to ATM;
(2) granting ATM the right to purchase 6,250,000 common shares in the capital of the Company at a
price of $0.01 per share for the aggregate price of $62,500; and
(3) assuming ATM’s obligation to issue 4,500,000 common shares to Rivero, subject to the
cancellation provisions set out below.
Rivero consented to ATM’s assignment to the Company of ATM’s rights and interests in the Cerro Prieto
Property and the Xochipala Property and ATM’s obligation to issue shares to Rivero. Rivero also agreed
to act on behalf of and provide assistance to the Company in completing the acquisition of the Cerro
Prieto Property and the Xochipala Property. Rivero agreed that:
(1) if the Company was not successful in completing the acquisition of the Cerro Prieto Property, the
Company would cancel 2,500,000 shares of the Company issued to Rivero; and
(2) if the Company was not successful in its acquisition of the Xochipala Property, the Company
would cancel 2,000,000 shares of the Company issued to Rivero.
On December 15, 2006, the Company, ATM and Rivero amended the Assignment Agreement and agreed
that the Company would (a) cancel 900,000 of the 6,250,000 common shares issued by the Company to
ATM; (b) refund to ATM the $9,000 which ATM paid for the 900,000 shares being cancelled; and (c)
cancel 1,350,000 of the common shares issued to Rivero. As a result of the 1,350,000 shares being
cancelled, Rivero and the Company agreed to:
(1) cancel 1,750,000 shares of the Company issued to Rivero if the Company was not successful in
completing the acquisition of the Cerro Prieto Property; and
(2) cancel 1,400,000 shares of the Company issued to Rivero if the Company was not successful in
its acquisition of the Xochipala Property.
On May 18, 2007, the Company, ATM and Rivero amended the Assignment Agreement and agreed:
(1) that the Company would reduce the amount payable to ATM from $135,000 to $69,000;
(2) that the difference between $69,000 and $135,000 would be reconciled by the parties at a later
date against expenses incurred by ATM in connection with its initial acquisition of the rights to
the Cerro Prieto and Xochipala Properties.
2
Cerro Prieto Property
On June 19, 2007, the Company entered into the Polimetalicos Share Purchase Agreement with the Cerro
Prieto Vendors. Polimetalicos is a Panamanian company which holds 98% (49 out of 50) of the issued
and outstanding shares of Minas de Oroco which has acquired a 100% interest in the Cerro Prieto
Property. The remaining share of Minas de Oroco is held by Ruben Rodriguez. The title to the Cerro
Prieto Property is held by Minas de Oroco, after being transferred from Ruben Rodriguez Villegas and
Rosa Salazar Parra. Pursuant to the Polimetalicos Share Purchase Agreement, the Company has the right
to purchase all of the issued and outstanding shares of Polimetalicos in consideration for USD$2,500,000,
of which USD$1,000,000 has been paid and the balance of USD$1,500,000 was payable on February 1,
2008.
The shares of the Cerro Prieto Vendors in Polimetalicos are being held in trust by a lawyer in Mexico
pending payment of the balance of the purchase price, at which time the shares will be transferred and
delivered to the Company. If the Company fails to pay the balance of the purchase price within 30
business days of the Vendors delivering notices to the Company of failure to make a payment, the trustee
will return the Polimetalicos shares to the Cerro Prieto Vendors and the Company will forfeit the
payments made as damages.
On September 24, 2007, the Company negotiated a revision to the payment schedule for the Cerro Prieto
Property with the Cerro Prieto Vendors. Pursuant to the amended payment schedule, the Company paid
USD$200,000 on October 1, 2007 and agreed to pay USD$1,500,000 before February 1, 2008. On
January 28, 2008, the Company negotiated a further revision to the payment schedule for the Cerro Prieto
Property. Pursuant to this amendment, the Cerro Prieto Vendors granted the Company a 30 business day
extension to the obligation to pay USD$1,500,000 which is now due before March 16, 2008. In
consideration for the extension the Company agreed to pay interest at an annual rate of 7.8% on the
balance owing and until payment.
The Cerro Prieto Property is subject to a 2% net smelter royalty in favour of the Cerro Prieto Vendors. If
the Company does not commence production on the Cerro Prieto Property by April 1, 2009, the Company
will pay the Cerro Prieto Vendors a minimum royalty payment in the amount of USD$30,000 per quarter
until payments commence pursuant to the net smelter royalty.
The mining concession gives the Company the right to carry out exploration and exploitation work on the
Cerro Prieto Property. Surface access rights must be negotiated separately with the owner of the land.
The surface rights to the Cerro Prieto Property are privately held and the land is used for a cattle ranch.
Given the topography of the land, it is expected that the Company’s operations will not have a significant
impact on the ranch operations. If no agreement can be reached with the surface land owner, the
Company may apply to the General Bureau of Mines for the expropriation or temporary occupation of the
lands, which the Company expects will be granted to the extent the land is indispensable for the
development of the mining project. The Company intends to enter into negotiations with the holder of the
surface rights to acquire right to the Cerro Prieto Property who has been cooperative with the Company to
date with regard to the exploration work carried out to date.
Xochipala Property
On January 11, 2007, the Company entered into an agreement with Mrs. Celia Alvarez Duran Vda. De
Adame, Jose Luis Adame Alvarez and Carlos Humberto Adame Alvarez, as heirs to the estate of Carlos
Adame Camacho, and Donaciano Adame Arcos (collectively the “Xochipala Vendors”) to acquire the
Xochipala Property. The Xochipala Property is comprised of the contiguous Celia Generosa and the
Celia Gene mining concessions. Carlos Adame Camacho held a 100% interest in the Celia Generosa
3
mining concession and a 50% interest in the Celia Gene mining concession. Donaciano Adame Arcos
held a 50% interest in the Celia Gene mining concession. In consideration for the assignment of the
Xochipala Property, the Company paid P$120,000 (pesos) (approximately USD$11,250) to Arcos and
Celia Alvarez Duran Vda. de Adame and assumed liability for all arrears and penalties for the outstanding
mining fees with regard to the Xochipala Property in the aggregate amount of P$670,612 (approximately
USD$62,250).
There are currently four liens registered on the Xochipala Property concessions which were filed in
connection with an option agreement on the property which expired in 2002. The Registro Publico de
Minera will not cancel a lien unless requested to do so by the judge who originally ordered the lien. The
Company is in the process of applying for the removal of the liens. Mexican legal counsel is of the
opinion that as the liens are with respect to benefits of the now expired option agreement for the
Xochipala Property, they do not encumber the Xochipala Property itself.
Salvador Property
The 100 hectare Salvador Property concession, located in Leonardo Bravo Municipality of Guerrero
State, is registered to Minera Xochipala.
Cerro Prieto North Property
The Cerro Prieto North Property is a 2,508 hectare mining concession located in the Cucurpe
Municipality of Sonora State, Mexico registered to German Alberto Gonzalez Canas who is holding the
concession in trust for the Company pursuant to a declaration of trust dated June 19, 2007. German
Alberto Gonzalez Canas will transfer his interest on demand to such person as the Company designates
pursuant to the declaration of trust.
Trends
As of the date of the Prospectus, the Company’s principal focus is on the Cerro Prieto Property in the
state of Sonora, Mexico, as described under the heading “Narrative Description of the Business”. The
Company will also conduct preliminary exploration activities on the Xochipala, Salvador and Cerro Prieto
North properties. It may also acquire additional mineral properties which may be located in Mexico and
elsewhere. The ability to finance, explore and develop any of the Company’s properties is subject to a
number of factors including the price of gold, silver and base metals, laws and regulations, political
conditions, currency fluctuations and hiring qualified people and obtaining necessary services in
jurisdictions where the Company operates. These factors could change at any time and negatively affect
the Company’s operations and business. Please refer to “Risk Factors” for risk factors that may affect the
Company. Other than as disclosed herein, the Company is not aware of any trends, uncertainties,
demands, commitments or events which are reasonably likely to have a material adverse effect on the
Company’s business, financial condition or results of operations.
NARRATIVE DESCRIPTION OF THE BUSINESS
Stated Business Objectives
The principal business carried on and intended to be carried on by the Company is the acquisition,
exploration and development of mineral resource properties. The Company’s properties are at the
exploration stage. The Company intends to expend existing working capital and net proceeds raised from
the Offering to pay the balance of the estimated costs of the Offering, to carry out the planned exploration
program on the Cerro Prieto Property, to pay the balance of the purchase price for the shares of
Polimetalicos, to carry out preliminary exploration programs on the Xochipala, Salvador and Cerro Prieto
4
North Properties, to pay for administrative costs for the next twelve months and for working capital. The
Company will continue to assess and acquire interests in new mineral properties if the Company
determines that they have sufficient potential and if the Company has adequate financial resources to
complete such acquisitions.
Cerro Prieto Property
The following represents information summarized from a technical report dated December 14, 2007
prepared pursuant to the provisions of National Instrument 43-101 (“NI 43-101”) by Duncan J. Bain, P.
Geo. (“Bain”), an independent qualified geological and engineering consultant (the “Report”). Plates 1,
2, 3, and 4 and Tables 1, 2, 3, 4, 5 6, 8 and 9 from the technical report are included in this Prospectus.
The remaining Figures are contained in the technical report which is expected to be made available under
the Company’s profile on the SEDAR Website at www.sedar.com.
1. Property Description and Location
The Cerro Prieto Property is located 150 kilometres northeast of the city of Hermosillo, and 35 kilometres
by air (approximately 52 kilometers by road) southeast of the town of Magdalena de Kino, both in the
north central part of the state of Sonora, northwestern Mexico. The Property is centred at Latitude 30° 25'
North, Longitude 110° 40' West.
The project consists of two mining concessions covering a total area of 215.1784 hectares. Of these two
concessions, the San Francisco concession, title no. 182330, consisting of 10 hectares, covers the
underground workings of the Cerro Prieto Mine. The second concession, San Felix, title no. 176213
consisting of 205.1784 hectares, surrounds the San Francisco concession to the north, south, east and
west. A small mining concession, the Elba Concession (no. 10906), exists within the San Felix
concession and a second Elba concession, (no. 10737), lies south of the Cerro Prieto project. The current
ownership and status of those concessions is unknown, but there is no exploration activity on them.
Mineralization at the Cerro Prieto Mine is contained in veins within a major shear zone approximately 25
metres wide which cuts all units from Jurassic to Lower Tertiary in age. Within this shear zone are
contained hangingwall and footwall veins, both of which are one to three metres wide and dip steeply to
the west, as well as a series of secondary veins, stringers zones and silicification, ranging up to 40
centimetres wide, which together with the major veins produce a continuous mineralized zone of six to
nine metres thick. The principal structure in the Project is a regional structure, and can be traced for
approximately 10 kilometres both north and south of the mine. At the mine site this structure strikes 350°
and dips vertical to 80° to the northeast. The system is generally continuous but is offset over a few
metres by several small crosscutting fractures. In the vicinity of the mine strong siliceous dykes
(metamorphosed rhyolite dykes?) act as boundaries to the shear zone. Similar dykes are found in the area
around the mine, which may be indicators to the locations of other shear zones in the vicinity. Quartz
veins and minor calcite veins are present within the shear zone.
Exploration work undertaken by the Company indicates that quartz-hosted Pb-Zn-(Au)-Ag-Mo
mineralization within these veins, stringers zones and disseminations within the wallrock between and on
either side of the major veins consists of mainly oxide ores of these elements, with minor amounts of
sulphide minerals present. There is very little sulphur, calcium or strontium, suggesting only minor
carbonate minerals, although manganese appears elevated throughout the system. The Project is
interpreted to be a strong mesothermal mineralizing system no older than Tertiary in age. A younger
epithermal mineralizing system, containing higher grades of gold, may have been injected into the same
structure at a later date which would account for the depth of gold mineralization, from surface down to
1050 Level, a minimum of 300 metres elevation. The “granite” intrusive body below the mine workings
is likely part of a larger granitic intrusive body underlying the region. Regional tectonic activity which
5
produced the Cerro Prieto shear probably acted as a conduit to allow the upward movement of Pb-Zn-AgMo-Au mineralization from the surrounding volcanic rocks, or from that intrusive itself, which would act
as a heat source to permit the circulation of mineralizing solutions.
The vein system contains significant gold mineralization for a depth of at least 300 metres. This
mineralization has been interpreted by previous exploration efforts to have a preliminary estimated grade
of at least 3 g/t (0.10 oz/ton) gold. There is the possibility that a resource of low grade (3 g/t) gold
mineralization exists within the mine workings, as well as to the north and south which remains
unexploited. There are also historical estimates of approximately 7 million tons of Pb-Zn-Ag-(Mo)
mineralization, with an average grade of 4.40 g/t gold equivalent or, excluding some of the lower grade
zones, 6 million tons, with an average grade of 4.85 g/t gold equivalent (Morgain Minerals Inc. 1998
Annual Report filed on SEDAR May 19, 1999). The only sources showing Morgain’s historical estimates
and the results from Morgain’s drill program on the Cerro Prieto Property, are Morgain’s January 18,
1999 and March 16, 1999 news releases and Morgain’s 1998 Annual Report filed on SEDAR May 19,
1999. No technical report describing the historical estimates based upon the Morgain drill program is
available. Consequently, the location of the drill collars or intercepts, the methodology used in the
calculations of the average individual grades for each block, the average individual grades of each metal
used to calculate the gold grade equivalent for each block, or the methodology and assumptions and
parameters used in the preparation of the historical estimates are not known. The historical estimates
were prepared by Morgain management whose technical qualifications are not known. Bain presumes
that Morgain management calculated the estimates using only geometrical parameters and assays taken at
widely spaced intervals. It also does not appear that Morgain’s management utilized geostatistical
information or economic factors as the basis for their valuations and as is required in the calculation of
reserves and resources by NI 43-101. However, the gold grade equivalents and historical estimates are
based upon assay samples, including the assay results from a 23 hole reverse circulation drill program,
measurements obtained by engineers and geologists and assay results from a certified lab, which results
are consistent with results set out in other historical reports and with Bain’s own sampling results. It is
Bain’s opinion that the exploration results available to Morgain would have provided Morgain with
sufficient information to calculate the reported historical estimates. Subject to categorization of the
category of reserve or resource and based upon the historical information available and his own sampling
results, Bain is of the opinion that the estimates as calculated are reasonable. Confirmation drilling by
the Company proposed in its Phase I exploration program will test the reliability of these estimates.
Morgain’s historical estimates were prepared prior to the implementation of the standards of NI 43 -101.
Under the current definitions of resources and reserves as stated in sections 1.2 and 1.3 of NI 43 - 101 or
in the CIM Standards on mineral resources and reserves, there is no category of “preliminary reserve
estimate”. However, based upon the available historical information and Bain’s own results, Bain is of
the opinion that under current definitions of mineral resources and reserves under NI 43 - 101 and the
CIM Standards, the Morgain estimates would correlate to the inferred resource category.
There are no more recent estimates or more recent data than the Morgain information other than the
sampling data obtained by Bain. A qualified person has not done sufficient work to classify the historical
estimates as a current mineral resource. The historical estimate is not being treated as a current estimate
and the historical estimates should not be relied upon as a current estimate.
2. Accessibility, Climate, Local Resources, Infrastructure and Physiography
Access to the Cerro Prieto Property is primarily by paved roads southeast from Magdalena de Kino for 40
kilometres to the general area and from there via secondary roads and tracks which follow arroyos (dry
riverbeds) for an additional 12 kilometres north to the mine site.
6
The area is typically arid to semi-arid, with daytime temperatures ranging from extremes of 50°C in the
summer to 20°C in the winter, although nights can reach as low as -5°C. Rainfall is in the form of
thunderstorms during the late summer months, with some short periods of a more gentle cold rain in the
winter. Thunderstorms may produce flash floods in the arroyos and creeks, and may cause washouts of
the local roads and trails. Work in the area will require regular maintenance of these access routes.
Topography in the area is rugged, being a series of block faulted low-angle dipping sedimentary layers
capped by relatively impermeable volcanic flows and pyroclastics. This produces a series of sharp ridges
(cerros) that rise abruptly to a height of 200 to 300 metres above local canyon floors and arroyos (Plate 1).
Local relief is approximately 1200 metres above sea level (A.S.L.). From the arroyo at the south end of
the San Francisco concession (Arroyo Las Rastras) the topography slopes steeply upwards to the north.
This has allowed a series of near-surface open cuts to be made during active mining in the early 1900s
(Plate 2).
Plate 1 - Typical Topography in Cerro Prieto Region
7
Plate 2 - Cerro Prieto Showing Open Cuts, Glory Hole, Adits and Switchback Roads
Water is found in the Cerro Prieto Mine in a sump at the 1100 Level, which is currently unavailable due
to the poor condition of the access way. Water is only found very intermittently in the local creeks, except
after heavy thunderstorms. When the mine was in production, water was pumped from a small stream
approximately five kilometres away. Although a well exists for use by the ranch (Rancho Cerro Prieto)
which lies within the San Felix concession, early stages of exploration and development work may have
to rely on water trucked on to the site, or have a new well drilled close to the mine entrance.
Electrical power is present in Magdalena de Kino, and a powerline runs down the paved road and along
the off-road access to within five kilometres of the Cerro Prieto Property. It continues through the village
of Cucurpe, which lies approximately five kilometres southeast of the access road from the highway.
There is presently no operating mill on site or within a few kilometres of the Cerro Prieto Property for the
processing of ore.
The town of Magdalena de Kino and the surrounding region has a population of approximately 40,000
(2006). Few of those residents have experience in a modern mining environment, but there is a large
labour force and several people are trained for the current exploration program. Land surveyors are
available in Hermosillo, and mining personnel and equipment, as well as exploration equipment and
supplies can be found in the Hermosillo-Magdalena de Kino region. The village of Cucurpe lies
approximately ten kilometres by air (17.5 km by road) to the southeast and could supply a small untrained
labor force but cannot be used for accommodation or supplies. Some improvement to on-site
accommodations and infrastructure will have to be made should work continue.
3. History
In 1969, L. J. Manning made a review of the Cerro Prieto Property (also referred to in some reports as
San Francisco, or Sierra Prieta) files held by the Cananea, Mexico office of Anaconda Copper Co.
(“Anaconda”). At that time, no direct copies of these files were allowed but sketches and notes were
taken.
Manning’s review of the Anaconda files report that the early history of the property is unknown but the
first records indicate that the Cerro Prieto Property operated as a gold mine as early as 1906 until 1912,
when it was abandoned at the time of the Mexican Revolution. Whenever gold prices dropped below a
certain value or the operator encountered a change in mineralization from gold to lead or other non-gold
minerals, mining of those headings would be abandoned. Those records also indicate that the silver
content of the ore taken out was only secondary to the gold present and removed. Manning’s research
revealed that at the time the mine was operating (1907), the mill was supposed to be processing 720 tons
per day (other sources report 500 tons per day), with a recovery of 85% of the gold and 25-30% of the
silver. Reports of average head grade (ore before processing) cite grades of 0.10 oz/t gold (3.1 g/t)
(Manning, citing a 1934 report by V.C Perry and R. B. Mulchay prepared for Anaconda Copper Co.) and
15 g/t gold (Evaristo Dominquez, Engineer, in his April 8, 1980 report to Dravo Corporation of
Pittsburgh, PA). Dominquez also reported average grades of 50 to 60 g/t silver. Mining and processing
technology available at the turn of the century would suggest that grades in excess of 3 g/t would have
been required to make a mine of the apparent size of the Cerro Prieto mine economic. However, it
appears that no exploration since that time has been successful in establishing any zones with average
grades close to 15 g/t. While the range of historical average production grades reported are, in Bain’s
opinion, relevant, he is unable to judge their reliability. Manning also reported that at that time (1907), a
vertical shaft was collared 1,180 feet (360 m) inside the 800 Level adit. The remains of that shaft can still
be seen today. The mine was abandoned in 1912 at the time of the Mexican Revolution and has never
been re-opened as an operating mine.
8
Since the closing of the mine, only a small amount of work has been carried out. During the First World
War (1914-1918), extraction and re-processing of tailings from the original operation was carried out.
This work attempted was carried out with a view to selling a vanadium concentrate but no commercial
deposits of vanadium were ever developed.
During the last century various mining and exploration companies have reviewed the property for its
economic potential. These include Anaconda Copper Co. (report by Perry and Mulcahay, 1934, and
reviewed by Manning), Ramada Resources Ltd. (report by Manning, 1969), Devex Corporation (report by
Pye, 1972), Dravo Corporation (report by Dominquez, 1980), Compania Fresnillo, S.A. de C.V. (report
by Smith, 1987) and Morgain Minerals Inc.
Examination of the mine workings by Manning, Pye (1972) and Smith (1987) reported on the
development work during the operating life of the mine. Open cuts were made in the sidehill of the
surface exposure of the mineralized Cerro Prieto vein. A large open cut (glory hole, Plate 2) is found at
the crest of the local topography, and this appears to be the site of much of the gold mining. An adit or
open cut appears to have been made along the vein at regular 100 foot (30 metre) elevations. The most
prominent of these is the drift driven on the 800 Level (Plate 4) for a distance of a minimum 730 metres
(2400 feet) north from the 800 Level adit (Plate 3).
Plate 3 - 800 Level Adit, August 2006
Plate 4 - 800 Level Haulage Drift, January 2007
Several raises were driven from the 800 Level to connect with those open cuts exposed at the surface and
appear to have followed mineralized veins. Ore was block caved and dropped to a haulage level (800
Level). The 800 Level between the adit and the internal vertical shaft was reported to contain several
crosscuts, now filled with mine waste rock. The vein has also been worked downward into the floor of
the 800 Level (sub-levels and benches) at several points. Manning reports that several hundred feet south
of the vertical shaft on the 800 Level, a branch tunnel leads west (to the shaft hoist equipment) and then
swings north to parallel the main vein, either as a haulage way or to follow a parallel vein. In August
9
2006, most of the 800 Level was inaccessible due to caving. Cleanup in December 2006 allowed access to
the 800 Level from the adit to beyond the shaft but lack of time did not permit the branch tunnel to be
cleaned or sampled. During the sampling program in December 2006-January 2007, several sections of
the 800 Level did not give access to the main (East) vein. Instead these sections were part of a haulage
tunnel, with veining and mineralization known to be present in the wallrock in either side of the tunnel or
in (open or closed) raises and stopes above the haulage way. Within these sections sampling was done to
investigate mineralization within the wallrock on one side or the other of a vein that was known to be
present but inaccessible.
A 3-compartment shaft was originally driven down from 800 Level to give access to the 1000 Level and
beyond to the 1050 Level. A sump lies at the bottom of the shaft below 1100 Level. This shaft is no
longer operational and access to these depths is now only available by a ramp collared at approximately
900 Level which continues downslope for approximately 600 m to the 1000 Level and beyond to the 1050
Level. The 1100 Level is currently flooded and it and the sump are currently inaccessible. Mineralization
has been reported at several points in the shaft from 1000 Level to above 800 Level.
The 1000 Level consists of a working tunnel extending approximately 165 m (400 feet) south of the shaft
and approximately 95 metres (300 feet) north of the shaft, along the east side of the shear zone. It shows
mineralization at several points as secondary veins developed parallel to the main vein. To this date this
tunnel has not been mapped in any detail. At least three crosscuts connect the working tunnel with the
main vein, which here lies along the west side of the shear zone. Presently only one of these crosscuts
connects the two tunnels (haulage ways). Here it is five to seven metres wide (Manning, 1969). A raise
was driven from the 1000 Level, and is known to have extended upwards for a minimum of 33 metres.
Wulfenite crystals (PbMoO4) being mined at 25 metres above the 1000 Level in this raise were removed
from a vein a minimum of three metres wide. Two crosscuts have been driven to the east of the shear
zone for a minimum of 50 metres. These were driven for the Anaconda Copper drill stations reported in
or shortly after 1934. The southern drill station lies 75 metres south of the shaft. It extends 65 metres and
contains the three inclined holes reported by Anaconda. The northern drill station lies 95 metres north of
the shaft and extends about 95 metres to the east. It was never used as a drill station. A station was cut in
the ore vein at the 1000 Level. At this site the vein was exposed for a width of six metres, but has not
been opened to its full width. Between the 800 Level and the 1000 Level several stations and tunnels
(sublevels) cut along the mineralized vein, both north and south of the shaft. The most important of these
is at 860 Level. It has been explored for 35 metres south of the shaft, and raises have been driven from
here to the 800 Level. The width of the stoping here ranges from 1.7 to 9.5 metres. These are currently
inaccessible.
Near the arroyo is the entrance to another tunnel, the 900 Level. It follows the shear zone north for 35
metres (prior to being used as 900 Ramp). Mineralization in the floor has been removed at two points. A
12 metre crosscut is found approximately 25 metres in from the adit and weak mineralization is present.
The width of the mineralized vein is 1.3 metres.
Several pits and trenches are found south across the arroyo from the mine. These explored the southern
extension of the Cerro Prieto vein system. One or more shallow shafts in the same vein are reported north
and south of the mine workings. Other than the Anaconda Copper Co. report reviewed by Manning there
are no record of these additional workings. Some samples were taken from these workings in January
2007 and are reported below.
A review of Manning’s report shows that he visited the Cerro Prieto Property in November 1968. An
examination was made of both the 800 Level and the 1000 Level. Access to the 1000 Level was made by
use of a ladder down the vertical shaft as there was no operating lift present, and surveying and sampling
were carried out on them, as well as on various levels above the 800 Level.
10
From the Anaconda report (1934) reviewed by Manning, it is known that mining had been carried out on
the 1100 Level and that the shaft would continue below this. However, this is also the elevation of the
present water table, and a reduced environment may exist below here, producing only sulphide
mineralization.
In 1972, William Pye, Consulting Geologist, investigated the Cerro Prieto Property for Devex
Corporation. He carried out extensive sampling of the 1000 Level vein south of the shaft, as well as a
small amount of sampling at other sites on that level and on other levels. He reported findings similar to
those of Manning. A review of Pye’s findings by Morgain Minerals Inc. geological staff reported (Table
1) in Morgain Minerals Inc. 1998 Annual Report (filed on SEDAR May 19, 1999) the higher grade
sections from Pye’s underground chip sampling program as follows:
Table 1 – Select results of underground chip sampling, Pye, 1972 (as reported in Morgain , 1998 Annual Report)
True Width
m
3.35
2.1
5.8
2.74
Au
oz/t
0.011
(3.30 g/T)
0.026
(0.83 g/T)
0.027
(0.86 g/T)
0.019
(0.61 g/T)
Ag
oz/t
14.6
(467.2 g/T)
1.2
(38.4 g/T)
9.2
(294.4 g/T)
10.2
(326.4 g/T)
Pb
%
14.2
Zn
%
8.3
Mo (not MoS2)
%
0.76
8.5
8.6
0.78
6.1
12.6
0.75
5.5
5.9
0.17
Bain does not have the number, type, nature and spacing or density of the overall samples collected by
Pye or the specific location and dimensions of the area sampled. While Bain is aware that the assays were
conducted by Southwestern Assayers & Chemists, Inc., a registered assayer in Tucsan, Arizona, the assay
method utilized could not be determined. However, Bain has reviewed the Pye report and other historical
reports (Manning, Smith, Dominquez Morgain) and, in his opinion, Pye’s findings and results are
consistent with these other historical reports as well as Bain’s own results and are considered in Bain’s
opinion to be relevant.
Compania Fresnillo, S.A. de C.V. investigated and reported on the Cerro Prieto Property in 1987. The
review stated that the mill treated 400 tons/day between 1906 and 1912 and estimated that approximately
500,000 tons of material had been processed. Other than this change, the conclusions were the same as
those of Manning and Pye. In that report (Smith, 1987) Ing. Evaristo Dominguez L. examined the
underground workings and the surface topography of the mine. He estimated that there were significant
mineralization between 800 and 1000 Level.
Wulfenite, PbMoO4, and mimetite, Pb5(AsO4)3Cl crystals have been mined from Cerro Prieto since the
early 1970s, when they first appeared on the crystal specimen market (White, 1972; Bideaux, 1972;
Moore, 2004). Local miners have collected samples from open cavities within the main Cerro Prieto vein
intermittently from that time until the early 1990s. From 1990 to 1993 a ramp was driven down from the
900 Level by a crew led by Bryan and Ed Swoboda. This ramp provided access to the 1000 Level and
1050 Level to allow the continuation of the collection of mineral specimens. This collecting continued
until 1994.
In April 1998, Morgain Minerals Inc. acquired an option to a 100% interest in the Cerro Prieto Property,
and Morgain company geologists conducted an underground chip sampling program to confirm the assay
values reported by Pye and Smith. A news release dated January 1999 by Morgain reports that those
values were confirmed (Table 2), although no technical report is available to Bain showing those results,
and the exact position of those samples within the workings is not available to Bain.
11
Table 2 - Assay Results, Footwall Zone, Morgain Chip Sampling Program, 1998
Section
Sample #
1
SF-5
SF-6
SF-7
SF-9
SF-11
SF-12
SF-13
SF-14
2
3
4
5
Width
m
8.0
Au
g/t
0.22
0.60
0.32
0.49
0.27
0.38
0.22
0.28
0.34
6.0
5.0
5.3
7.0
Average
6.3
Ag
g/t
28
30
132
167
220
400
460
163
178
Pb
%
2.5
1.8
3.2
5.5
0.6
2.5
2.9
0.8
2.0
Zn
%
2.2
4.4
6.7
9.3
2.6
4.9
3.4
3.9
4.8
Mo
%
0.42
0.01
2.20
2.40
0.75
Despite the selectivity of data in the Pye and Smith reports, Bain is confident, based on his review of
several studies as well as his own preliminary sampling program, that the Morgain assay values are
consistent with those of other programs.
Following the report by Perry and Mulcahay (1934), Anaconda Copper Co. drilled three diamond drill
holes from underground stations on the 1000 Level. Although no detailed drill logs exist, it was reported
that:
Drillhole #1, 456 feet in length and dipping 60°, cut at right angles to the strike of the vein. It was
intended to examine the ore at depth. It was reported to have exhibited only low gold, silver and lead
values in the vein.
Drillhole #2, 537 feet in length and dipping 70° , cut at right angles to the strike of the vein. It was
reported to have returned worse assay values than those in Drillhole #1.
Drillhole #3, 1000 feet in length and dipping -72°, cut at right angles to the strike of the vein. It was
reported to have contained moderate lead but low gold and silver values.
It is not known whether any of these holes cut through the entire shear. Hole #2 is reported to not have
intersected the main vein.
In 1998, Morgain conducted a reverse circulation drill program of 23 holes collared from surface. A
complete report of that program is unavailable but Morgain provided the assay values and mineralized
intersections (Table 3) in news releases on January 18, 1999 and March 16, 1999 as well as in its 1998
Annual Report filed on SEDAR on May 19, 1999.
Table 3 - Assay Results from Morgain Reverse Circulation Drilling, 1998
Hole
From (m)
To (m)
Apparent
Width
(m)
Estimated
TrueWidth
(m)
Au
g/t
Ag
g/t
Pb
%
Zn
%
SF-1
17.0
Including
45.7
4.6
52.7
91.4
27.4
10.4
7.6
16.8
17.4
12.2
15.9
23.0
7.3
5.3
11.8
8.7
6.1
8.0
23.0
1.04
1.30
3.10
0.92
0.66
2.34
1.65
68.6
94.7
20.7
85.7
4.9
5.1
12.2
0.17
0.17
0.15
0.27
0.12
0.31
0.32
0.25
0.25
0.33
0.71
0.28
0.72
0.98
SF-2
63.5
22.0
64.9
107.3
12
SF-3
SF-4
SF-5
SF-6
SF-7
SF-8
SF-9
SF-10
SF-11
SF-12
SF-13
SF-14
SF-15
SF-16
SF-17
Sf-18
SF-19
SF-20
SF-21
SF-22
SF-23
10.7
73.2
Including
82.3
76.2
45.0
59.6
166.1
28.0
0.0
Including
74.7
164.6
6.1
64.0
4.6
105.2
Including
160.0
83.0
Including
83.0
16.0
169.2
41.1
74.7
Tested
outcrop
outside of
zone
Abandoned
6.1
77.7
106.7
Tested
outcrop
outside of
zone
41.1
150.8
Includes
271.3
Or
286.5
88.4
140.2
Includes
140.2
And
152.4
16.8
94.5
6.1
21.3
4.3
10.7
2.91
1.06
6.2
2.9
0.06
0.41
0.08
0.73
94.5
88.9
70.9
93.0
233.2
46.5
187.5
12.2
13.7
85.0
33.5
67.1
17.5
187.5
6.1
6.9
13.0
21.8
33.5
12.3
93.7
1.76
1.42
1.20
1.28
0.29
0.90
0.16
3.2
2.6
15.1
50.9
25.1
8.1
2.6
0.45
0.45
0.36
0.50
0.49
0.24
0.22
1.24
1.14
0.60
0.93
0.70
0.39
0.68
185.9
185.9
12.2
70.1
15.2
175.3
111.3
21.3
6.1
6.1
10.6
70.1
55.6
10.7
4.3
4.3
5.3
35.0
0.19
0.41
0.28
0.77
0.53
2.69
2.6
4.0
26.5
2.6
52.0
5.0
0.30
0.56
0.33
0.25
0.13
0.30
0.93
1.60
0.59
0.36
0.27
1.02
175.3
103.6
15.3
24.5
20.6
7.7
24.2
13.4
6.81
1.10
0.63
9.1
30.9
15.5
0.35
0.73
0.42
1.16
3.51
2.06
93.0
39.6
173.7
48.8
84.6
10.0
23.6
4.5
7.7
9.9
6.4
20.0
?
5.9
6.9
0.70
1.74
0.14
2.75
0.15
Low
values
28.0
7.0
32.2
6.9
215.3
1.59
0.45
0.46
0.24
0.80
3.76
1.70
1.47
0.81
2.82
13.7
102.1
114.3
7.6
24.4
7.6
3.8
12.2
3.8
0.46
1.78
0.84
Low
values
56.2
16.5
2.5
0.19
0.79
0.26
0.25
0.79
0.89
51.8
297.2
10.7
146.4
7.9
73.2
0.41
0.40
1.7
6.0
0.42
0.56
1.45
2.02
297.2
25.9
12.8
0.70
16.7
1.18
3.75
297.2
99.1
172.2
10.7
10.7
32.0
5.2
9.1
14.2
1.10
0.40
3.14
25.2
212.7
22.7
1.18
0.58
0.66
6.48
0.92
1.54
150.9
10.7
10.7
8.03
8.5
0.76
0.22
172.2
19.8
9.1
0.72
31.6
0.94
2.05
A preliminary historical estimate (Table 4) based on these assay results and samples taken from
underground crosscuts was prepared by Morgain Minerals management and reported in its 1998 Annual
Report.
13
Table 4 – Morgain Minerals Preliminary Reserve Historical Estimates
Morgain Longitudinal Section
The only sources showing Morgain’s historical estimates and the results from Morgain’s drill program on
the Cerro Prieto Property, are Morgain’s January 18, 1999 and March 16, 1999 news releases and
Morgain’s 1998 Annual Report filed on SEDAR May 19, 1999. No technical report describing the
14
historical estimates based upon the Morgain drill program is available. Consequently, the location of the
drill collars or intercepts, the methodology used in the calculations of the average individual grades for
each block, the average individual grades of each metal used to calculate the gold grade equivalent for
each block, or the methodology and assumptions and parameters used in the preparation of the historical
estimates are not known. The historical estimates were prepared by Morgain management whose
technical qualifications are not known. Bain presumes that Morgain management calculated the estimates
using only geometrical parameters and assays taken at widely spaced intervals. It also does not appear
that Morgain’s management utilized geostatistical information or economic factors as the basis for their
valuations and as is required in the calculation of reserves and resources by NI 43-101. However, the
gold grade equivalents and historical estimates are based upon assay samples, including the assay results
from a 23 hole reverse circulation drill program, measurements obtained by engineers and geologists and
assay results from a certified lab, which results are consistent with results set out in other historical
reports and with Bain’s own sampling results. It is Bain’s opinion that the exploration results available to
Morgain would have provided Morgain with sufficient information to calculate the reported historical
estimates. Subject to categorization of the category of reserve or resource and based upon the historical
information available and his own sampling results, Bain is of the opinion that the estimates as calculated
are reasonable. Confirmation drilling by the Company proposed in its Phase I exploration program will
test the reliability of these estimates.
Morgain’s historical estimates were prepared prior to the implementation of the standards of NI 43 -101.
Under the current definitions of resources and reserves as stated in sections 1.2 and 1.3 of NI 43 - 101 or
in the CIM Standards on mineral resources and reserves, there is no category of “preliminary reserve
estimate”. However, based upon the available historical information and Bain’s own results, Bain is of
the opinion that under current definitions of mineral resources and reserves under NI 43 - 101 and the
CIM Standards, the Morgain estimates would correlate to the inferred resource category.
There are no more recent estimates or more recent data than the Morgain information other than the
sampling data obtained by Bain. A qualified person has not done sufficient work to classify the historical
estimates as a current mineral resource. The historical estimate is not being treated as a current estimate
and the historical estimates should not be relied upon as a current estimate.
4. Regional, District and Property Geology
Regional
Jurassic and Cretaceous rocks in the Magdalena de Kino-Cucurpe region record the transition from a
shallow level magmatic arc to a northwest trending marine embayment (Nourse, 1995). The stratigraphy
is subdivided into (1) Lower or Middle Jurassic Rhyolite Porphyry and quartz arenite/conglomerate, (2)
Upper Jurassic-Lower Cretaceous Glance Conglomerate, with minor sandstone-siltstone, (3) Lower
Cretaceous basinal marine clastic and carbonate sediments of the Bisbee Group, and (4) Lower-Middle
Tertiary shallow marine siliclastic deposits corresponding to the Baucarit Formation. The lower three
series were weakly metamorphosed by compression during the Laramide Orogeny and/or by mid-Tertiary
volcanism, mylonitization and detachment faulting. Felsic intrusions reported from Upper
Cretaceous/Lower Tertiary may be remnants of a metamorphic core complex.
The area around the Cerro Prieto Property is underlain by Lower to Middle Tertiary age shallow
marine/shoreline/deltaic deposits of conglomerate and quartz arenite. These have been capped by Lower
to Middle Tertiary volcanic flows of andesite/basalt composition, and by rhyolite-dacite ash flow tuffs.
These resistant volcanic “caps” produce the rugged topography and sharp changes in elevation.
15
Stratigraphy
The local area including the Cerro Prieto Property consists of terrigenous shallow marine to deltaic clastic
sediments, equivalent to the Baucarit Formation (Nourse, 1995). Generally this formation is composed of
polymictic conglomerate partly consolidated and cemented in a medium grained matrix. It is possible to
observe these rocks on the north side of the Cerro Prieto Property, in discordant contact with the both the
Cretaceous sediments and the intrusions of the area, but otherwise they are rare in the area. Within the
Cerro Prieto Property these Tertiary sediments consist of thinly bedded fine to medium grained arenites.
These have a general strike of 055° and a general dip of 30° to 45° to the northwest. They are weakly
metamorphosed and highly silicified.
Intrusions of tonalite are also present in the area, although not seen within the mine. They range from red
to grey, and indicate alteration due to hydrothermal activity. Total kaolinization of feldspar phenocrysts
indicates that the alteration was intense. These intrusions are considered to be of Middle or Upper
Cretaceous age and are equivalent to a granite/granodiorite batholith found east of the property.
Within the Cerro Prieto Property, Tertiary volcanic rocks are represented by rhyolite flows. These are
well represented to the west of the Cerro Prieto Property. They lie disconformably as a cap above
Cretaceous sediments. In places extensive rhyolite/dacite tuff beds have been deposited.
Dyke rocks consisting of andesite porphyry are found in the central part of the Cerro Prieto Property.
This is reported by Smith but to Bain’s knowledge there is no detailed surface map of the Cerro Prieto
Property that shows the exact position of these intrusive rocks. Smith reports these shallow
intrusions/dykes to be found about 700 Level and cutting the Lower Cretaceous Bisbee Group sediments.
Structure
The principal structure in the Cerro Prieto Property is a zone of shearing with a strike of 345° and an
average dip of 70° - 80° to the northeast. It cuts all units in the area, from Jurassic to Tertiary in age. This
shear zone is 15 to 22 metres wide in the vicinity of the mine, is a regional structure, and can be traced for
approximately 10 kilometres both north and south of the mine. At the mine site this structure strikes 350°
and dips vertical to 80° to the northeast. The system is generally continuous but is offset over a few
metres by several small crosscutting fractures. In the vicinity of the mine strong siliceous dykes
(metamorphosed rhyolite dykes?) act as boundaries to the shear zone. Similar dykes are found in the area
around the mine, which may be indicators to the locations of other shear zones in the vicinity. Quartz
veins and minor calcite veins are present within the shear zone.
Deposit Type
The initial investigation of the Cerro Prieto Property led Bain to consider that the Cerro Prieto Property
mineralization is a mesothermal (moderate depth) vein system. This type of deposit lies generally
between near surface high grade epithermal gold-silver type deposits and the deeper base metal vein to
upper parts of a copper-molybdenum porphyry system. At the Cerro Prieto Property, there is relatively
low grade gold (0.5 to 5 g/t) values, silver contents from 30 to 200 g/t and a silver:gold ratio of between
4:1 and 20:1. Lead and zinc contents vary from 2% to 8% in both elements. Much of the silver in the
system is attached to the surface of or encapsulated by the lead sulphide (galena). The presence of
molybdenum in this system is unusual, though not unheard of. It may be an indication that the intrusion
found at depth could be the source of the molybdenum, silver, lead zinc gold and arsenic mineralization,
which may have been remobilized along the regional shear zone in the waning stages of the Laramide
Orogeny.
16
Results of Bain’s December 2006-January 2007 sampling suggest that there may be more than one
mineralizing system in place. Detailed sampling by Bain has shown numerous results with 1 to 3 g/t gold
values (where much of the vein material was unavailable for sampling), and a significant number of assay
results ranging from 3 to 43 g/t gold. These relatively high grade results, from surface down to 1050
Level (1050 feet or 320 m) suggest that an epithermal near-surface gold-mineralized system may also be
present. A mesothermal system does not usually contain moderate to high grade gold values continuously
over this depth range (minimum 300 metres), whereas an epithermal system does. The age of that
probable epithermal system is suggested to be younger than the mesothermal system. This particular
mesothermal system lies at the current paleosurface. Normally a mesothermal lies three to five kilometres
below the surface, with an epithermal system above it, from paleosurface down to three kilometres. The
presence of both apparent systems occupying the same current elevations suggests that the top of the older
system has been eroded prior to the invasion of the current strong deep epithermal system. Additional
work is required to confirm this hypothesis.
5. Exploration
On August 29th and 30th, 2006, Bain, Al Beaton and a representative of the Company made a site visit to
the Cerro Prieto Property. A surface inspection was made from the 1050 Level (accessed from the 900
Adit) uphill to the 600 Level Adit, via an overgrown switchback road located on the south side of Cerro
Prieto. The switchback is assumed to have been built at the time of the mining operations in the early
1900s, and has been used by various mining and exploration companies to the present. The party
observed that from a short way inside the 800 Level Adit, the tunnel was partially blocked by at least one,
and possibly more than one, roof collapse. Bain, with advice from Beaton, felt that it was unsafe to
proceed further along the 800 Level. Despite this caution there was a strong flow of air suggesting this
level was still open to surface 200 to 300 m above by a series of raises, stopes and open cuts. A sample
was taken of collapsed roof material seen in the floor of the 800 Level just north of the adit. The sample
contained wulfenite (Pb-Mo-Ag) mineralization.
The party, supervised by Bain, proceeded to sample the ramp extending from the 900 Level adit
downslope to the workings in and around the 1000 Level and farther down-ramp to the 1050 Level. This
ramp was selected as it was relatively clear, and represented a section between 800 Level and 1000 Level
that had not been extensively mined in the past. As well, this was the only available access to those levels
since the shaft was unusable. Samples were taken every 50 m, starting 50 m inside the 900 Level adit.
Sampling was done across the recognized vein although the walls of the ramp and working areas had not
been washed for several years. Vein widths were measured at each sample site, but measurements may
not be exact. At that time, no sampling of wallrock which may have contained mineralization was done
because of the unwashed nature of the wallrock and vein.
A select sample of vein material was also taken from a trench/cut on a vein extending south from the
south side of the arroyo, south of the mine. It is assumed that this vein is a continuation of the West Vein.
The three-person party also made use of the local road in the arroyo to look at the east side of Cerro
Prieto. A large area of bright red iron oxide material on a cliff face east of the main Cerro Prieto
workings was observed. It resembled the alteration seen around the large open cut at the topographic top
of the main vein. As the ownership status was unclear at the time, no examination or sampling of this
material was carried out. A summary of assay results is reported in Table 5 below.
Table 5 - Assay Results, August 2006 Sampling Program
Sample
Site
483001
483002
Wulfenite, select from 900 Ramp
Wulfenite, select from 900 Ramp at
1000 Level, East Vein
Width
m
Dip
Au
g/t
4.37
0.224
Ag
g/t
38
192
Pb
%
0.64
1.29
Zn
%
1.66
1.51
Mo
ppm
33
451
17
483003
483004
483005
483006
483007
483008
483009
483010
483011
483012
483013
483014
483015
483016
483017
483018
483019
483020
Trench sample S of arroyo
50 m down ramp from 900 Adit
100 m down ramp
150 m down ramp
200 m down ramp
250 m down ramp
300 m down ramp
350 m down ramp
n/a
400 m down ramp
1000 Level East Vein, select sample
1000 Level, muck, ore
West Vein at 1000 Level x-cut
West Vein at 1000 Level, 40 m N of xcut
West Vein at 1000 Level, 20 m S of shaft
70 m S of x-cut, on West drift, muck
from remuck station
100 m S of x-cut, on West drift, 30 m S
of shaft
Select sample gal-mo-spec x-cut between
West Vein and East Vein
2.0
3.75
2.20
2.00
3.35
2.30
68E
67E
74E
75E
64E
58E
2.70
70E
1.75
2.20
3.07
75E
3.05
16.2
80E
0.91
0.596
0.117
0.131
0.221
0.058
0.063
3.64
n/a
0.197
0.06
0.477
0.348
0.167
36.6
10.5
8.3
47.3
5.9
2.5
4.5
14.7
n/a
701
5.1
157
7.5
239
0.18
0.38
0.14
0.54
0.26
0.11
0.19
0.32
n/a
4.98
0.19
1.99
0.44
5.5
0.55
1.61
0.48
0.57
0.57
0.37
0.91
0.89
n/a
4.79
0.96
5.87
1.7
2.07
3
9
1
18
<1
1
<1
25
n/a
894
13
1610
10
3240
0.182
0.387
305
401
8.6
4.34
3.97
3.56
5820
6050
0.229
440
5.05
3.47
1840
0.558
71.1
0.34
1.54
111
Based on review of the historical data, examination of the Cerro Prieto Property and the August assay
results, Bain concluded that there was potential for additional mineralization of grades similar to those
already reported by Manning, Pye and Smith. Maximum values from Bain’s initial samples were 4.37g/t
Au 701 g/t Ag, 8.6% Pb 5.87% Zn and 6050 ppm (0.605%) Mo.
Based on the data collected from this initial visit, Bain recommended that a more detailed exploration
program be carried out on the Cerro Prieto property to explore for mineralization from the surface (0
Level) to below the 1050 Level, similar in grade to that already mined in the early 20th century. It was
proposed that the entire 800 Level and 1000 Level be cleaned out, re-surveyed, and mapped in detail.
Sampling of the mineralized zone, including both veins, as well as wallrock between and outside of the
major veins would be carried out at three metre horizontal intervals (where accessible) along both of the
levels which would allow production of detailed plans and a longitudinal section of mineralization, and
would allow a preliminary estimate of the grade and tonnage of the presently available mineralization. It
would also give some indication of the amount of material previously removed by mining activities, and
the potential for mineralization to continue at depth and along strike to the north of the current workings.
On December 30 and 31, 2006, Bain, a representative from the Company and Sr. German Gonzalez,
Cerro Prieto Property manager for and liaison for the cleanup and sampling program carried out by local
workers at Cerro Prieto prepared for a major sampling program on the property.
On January 1, 2007, a site visit was made to the Cerro Prieto Property to inspect the cleanup work carried
out by local workers on 800 Level during mid-December. Muck piles blocking access to the 800 Level
had been removed, but a lack of easily accessible water prevented the walls of these workings from being
properly cleaned to make major and minor veins more visible. This visual inspection confirmed the
presence of zincite (ZnO), franklinite ((Fe,Zn,Mn)(Fe,Mn2O4), willemite (Zn2SiO4) and hemimorphite
(Zn4Si2O7(OH)2.H2O), with lesser amounts (note the lower values in lead compared to zinc) of wulfenite
(PbMoO4), mimetite (Pb5(AsO4)3Cl), galena (PbS) and sphalerite (ZnS) mineralization present in those
major and minor veins and stringers.
18
From January 2 to 6, 2007, the workers hired to do cleanup were re-hired and carried out underground
sampling of the 800 Level, 900 Ramp and 1000 Level workings, and farther down-ramp to the 1050
Level. They were supervised by Sr. Gonzalez and by Bain. Samples were taken at three metre intervals
along the drifts with the A samples taken west of the vein and the B samples taken east of the vein.
Therefore, sample 1A is west of the vein, sample 1 is the sample of the vein and sample 1B is east of the
vein.
Samples of vein material were also taken from trenches and small underground workings located on the
(probable) East Vein which extends south from the south side of the arroyo, south of the mine. Bain also
examined and took samples from the open cuts seen at the top of the Cerro Prieto Property, and farther
north along strike of the East Vein to the north end of the San Felix concession. North of San Felix the
ownership status was unclear and no further work was done in this direction. The area on strike to the
south of the San Felix was examined by a short road traverse. Although Bain felt that the structure and
mineralization continued in this direction, the structure was only recognized on the ground within the
Elba concession. As the ownership status both north and south of the two concessions that comprise the
Cerro Prieto Property was unclear, no examination or sampling of this material was carried out at the
time.
Several sections of the 800 Level did not give access to the main (East) vein. Instead these sections were
part of a haulage tunnel, with veining and mineralization known to be present in the wallrock in either
side of the tunnel or in (open or closed) raises and stopes above the haulage way. Within these sections
sampling was done to investigate mineralization within the wallrock on one side or the other of a vein that
was known to be present but inaccessible. Detailed sampling resulting in assays ranging as follows; 0.01
to 43 g/t Au, <0.2 to 89.9 g/t Ag, 0.03 to 3.68% Pb, 0.02% to 11.30% Zn, and <1 ppm to 0.1815% Mo.
The review of the 800 Level sampling results, though preliminary in nature, shows the following: The
initial examination of the property in August 2006 suggested to D. Bain that there was not a significant
amount of gold left in the system above the 800 Level, after 100 years of mining and exploration. This
more detailed program has in fact shown that there is indeed a large number of samples containing gold
grading better than 1 g/t, and of these many assay greater than 3 g/t.
The lower grade (1 to 3 g/t) values appear more concentrated towards the adit (south end) of this level.
This is probably due to high grading of the most accessible areas of the mine during the early 1900s.
Generally gold grades increase as one moves farther north (less developed area) in this tunnel. Gold
grades of interest often occur in the same samples which contain high grade values in Pb-Zn. Zinc is
dominant over lead by a ratio of 3:1. Molybdenum values appear relatively low at this level. This may be
due to the source being an intrusive below the mine workings rather than part of a mesothermalepithermal mineralizing system. Ba is elevated and may account for some of the weight noted in hand
samples of wulfenite. Cu values are elevated but not significant to the value of the ore. They may be
associated with Mo entering the system from below, where temperatures would be higher but availability
of volatiles for moving that metal would be not as available as that found closer to a paleosurface in a
mesothermal-epithermal system. Low S (sulphur) content marked all samples a the 800 level. It is
unclear at this point whether all of the Pb-Zn-Ag-Mo mineralization was originally a sulphide that has
subsequently been oxidized or whether that mineralization was originally an oxide. In either case the low
sulphur content of samples taken by Bain should greatly reduce the cost (penalty) and the amount for
removing sulphur during any smelting process of a set of Pb-Zn-Mo concentrates.
Sampling of the 900 Ramp extended from the adit downslope past a crosscut access to a parallel vein
(West Vein) and beyond to approximately the 1050 Level. Detailed sampling resulted in assays ranging
from <0.10 to 5.9 g/t Au, 0.10 to 778 g/t Ag, ,<0.10 to 2.18% Pb, and <0.10 to 8.57% Zn. Although not
recognized during the initial visit, Bain realized that the December 2006-January 2007 sampling program
would not follow the East Vein for much of the way down the ramp, as this tunnel was only created by
19
crystal miners (Swoboda, 1994; Moore, 2004) to gain access to specimen-quality crystals of wulfenite and
mimetite at the 1000 and 1050 levels without due regard for the base and precious metal potential for
industrial use. Therefore, many sample sites did not actually contain the West Vein, and therefore the
overall view of assay values would be lower.
The following observations and conclusions were made with respect to the results of the sampling of the
900 Level ramp. Low grade (1 to 2g/t) gold is present near the adit (samples 506A to 511B). It is Bain’s
opinion, though this cannot be proven at this time except by referring to data from the level above (800
Level) and below (1000 and 1050 levels), that there is additional gold mineralization at the elevations cut
by the ramp. If present it would be contained in the main Cerro Prieto structure (including East Vein and
any subsidiary veins such as those seen above and below). Unfortunately much of this structure was not
sampled as it lay well within the wallrock on either side of the ramp workings, giving a (probably) false
impression of lack of mineralization of any importance. Some good silver grades are present. These are,
as usual, tied to lead and zinc values. A zone of lead values greater than 4000 ppm (0.4%) is found in the
same general area as the elevated gold, from samples 501 to 520. Although lower in grade, ranging from
1000 to 4000 ppm (0.1 to - 47 -0.4%), again many of these samples are only of wallrock material.
Additional zones of better lead grades are found at samples 536 to 543 and 544 to 562A. Zinc appears
fairly continuous through most of the ramp, with many assays greater than 1% and many assays of
moderate grade present in the wallrock (A and B samples). This is probably a reflection of the greater
mobility of zinc compared to gold, silver or lead. Again Bain cannot prove at this time that there is better
silver, lead and zinc mineralization within the main Cerro Prieto structure at these elevations. However,
based on better grades where there is more continuous sampling of obvious vein material, both above
(800 Level) and below the ramp (1000 and 1050 levels), as well as (apparently) farther to the north (e.g.
800 Level), he is relatively confident that the Cerro Prieto structure, within the area of the 900 Ramp,
contains better silver, lead and zinc mineralization than is suggested by the current phase of sample
results. Zinc is dominant over lead by a ratio of 1:1 to 5:1. Molybdenum values appear relatively low at
this level.
Samples 701 to 707 represent samples taken in the crosscut at 1000 Level, between the 900 Ramp where
it intersects the East Vein. Detailed sampling resulted in assays ranging from <0.10 to 23 g/t Au, ,0.10 to
213 g/t Ag, <0.10 to 4.4% Pb, and 0.21 to 6.3% Zn. These samples were taken every three metres along
this crosscut from the East Vein for approximately 21 m west to the drift which exposes the West Vein at
the 1000 Level. These samples cover stringer and narrow vein mineralization located between the East
Vein and West Vein, similar to that seen on the 800 Level. Lead, zinc and silver mineralization is mainly
found within the East Vein (4.41% Pb, 2.47% Zn, 213 g/t Ag) although as above the zinc mineralization
is continuous for most of this section. Low grade gold is present at one site.
Table 6 - Assay Results
Surface and Select Underground Samples
January 2007 Sampling Program
SAMPLE
Au
Ag
Cu
Mo
Pb
#
g/t
g/t
ppm
ppm
%
Zn
%
483057
0.12
12.3
27
2
1.3
0.87
483058
16.35
18.2
511
301
1.3
4.94
483059
1.17
16.5
61
<1
0.15
0.22
483060
0.06
5.4
90
<1
0.47
0.57
483061
0.4
1055
508
1650
>30.0
0.65
483062
0.11
49.6
23
174
1.3
1.58
483063
0.5
45.2
83
6
1.2
2.8
483064
0.18
127
152
12
0.91
0.39
20
483065
1.16
13.8
217
3
0.13
0.41
483066
0.14
27.9
63
<1
0.08
0.38
483057
Sample of East Vein material, adit entrance, W wall;
3 m to W of GPS pt 007
483058
Sample of narrow veins (20-40 cm wide), 800 Level just E of shaft, 4 to 7 m W of East Vein; may be still E of WestVein
483059
On top of Cerro Prieto, sample of ore, from western-most exposed vein, striking 005° ; GPS pt 009
483060
Cut in S side of access road to N side of Cerro Prieto; small adit, sample of ore; at GPS pt 010
483061
From bottom of 900 Ramp, approx. 70 m past sample 641
483062
Further N, cut and deep workings; “Francisco” cairn present; GPS pt 011
483063
Sample of vein, est. 1.5 m wide, surface sample S of arroyo, at GPS pt 012,
Elba claim
483064
Sample of vein, est. 1.5 m wide, surface sample S of arroyo, at GPS pt 013,
Elba claim
483065
Sample of vein S of arroyo, 2.6 m wide, dips 78 E, at GPS pt 015
483066
S end of trench S of arroyo, on Wedge of trench; at GPS pt 018; another red oxide zone approx. 30 further S
The three underground samples (483057-58, 483061) report high values in lead, zinc and silver and are
select samples of mineralization in or in close proximity to the East Vein. Highest values are 1055 g/t Ag
and >30% Pb from #483061. High sulphur and arsenic indicate some sulphide mineralization, although at
this point there is little present in the main underground workings. The samples cover an elevation of 80
metres (250 feet --800 Level to 1050 Level). Lead and zinc values are moderate to high in most of the
samples. Sample 483058 contains high gold, assaying 16.3 g/t Au. This sample includes a series of
stringers and secondary veins found in the wall of the shaft at 800 Level, again confirming the presence of
gold at that elevation, and at the north end of the workings explored to date.
6. Mineralization
Historical information (Manning, 1969; Pye, 1972; Smith, 1986) reported that the mineralized veins are
confined to the hangingwall and footwall boundaries of the shear zone. Investigation by Bain in August
and January confirmed this but has also shown that there are two major veins. The main East Vein,
averaging 1.7 metres in width, lies on or close to the east wall of the shear zone. The narrower West
Vein, which averages 1.0 metres in width, lies against the west wall of the shear zone. In addition to
these two major veins the shear zone usually carries one or more subsidiary zones of mineralization, both
as disseminations in the wallrock and in narrow (1 to 40 centimetres wide) veins and stringers, between
the two major veins. These are not as persistent as the main vein. They are en echelon and parallel the
major veins. These subsidiary mineralized zones were seen by Bain at the 600 Level and 800 Level adits
west of the main workings (access to East Vein), and probably represent surface exposure of these
subsidiary veins. To date these have not been examined at surface to test for mineralization. There is
also evidence from the December-January sampling program that at the 800 Level haulage drift there is
some mineralization in the wallrock directly east of the shaft.
On the 1000 Level the West Vein has been reported (Manning, 1969; Pye, 1972; Smith, 1986) to have a
width of three to six metres. Some old stopes referred to in these same reports suggest mineralized zones
had a width of up to 10 metres. Although Bain has not recognized these widths in a single vein at the
1000 Level, examination of the area and a review of the topographic underground survey has suggested
that at the shaft at 1000 Level the two major veins are present and closer together than at 800 Level. As
well the strike of both the West and East veins lie at right angles to the main part of the drift, although
still maintaining an approximate northerly strike. This would account for the widths referred to in
21
historical reports but not seen by Bain. The combination of the East and West veins, plus subsidiary
mineralization in the wallrock between and on either side of these major veins suggests that, as reported
by Manning and Pye, in places a continuous mineralized zone 20 to 30 metres wide is present at 1000
Level and may continue to above 800 Level, possibly to surface. It has been confirmed by Bain that the
East Vein continues from at least 1050 Level to surface. On the 1000 Level this vein has been traced for
at least 80m along strike. At the south end (area of the shaft) the vein remains strong and persistent. To
the north along the 1000 Level tunnel and 80m beyond the crosscut recognized West Vein mineralization
has been reported. It represents an extension to the north of the West Vein. Bain investigated this area in
August 2006 but was unable to advance or properly sample this extension due to blockage and poor air
circulation. However, in Bain’s opinion it appears to remain strong and well mineralized.
7. Drilling
No surface or underground drilling has been carried out during the Cerro Prieto Property exploration
program.
8. Sampling and Analysis
On August 30, 2006, Bain proceeded down the ramp from the 900 Level Adit, taking a sample of vein
material across the exposed face of the vein at 50 metre intervals. Distances were measured using a 50
metre tape measure, and measured from sample point to sample point. Other than the use of the tape
measure, the points were not surveyed in. An occasional select sample of apparent lead-silvermolybdenum mineralization was taken where small cavities of crystals was exposed. The only intent of
these assay results was to confirm assay values presented by other groups because the exact positioning of
each sample was not known and because of the wide distances between the samples.
In January 2007, Bain sampled the 800 Level, and the 900 Ramp down to 1050 Level. At each site,
where possible, a sample was taken of the major vein present (e.g. #107), and a sample was taken of the
wallrock on either side of the vein. An effort was made by Bain to maintain samples from the west side
of the main vein in each drift with a number designated with an “A” (e.g. #107A) while the sampling on
the east side of the main vein in each had a number designated with a “B” (e.g. #107B). The width of the
vein (as well as could be seen) at each of these sample points was measured and recorded. Sample sites
(across the tunnel) were taken every 3 metres. As the tunnels were often used as haulage ways they did
not always follow the vein, and there were several sections where the vein was in the wall either east or
west of those haulage ways, or where a section had been timbered or stoped. This accounts for the
presence or absence of sections of sample numbers in the assay certificates and in Tables 6a-d. Vein
widths were measured at numerous (though not all) sample sites. A total of 609 samples were taken for
this detailed sampling program.
Samples from surface and underground collected by Bain were bagged on site, sealed and delivered by
Bain to a globally recognized ISO cerified laboratory (ALS-Chemex Labs) in Hermosillo for assaying.
All samples were of rock and weighed an average of one to two kilograms. As this was a preliminary
examination of the Cerro Prieto Property, no blanks and standards were submitted by Bain with these
samples.
9. Security of Samples
Both sets of samples (August 2006 and Jan 2007) were bagged and sealed on the Cerro Prieto property by
Bain. They were personally transported by Bain to the ALS-Chemex lab in Hermosillo, Mexico for
sample preparation and analysis. For the 35 element analyses Induced Coupled Plasma Mass
Spectrometry (ICP-MS) was used. Gold and silver contents were determined by Fire Assay-Atomic
22
Absorption method from 30 gram pulps. Pulps and rejects are stored by the lab for a minimum of 90
days.
Samples were dried at 110-120°C and then crushed with either an oscillating jaw crusher or a roll crusher.
The lab Quality Control (QC) specification for crushed material is that >70% of the sample must pass a
2mm (10 mesh) screen. The entire sample is crushed, but typically 250g to 1 kg, is subdivided from the
main sample by use of a riffle splitter. If splitting is required, a substantial part of the sample (the "reject"
or “spare”) remains. A whole or split portion derived from the crushing process is pulverized using a ring
mill. QC specification for final pulverizing is that >85% of the sample be less than 75 microns. In
plasma mass spectroscopy, the inductively coupled argon plasma (ICP) is used as an excitation source for
the elements of interest. The plasma in ICP-MS is used to generate ions that are then introduced to the
mass spectrometer. These ions are then separated and collected according to their mass to charge ratios.
The constituents of an unknown sample can then be identified and measured. ICP-MS offers extremely
high sensitivity to a wide range of elements. It is a multielement analytical technique capable of
determining an extremely wide range of elements to very low detection limits (typically sub ppb).
Detection limits for this method are shown below. Values are in ppm or percent.
Ag
Al*
As
B*
Ba*
Be*
Bi
Ca*
Cd
(0.2 - 100)
(0.01% - 15%)
(2 - 10,000)
(10 - 10,000)
(10 - 10,000)
(0.5 - 100)
(2 - 10,000)
(0.01% - 15%)
(0.5 – 500)
Co
Cr*
Cu
Fe
Ga*
Hg
K*
La*
Mg*
(1 - 10,000)
(1 - 10,000)
(1 - 10,000)
(0.01% - 15%)
(10 - 10,000)
(1 - 10,000)
(0.01% - 10%)
(10 - 10,000)
(0.01% - 15%)
Mn
Mo
Na*
Ni
P
Pb
S
Sb
Sc*
(5 - 10,000)
(1 - 10,000)
(0.01% - 10%)
(1 - 10,000)
(10 - 10,000)
(2 - 10,000)
(0.01% - 10%)
(2 - 10,000)
(1 - 10,000)
Sr*
Ti*
Tl*
U
V
W*
Zn
(1 - 10,000)
(0.01% - 10%)
(10 - 10,000)
(10 - 10,000)
(1 - 10,000)
(10 - 10,000)
(2 - 10,000)
As ICP-MS does not give a sufficiently low detection limit for gold, the Fire Assay method was used for
this element. This consists of the melting (fusion and cupellation) of the pulp of a sample of interest. The
precious metal bead that remains following cupellation is an alloy of silver and gold. When an atomic
absorption spectroscopy finish is selected, the upper reporting limit is set at 10 g/t (0.3 oz/ton) and
samples higher than this must be re-analyzed using additional silver in the firing process and a larger
dilution factor.
Alternatively, gravimetric finish can be used for those samples reporting greater than 10 g/tonne gold.
Standard Fire Assay methods are used to produce a gold-silver bead. Gravimetric methods involve the
use of balances to weigh the element of interest, either in its pure elemental form or as a chemical
compound. Weighing this bead will give the total weight of silver and gold. If the bead is then treated
with dilute nitric acid, it is possible to remove the silver quantitatively. The residual mass consists of
pure gold which can then be weighed separately, thus allowing the silver to be determined by the
difference. The balances used for this purpose are microbalances capable of weighing to the nearest
microgram (one millionth of a gram). The fire assay procedure is universally accepted as the definitive
method for the analysis of gold.
No blanks or samples with known values were added to the total samples delivered to the lab. No check
samples were submitted to other labs for confirmation of values because of the preliminary nature of the
exploration program. The lab maintains sample sequence logs for any sample preparation activities.
These logs detail which samples have been prepared in what order and are very helpful for investigative
purposes.
Assay certificates received in September 2006 (for the August sampling) arrived by e-mail from ALSChemex to Bain who was to pay for those analyses and include that invoice into his own invoice. The
23
December 2006-January 2007 sampling was more expensive, and payment was made by the Company.
Therefore, both Bain and a representative of the Company, received a copy of the results by e-mail. A
hard copy of all results arrived in the mail to Bain only.
Data Verification
As exact positions of most samples taken by earlier workers on the Cerro Prieto Property are unknown,
and as this was a preliminary assessment of the Cerro Prieto Property, data verification between historical
data and Bain’s current sampling programs is only on a very general basis.
Mineral Resource and Mineral Reserve Estimates
No current mineral resource or mineral reserve estimates have been prepared for the Cerro Prieto project.
10. Exploration and Development
Phase 1
It is recommended that a Phase 1 exploration program be carried out on the Cerro Prieto Property to
explore for Pb-Zn-Ag-Au-Mo mineralization, similar in grade to that mined in the early 20th century, and
reported by various exploration programs since that time. That Phase 1 will consist of mapping,
trenching and geophysics along strike from the area of previous work and within the area of previous
work and drilling and initial metallurgy within the area of previous work. Drilling will include
confirmation drilling as well as testing below the 1050 level.
1. Surface and underground mapping and sampling on Cerro Prieto Property and surrounding area;
2. Trenching across known or suspected vein systems at 200 metre separation, which would include
sampling and mapping;
3. Ground geophysical surveys to assist in outlining mineralization and alteration. This would
include a magnetic survey to outline major structures. A test area of induced polarization (IP)
electromagnetics may assist in outlining disseminated mineralization, bearing in mind that most
of the lead and zinc mineralization is an oxide facies;
4. An effort be made to acquire concessions both to the north and to the south of the current Cerro
Prieto concessions;
5. A surface diamond drilling program be initiated to confirm results of the Morgain drilling and to
test below the 1050 Level under known workings. This would be an estimated 15 holes
averaging 400m in length for a total of 6000m, with 2 holes per site at approximately -45° and 60°;
6. Initial small scale (bench) metallurgical testing of the typical types of ore be done to confirm
grades and percentage recovery.
The cost of the Phase 1 program is estimated to be $1,023,500.00CAD and a proposed budget is
presented in Table 7.
24
Table 7. Proposed Phase 1 Exploration Budget
Mapping
Geologist, 30 days X $400 per day
Helper, 30 days X $100 per day
Room and Board, 60 mandays X $100 per day
Transport; truck rental, fuel etc.; 30 days at $100 per day
Sub-total
$12,000.00
$3,000.00
$6,000.00
$3,000.00
$24,000.00
Trenching (9 X 200 m spacing in flats N and S)
Labourers, 30 days X 4 X $50 per day
Assaying, sample prep., ICP-MS and Fire Assay analysis,
$30.00CAD per sample for 150 samples
Room and Board, 120 mandays X $100 per day
Transport; truck rental, fuel etc.; 30 days at $100 per day
Sub-total
$12,000.00
$3,000.00
$25,500.00
Geophysics
Test IP Survey
Ground Magnetic Survey
Sub-total
$8,000.00
$5,000.00
$13,000.00
Diamond Drilling
Footage Cost, 6,000 m X $125 per m
Mobilization/Demobilization of Drill and Crew
Assaying, sample prep., ICP-MS and Fire Assay analysis,
$30.00CAD per sample for 500 samples
Geologist, 120 days X $400 per day
Helper/Sampler, 100 days X $50 per day
Room and Board, 200 mandays X $100 per day
Transport; truck rental, fuel etc.; 100 days X $100 per day
Sub-total
$6,000.00
$4,500.00
$750,000.00
$10,000.00
$15,000.00
$48,000.00
$5,000.00
$20,000.00
$10,000.00
$858,000.00
Metallurgy
Testing
Sub-total, all items
Contingencies at 10%
GRAND TOTAL
$10,000.00
$930,500.00
$93,000.00
$1,023,500.00
A Phase 2 program would be contingent on the results of the Phase 1 program and include the following:
1. A mining contractor be hired to slash walls to expose vein and wallrock mineralization, and to
remove ore and waste material stored underground. Some sections will require timbering or other
bracing to prevent the sloughing of material from old stopes and open cuts. These new
exposures, and areas not sampled in January 2007, will be sampled at three metre intervals;
25
2. Once the 800 Level, 900 Ramp and 1000 Level are cleaned out and washed they be mapped in
detail. This will provide valuable information about the vein structure, country rock and
mineralization;
3. Underground drilling should be carried out once underground cleanup is complete. It can be done
from the East Vein and West Vein haulage ways and two crosscuts made by Anaconda in the
1930s and these can also be used. Additional crosscuts can be made where appropriate. This will
require a separate drill from that used for the surface work; and
4. Surface diamond drilling be carried out to explore targets from Phase I work along strike to north
and south and to provide more detail to mineralization below the current workings. This would
be an estimated 20,000 metres of drilling.
The estimated cost of the Phase 2 program is $3,365,000.00 and a proposed budget is presented in Table
8.
Table 8. Proposed Phase 2 Exploration Budget
Diamond Drilling
Footage Cost, 20,000 m X $125 per m
Mobilization/Demobilization of Drill and Crew
Assaying, sample prep., ICP-MS and Fire Assay analysis,
$30.00CAD per sample for 1000 samples
Geologist, 300 days X $400 per day
Helper/Sampler, 300 days X $50 per day
Room and Board, 500 mandays X $100 per day
Transport; truck rental, fuel etc.; 250 days X $100 per day
Sub-total
Slash walls, expose vein/wallrock mineralization, remove ore/waste
stored underground; sampling of new exposures
Detailed underground mapping, 20 days X 2 men
Underground drilling, estimated 1,000 m
$2,500,000.00
$20,000.00
$30,000.00
$120,000.00
$15,000.00
$50,000.00
$25,000.00
$2,760,000.00
$100,000.00
$15,000.00
$150,000.00
On-site accommodations
Sub-total, all items
Contingencies at 10%
$40,000.00
$3,065,000.00
$300,000.00
GRAND TOTAL
$3,365,000.00
Xochipala Property, Guerrero State, Mexico
The company holds a 100% interest in two contiguous mining concessions, Celia Generosa and Celia
Gene, referred to as the Xochipala Property. They have a combined area of 193 hectares. The property is
located in the municipality of Zumpango del Rio in the state of Guerrero, Mexico, 30 kilometres
northwest of Chilpancingo, the regional capital and within the southeast extreme of the original Morelos
National Mining Reserve. The property has access by a paved and gravel road which extends west
approximately 35 km from the city of Chilpancingo, on the Mexico-Acapulco highway, into the area near
the town of Xochipala. The Xochipala Property contains mineralization in well defined structures that
outcrop for over one kilometre and was the site of some of the earliest gold mining in the region from a
26
number of small underground workings. The area hosts a northwest trend of felsic intrusions with
associated gold bearing iron skarn deposits. The Xochipala properties host intrusives of similar age and
composition and several areas of skarn mineralization with significant associated gold assays. Past work,
including exploration and artesianal mining has focused on the high grade showings on the property.
An exploration program at Xochipala will focus on the high grade showings on the property and on the
potential for medium to lower grade deposits amenable to open pit mining. Included in the program will
be a full review of past exploration results, a review and interpretation of government airborne magnetic
surveys of the area, field sampling and characterization of known mineralization and several field
traverses to familiarize the field personnel with the general geology of the property.
It is anticipated that this phase will take about three months and will cost approximately $25,050 to
complete as outlined below.
Office Program
Detailed office review of past results
Magnetic review including reduction of data
$5,000
7,500
Subtotal
$12,500
Field Program
Senior Geologist (10 days @ $500/day)
Assistants (20 man days @ $50/day)
Room and Board (30 man days @ $50/day)
Transportation – Expat flights and accommodation
Transportation – Vehicle and Fuel (10 days @ $150/day)
Assaying (50 samples @ $25/sample)
Field supplies
$5,000
1,000
1,500
2,000
1,500
1,250
500
Subtotal
$12,750
Grand Total
$25,250
At the successful conclusion of this program, a program that may consist of geophysical surveys (induced
polarization and/or magnetics), prospecting, mapping, rock sampling, stream sampling and drilling will
be proposed.
Salvador Property, Guerrero State, Mexico
The Salvador Property is a 100 hectare mining concession 100% owned by Minera Xochipala. The
concession is approximately 30 km. west of the regional centre of Chilpancingo, Guerrero. The property
is contiguous to Goldcorp’s Cacho de Oro property.
The Salvador mining concession has access by a paved and gravel road which extends west
approximately 50 km from the city of Chilpancingo, on the Mexico-Acapulco highway, into the area near
the town of Chichihualco. Regional geology consists of limestones and marbles. These have been
intruded by a poorly exposed pluton of granitic composition which has produced low-angle folding as
well as a skarn (altered carbonate minerals) at the contact between these rock types. This skarn contains
magnetite (iron oxide) and chalcopyrite (copper-iron sulphide). Commonly this type of mineralization
also contains gold, although this has yet to be confirmed at the Salvador concession. Initial exploration
on this property will include full review of any past exploration results, a review and interpretation of
government airborne magnetic surveys of the area, field sampling and characterization of known
27
mineralization and several field traverses to familiarize the field personnel with the general geology of the
property.
Cerro Prieto North Property, Sonora State, Mexico
The Cerro Prieto North Property is a mining concession registered to German Alberto Gonzalez Canas in
trust for the Company. The Cerro Prieto North property is a 2,508 hectare property located in the
Cucurpe Municipality of Sonora State, Mexico, the southern boundary of which is located less than two
kilometers north of the Cerro Prieto northern property boundary. It is accessed by way of approximately
50 km of paved and dirt roads from the town of Magdalena, 35 km northwest. Regional geological maps
completed by the Mexican geological survey indicate that the structure that hosts the Cerro Prieto Mine
continues to the northwest and strikes through the Cerro Prieto North Property. The property hosts at
least one historical mine.
An initial program on the property will attempt to confirm that the structure is present and samples will be
taken across the structure if exposed. Part of the program will include a study and interpretation of
government airborne magnetic maps. Following this, a short field program, including mapping and
sampling, will be completed in order to develop a plan for continued exploration. The budget for the
initial program is as follows:
Office Program
Detailed office review of past results
Magnetic review including reduction of data
$2,500
7,500
Subtotal
$10,000
Field Program
Senior Geologist (10 days @ $500/day)
Assistants (20 man days @ $50/day)
Room and Board (30 man days @ $50/day)
Transportation – Expat flights and accommodation
Transportation – Vehicle and Fuel (10 days @ $150/day)
Assaying (50 samples @ $25/sample)
Field supplies
$5,000
1,000
1,500
1,500
1,500
1,250
500
Subtotal
$12,250
Grand Total
$22,250
At the successful conclusion of this program, a program consisting of induced polarization surveys,
ground magnetic surveys, mapping, sampling and drilling will be proposed.
Exploration Permits
A mining concession grants the holder the right to conduct works of exploration and exploitation on the
mining lot, subject to surface right access. Other than environmental notices required as set out below, no
additional permits are required by the Company in order for it to conduct the Phase 1 and Phase 2
exploration programs set out herein.
28
Environmental Regulation
Before the Company can conduct invasive exploration programs involving drilling or road building it
must file a “Informe Previntivo” with the Procurauria Federal de Procteccion al Ambiente (the “Federal
Bureau of Environmental Protection”) within 30 days of commencing the program.
The cost of complying with such environmental laws during the exploration stage are included in the
exploration budget. Until such time as the Company conducts larger more invasive procedures, such as
trenching or bulk sampling, there is only nominal cost associated with compliance with the environmental
laws and regulations. The Company’s exploration programs are not sufficiently advanced to allow an
estimate of future cost of such environmental compliance.
USE OF PROCEEDS
Funds Available
The Company will receive aggregate gross proceeds of $4,400,000 from the Offering. These funds will
be combined with the Company’s working capital deficiency of approximately $1,461,441 less the
balance of the purchase price of the Cerro Prieto Property of $1,495,455 for a net difference of $34,014 as
at January 31, 2007 for a total of $4,434,014 in available funds upon completion of the Offering.
Principal Purposes
The principal purposes for which the funds available to the Company upon completion of the Offering
will be used are as follows:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Notes:
(1)
(2)
To pay balance of purchase price for acquisition of Cerro Prieto Property
To pay for the Phase I exploration program on the Cerro Prieto Property
To provide general working capital to fund ongoing operations
To provide funding sufficient to meet administrative costs for 12 months
Agent’s fees, commissions and expenses
To pay for the preliminary exploration expenses on the Cerro Prieto North,
Xochipala and Salvador Properties
To pay all legal and audit costs
To pay the balance of the estimated remaining costs of the Offering
Property Maintenance
Total:
$1,495,455(1)
$1,023,500(2)
$884,735
$505,824
$400,000
$47,500
$43,000
$20,000
$14,000
$4,434,014
USD$1,500,000 using an exchange rate of 0.99697 USD per Canadian dollar.
See section titled “Exploration and Development” for a summary of the work to be undertaken.
The proceeds of the Offering will not be sufficient for the completion of the Phase 2 exploration program.
It will, therefore, be necessary for the Company to carry out additional equity financing to raise funds for
the Phase 2 exploration program. The Company may not be successful in raising such equity financing.
Please see “Risk Factors”.
The Company has no current plans to use the proceeds of this Offering to fund exploration work on its
secondary properties (the Cerro Prieto North Property and the Salvador Property) other than as set out
above. Further exploration on these properties, if undertaken, may be funded from the proceeds of
additional equity financings, through the grant of options on the properties to other mineral exploration
companies or from available working capital. There is no guarantee that the Company will undertake
further exploration work on its secondary properties or that it will be able to obtain sufficient funds,
through equity financings or otherwise, to carry out exploration work on its secondary properties.
29
Upon completion of the Offering, the Company’s working capital available to fund ongoing operations
will be sufficient to meet its administrative costs and exploration expenditures for twelve months.
Administrative expenditures for the following twelve months are comprised of the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Administrative Costs for 12 Months
Administrative & Office Costs
Accounting & Audit Costs
Legal Fees
Management Fees
Corporate & Shareholder Communication
Travel
Contingency
TOTAL:
($)
$116,840
$34,600
$18,000
$168,000
$90,000
$32,400
$45,984
$505,824
The Company intends to spend the funds available to it as stated in this Prospectus. There may be
circumstances however, where, for sound business reasons, a reallocation of funds may be necessary.
SELECTED FINANCIAL INFORMATION AND MANAGEMENT
DISCUSSION AND ANALYSIS
Summary of Financial Information
The following table sets forth summary financial information for the Company from the Company’s
audited financial information for the period from incorporation (July 7, 2006) to May 31, 2007 and from
the unaudited financial statements for the six month period ended November 30, 2007. This summary
financial information should only be read in conjunction with the Company’s financial statements,
including the notes thereto, included elsewhere in this Prospectus.
Revenues
Interest Income
Administrative Expenses
Loss for the period
Deficit (end of period)
Loss per share (basic and diluted)
Current Assets
Unproven Mineral Interests
Equipment
Total Assets
Liabilities
Long Term Debt
Shareholders Equity
Cash Dividends per Share
Six Month Period
Ended November
30, 2007
(unaudited)
Nil
Nil
$229,558
($100,744)
($303,789)
($0.006)
Period From
Incorporation to
May 31, 2007
(audited)
Nil
$2,014
$204,315
($203,045)
($203,045)
($0.02)
$205,091
$3,415,298
$13,742
$3,745,783
$1,674,322
Nil
$2,071,461
Nil
$18,035
$3,398,498
$14,460
$3,430,993
$2,165,288
Nil
$1,265,705
Nil
30
Quarterly Information
Prior to the date of this Prospectus the Company was not a reporting issuer. Accordingly, the Company
was not required to and did not prepare quarterly financial statements for any period since incorporation.
Dividends
The Company has neither declared nor paid any dividends on its Common Shares to date. The Company
intends to retain its earnings to finance growth and expand its operations and does not anticipate paying
any dividends on its Common Shares in the foreseeable future.
Management’s Discussion & Analysis
This management’s discussion and analysis (“MD&A”) should be read in conjunction with the
Company’s audited consolidated financial statements and the related notes contained therein from the
period of inception on July 7, 2006 to May 31, 2007 and unaudited consolidated financial statements and
the related notes contained therein for the six month period ended November 30, 2007. The Company
reports its financial statements in accordance with Canadian generally accepted accounting principles
(“GAAP”). The effective date of this MD&A is December 31, 2007.
Results of Operations from Inception on July 7, 2006 to May 31, 2007
The Company recorded a loss of $203,045 or $0.02 per share for the period ended May 31, 2007. The
Company has no income producing assets and has not reported any revenue from operations from the date
of inception on July 7, 2006 to May 31, 2007. The Company is considered to be in the exploration stage.
Administrative expenses were some $200,000 composed chiefly of three items, namely consulting fees of
$74,992, professional fees of $65,414 and travel expense of $45,631. These expenses were incurred as a
result of the Company being engaged in the acquisition of mining concessions in Mexico and the business
of becoming a publicly trading company.
During the period to May 31, 2007, the Company incurred capital expenditures of $3,398,498 on the
acquisition and exploration of the company’s resource properties.
Results of Operations for the Six Month Period Ended November 30, 2007
The Company recorded a loss of $100,744 or $0.006 per share for the six months ended November 30,
2007. The Company has no income producing assets and has not reported any revenue from operations.
The Company is considered to be in the exploration stage. Administrative expenses were $229,558
composed chiefly of three items, namely consulting fees of $40,209, professional fees of $94,643 and
office expense of $41,320. These expenses were incurred as a result of the Company being engaged in
the acquisition of mining concessions in Mexico and the business of becoming a publicly trading
company. Consulting fees includes $11,665 for assistance in Mexico and translation costs, $10,544 for an
investor relations person and $18,000 for administrative assistance in Vancouver. The main items
classified as professional fees consisted of $21,148 for legal costs in Mexico, $15,581 for legal work in
Vancouver, $21,557 for an officer and lawyer, $19,625 for an officer and accountant and $15,000 for
audit costs. Office expense includes filing fees paid to the British Columbia Securities Commission and
the TSX Venture Exchange of $19,500.
The Company recorded a foreign exchange gain of $128,814 primarily as a result of the US exchange rate
changes from May 31, 2007 to November 30, 2007 on the obligation to pay USD$1,500,000 for the Cerro
Prieto Property.
31
Liquidity and Capital Resources
As of May 31, 2007, the Company had working capital deficiency of $2,147,253. The Company as at
May 31, 2007 has issued 16.5 million shares for a total consideration of $1,468,750. Pursuant to the
purchase agreements on the Cerro Prieto property, the balance of the purchase price at May 31, 2007 was
set out as a liability at $1,824,287. The working capital deficiency without the purchase acquisition
liability was $322,966.
As of November 30, 2007, the Company had working capital deficiency of $1,469,231. The main item is
the obligation for the purchase of the Cerro Prieto Property for an amount of $1,483,000
(USD$1,500,000). Without this obligation the working capital would be a positive $13,769. During the
six-month period ended November 30, 2007, the Company completed a private placement by way of the
issuance of 2,590,000 shares at $0.35 each for total proceeds of $906,500.
Related Party Transactions
During the six months ended November 30, 2007 the Company paid or accrued to its officers the sum of
$14,000 for management fees and $38,885 for professional fees.
Critical Accounting Estimates
Preparing financial statements in accordance with GAAP requires management to make certain judgments
and estimates. Changes to these judgments and estimates could have a material effect on the Company’s
financial statements and financial position.
The carrying values of the resource properties incurred in an exploration stage are subject to an
impairment evaluation. All of the expenditures incurred to date have been capitalized. It is
management’s opinion that the estimated cash flows expected to result from the future use of the property
and its eventual disposition will exceed its carrying amount.
Disclosure Controls
Disclosure controls and procedures are designed to provide reasonable assurance that material
information is gathered and reported to senior management, including the President and the Chief
Financial Officer, as appropriate, to permit timely discussions regarding public disclosures. Management,
including the President and the Chief Financial Officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of May 31, 2007. Based on this evaluation, the
President and the Chief Financial Officer have concluded that the Company’s disclosure controls and
procedures, as defined in Multilateral Instrument 52-109 – Certification of Disclosure in Issuers’ Annual
and Interim Filings, are effective to ensure that information required to be disclosed in reports that we file
or submit under Canadian securities legislation are recorded, processed and reported within the time
period specified in those rules.
Internal Control Over Financial Reporting
The President and CFO are responsible for designing internal control procedures over financial reporting
or causing it to be designed under their supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of Financial Statements for external purposes in
accordance with GAAP.
32
There are inherent weaknesses in the Company’s internal control due to its small size and its inability to
segregate incompatible functions. Due to the limited number of staff at the Company, it is not
economically feasible to achieve complete segregation of incompatible duties.
DESCRIPTION OF SECURITIES DISTRIBUTED
Authorized and Issued Share Capital
Common Shares
The authorized share capital of the Company consists of 100,000,000 Common Shares without par value.
As of the date of this Prospectus, 19,390,001 Common Shares were issued and outstanding as fully paid
and non-assessable shares. The holders of the Common Shares are entitled to receive notice of and to
attend and vote at all meetings of the shareholders of the Company and each Common Share confers the
right to one vote in person or by proxy at all meetings of the shareholders of the Company. The holders
of the Common Shares, subject to the prior rights, if any, of any other class of shares of the Company, are
entitled to receive such dividends in any financial year as the board of directors of the Company may by
resolution determine. In the event of the liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary, the holders of the Common Shares are entitled to receive, subject to the prior
rights, if any, of the holders of any other class of shares of the Company, the remaining property and
assets of the Company.
Units Offered Under Prospectus
The Company is Offering for sale under this Prospectus 8,000,000 Units at a price of $0.55 per Unit.
Each Unit is comprised of one Common Share in the capital of the Company and one half of one
transferable common share purchase warrant. Each whole Warrant will entitle the holder thereof to
acquire one additional common share of the Company upon payment of the exercise price of $0.90 at any
time prior to 4:30 p.m. (Vancouver time) on the date which is eighteen (18) months from the Closing
Date.
Warrants
The Company is authorized to issue Warrants pursuant to the Offering. Each Warrant is transferable and
will entitle the holder to acquire one Common Share at a price of $0.90 per share for a period of eighteen
months from the Closing Date. Holders of Warrants do not have any voting right or other right attached
to Common Shares until the Warrants are duly exercised as provided for in the certificate representing the
Warrants.
The terms governing the Warrants will be set out in a warrant indenture (the “Warrant Indenture”)
between the Company and Olympia Trust Company. Pursuant to the Warrant Indenture Olympia Trust
Company will act as its warrant agent in connection with the exercise and transfer by the Warrant holders
of the Warrants. The exercise of the Warrants into Warrant Shares by the Warrant holder, requires that
the Warrant holder surrender their warrant certificate to Olympia Trust Company at 925 West Georgia
Street, Suite 1900, Vancouver, British Columbia V6C 3L2, duly completed and signed, and deliver to
Olympia Trust Company the appropriate purchase price for the Warrant Shares of the Company
subscribed for, by bank draft, money order or certified cheque, payable to the Company.
Within three business days of issuing the Warrant Shares, Olympia Trust Company will arrange for a
certificate evidencing such Warrant Shares exercised to be mailed to the Warrant holder. If the Warrant
holder subscribes for a lesser number of Warrant Shares than the number of Warrant Shares permitted by
33
their Warrant certificate, Olympia Trust Company will also mail to the Warrant holder a new Warrant
certificate in respect of the remaining Warrant Shares referred to in the Warrant certificate.
No Warrant Certificate evidencing any fraction of a Warrant will be issued. If any fraction of a Warrant
would otherwise be issuable, the number of Warrants so issued will be rounded down to the nearest whole
Warrant.
The Warrant Indenture will include, among other things, provisions for the appropriate adjustment of the
class and number of the Common Shares issuable pursuant to any exercise thereof upon the occurrence of
certain events, including any subdivision, consolidation or reclassification of the Common Shares,
payment of stock dividends to holders of all of the Common Shares, capital reorganization of the
Company or any merger, consolidation or amalgamation of the Company with another corporation or
entity.
The Warrants and the Common Shares issuable upon exercise of the Warrants have not been registered
under the 1933 Act or the securities laws of any state of the United States, and the Warrants may not be
exercised in the United States or by, or for the account of benefit of a U.S. Person or a person within the
United States, unless an exemption from such registration requirements is available. See “Plan of
Distribution”.
CONSOLIDATED CAPITALIZATION
The following table summarizes changes in the Company's capitalization since July 7, 2006 (date of
incorporation) and after giving effect to the Offering.
Authorized
May 31, 2007
Description
Common Shares
Warrants
Stock Options
100,000,000
0
0
Long Term Debt
N/A
Notes:
(1)
To be granted subject to Closing.
Authorized
At the date of this
Prospectus
100,000,000
0
10% of issued &
outstanding shares
at the time of the
grant
N/A
Outstanding as at
May 31, 2007]
(Audited)
16,500,001
0
0
Outstanding at the
date of this
Prospectus
(Unaudited)
19,390,001
0
2,650,000(1)
Outstanding
after giving
effect to the
Offering
(Unaudited)
27,390,001
0
0
Nil
Nil
Nil
OPTIONS TO PURCHASE SECURITIES
Outstanding Options
The following table summarizes the options of the Company outstanding as of the date of this Prospectus,
subject to the completion of the Listing.
34
Group
No. of
Options
Securities
Under
Option
Grant Date
Expiry Date
Exercise
Price per
Common
Share
Market
Value of
Common
Shares on
Grant Date
Stephen Leahy
President and
Director
250,000
Common
Shares
August 20,
2007
5 years from
the Listing
Date
0.55
N/A
Market
Value of
Common
Shares as at
the date of
this
Prospectus
N/A
Ken Thorsen
Director
250,000
Common
Shares
August 20,
2007
5 years from
the Listing
Date
0.55
N/A
N/A
J. Casey Forward
Chief Financial
Officer and
Director
450,000
Common
Shares
August 20,
2007
5 years from
the Listing
Date
0.55
N/A
N/A
Robert Friesen
Director
250,000
Common
Shares
November
19, 2007
0.55
N/A
N/A
David Rose
Corporate Secretary
200,000
Common
Shares
September 1,
2007
0.55
N/A
N/A
Mustang
Management Ltd. (1)
Consultant
Warner Payton
Investments Inc.(2)
Consultant
Javelin
Management Ltd.(3)
Consultant
Ravinder Deol
Consultant
250,000
Common
Shares
July 31,
2007
5 years from
the Listing
Date
5 years from
the Listing
Date
5 years from
the Listing
Date
0.55
N/A
N/A
200,000
Common
Shares
September 1,
2007
5 years from
the Listing
Date
0.55
N/A
N/A
200,000
Common
Shares
September 1,
2007
5 years from
the Listing
Date
0.55
N/A
N/A
150,000
Common
Shares
September 1,
2007
0.55
N/A
N/A
0701287 B.C. Ltd.
200,000
Common
Shares
September 1,
2007
5 years from
the Listing
Date
5 years from
the Listing
Date
0.55
N/A
N/A
250,000
Common
Shares
January 4,
2008
5 years from
the Listing
Date
0.55
N/A
N/A
(4)
Consultant
Kaiser International
S.A. de C.V. (5)
Consultant
TOTAL:
Notes:
(1)
(2)
(3)
(4)
(5)
2,650,000
A British Columbia private company owned by Stephen Leahy and Shelagh Leahy.
A British Columbia private company owned by Craig Dalziel, Colleen Dalziel and Gregory Haugen.
A British Columbia private company owned by Adam Smith and Marouska Smith.
A British Columbia private company owned by Terry Kirby.
A Mexican private company owned by Salvador Rivero and Monica Gonzalez.
All of the options listed in the table above were granted pursuant to the Company’s 2007 Stock Option
Plan (the “2007 Plan”) and were granted subject to the completion of the Offering. The 2007 Plan was
adopted by the Company’s board of directors on July 31, 2007. The purpose of the 2007 Plan is to
advance the interests of the Company and its stockholders and subsidiaries by attracting, retaining and
motivating the performance of selected directors, officers, employees or consultants of the Company of
high caliber and potential and to encourage and enable such persons to acquire and retain a proprietary
interest in the Company by ownership of its stock. The 2007 Plan provides that, subject to the
requirements of the Exchange, the aggregate number of securities reserved for issuance under the 2007
35
Plan may not exceed 10% of the issued and outstanding shares of the Company at the time of granting of
options (including all options granted by the Company to date). The number of Common Shares which
may be reserved in any 12 month period for issuance to any one individual upon exercise of all stock
options held by that individual may not exceed 5% of the issued and outstanding Common Shares of the
Company unless the Company has obtained disinterested shareholder approval. The number of Common
Shares which may be reserved in any 12 month period for issuance to any one employee or consultant
engaged in investor relations activities may not exceed 2% of the issued and outstanding Common shares
of the Company. The 2007 Plan provides that options issued to consultants performing investor relations
activities will vest in stages over 12 months with no more than ¼ of the options vesting in any three
month period.
The 2007 Plan will be administered by the board of directors of the Company, which will have full and
final authority with respect to the granting of all options thereunder. Options may be granted under the
2007 Plan to such directors, officers, employees or consultants of the Company and its affiliates, if any, as
the board of directors may from time to time designate. Options may also be granted to employees of
management companies providing management services to the Company. The exercise price of any
options granted under the 2007 Plan shall be determined by the board of directors, but may not be less
than the market price of the Company’s shares on the Exchange on the date of the grant (less any discount
permissible under Exchange rules). The term of any options granted under the 2007 Plan shall be
determined by the board of directors at the time of grant but, subject to earlier termination in the event of
dismissal for cause, termination other than for cause or in the event of death, the term of any options
granted under the 2007 Plan may not exceed five years (ten years if the Company becomes a Tier 1 Issuer
under Exchange Policies). If desired by the Board, options granted under the 2007 Plan may be subject to
vesting. Options granted under the 2007 Plan are not to be transferable or assignable other than by will or
other testamentary instrument or pursuant to the laws of succession. Subject to certain exceptions, in the
event that a director or officer ceases to hold office, options granted to such director or officer under the
2007 Plan will expire 90 days after such director or officer ceases to hold office. Subject to certain
exceptions, in the event that an employee, consultant or management company employee ceases to act in
that capacity in relation to the Company, options granted to such employee, consultant or management
company employee under the 2007 Plan will expire 90 days after such individual or entity ceases to act in
that capacity in relation to the Company. Options granted to optionees engaged in investor relations
activities on behalf of the Company expire 30 days after such optionees cease to perform such investor
relations activities for the Company. In the event of death of an option holder, options granted under the
2007 Plan expire one year from the date of the death of the option holder.
PRIOR SALES
The following table summarizes the sales of securities of the Company from the date of incorporation to
the date of this Prospectus.
Date
Price per Security
Number of Securities
Reason for Issuance
July 2006
$0.01
1 share
Incorporator’s share
$0.01
(1)
4,500,000 shares
Finder’s Fee
August 2006
$0.01
(2)
6,250,000 shares
Subscription by ATM in connection
with Assignment Agreement
September to
October 2006
$0.075(3)
2,700,000 units
Private placement
October 31, 2006 to
February 13, 2007
$0.125
1,150,000 shares
Private placement (exercise of
warrants)
October 31, 2006 to
$0.25(4)
4,150,000 shares
Private placement
August 2006
36
January 31, 2007
December 15, 2006
$0.01(1)
(750,000) shares
Finder’s Fee shares for acquisition of
the Cerro Prieto Property cancelled
pursuant to December 15, 2006
amendment to Assignment Agreement
December 15, 2006
$0.01(1)
(600,000) shares
Finder’s Fee shares for acquisition of
the Xochipala Property cancelled
pursuant to December 15, 2006
amendment to Assignment Agreement
December 15, 2006
$0.01
(900,000) shares
Subscription by ATM in connection
with Assignment Agreement cancelled
pursuant to December 15, 2006
amendment to Assignment Agreement
June to August 2007
$0.35
1,660,000 shares
Private placement
October to
November 2007
$0.35
930,000 shares
Private placement
January 2008
$0.35
300,000 shares
Private placement
Notes:
(1)
(2)
(3)
(4)
4,500,000 shares were issued to an insider. Subsequently 1,350,000 of these Finder’s Fee shares were cancelled as of
December 15, 2006.
Subsequently 900,000 of these shares were cancelled as of December 15, 2006.
Each unit was comprised of one common share in the capital of the Company and one common share purchase warrant.
Each warrant entitles the holder to acquire one additional common share of the Company at a price of $0.125 at any
time prior to January 31, 2007, which date was later extended by the Company to February 15, 2007.
900,000 shares were issued to members of the Agent’s Pro Group.
ESCROWED SHARES
In accordance with National Policy 46-201 - Escrow for Initial Public Offerings (“NP 46-201”), all
common shares of an issuer owned or controlled by its principals will be escrowed at the time of the
issuer’s initial public offering, unless the shares held by the principal or issuable to the principal upon
conversion of convertible securities held by the principal collectively represent less than 1% of the total
issued and outstanding shares of the issuer after giving effect to the initial public offering.
At the time of its initial public offering, an issuer will be classified for the purposes of escrow as either an
“exempt issuer”, an “established issuer” or an “emerging issuer”.
Uniform terms of automatic timed-release escrow apply to principals of exchange-listed issuers, differing
only according to the classification of the issuer. As the Company will be classified as an “emerging
issuer” by virtue of being listed on Tier 2 of the Exchange, the following automatic timed releases will
apply to the securities held by its principals:
On the Listing Date
6 months after the Listing Date
12 months after the Listing Date
18 months after the Listing Date
24 months after the Listing Date
30 months after the Listing Date
36 months after the Listing Date
1/10 of the escrow securities
1/6 of the remaining escrow securities
1/5 of the remaining escrow securities
1/4 of the remaining escrow securities
1/3 of the remaining escrow securities
1/2 of the remaining escrow securities
The remaining escrow securities
37
Assuming there are no changes to the escrow securities initially deposited and no additional escrow
securities are deposited, this will result in a 10% release on the Listing Date, with the remaining escrow
securities being released in 15% tranches every 6 months thereafter.
The automatic time release provisions under NP 46-201 pertaining to "established issuers" provide that
25% of each principal's escrowed securities are released on the Listing Date, with an additional 25%
being released in equal tranches at six month intervals over 18 months. If, within 18 months of the
Listing Date, the Company meets the "established issuer" criteria, as set out in NP 46-201, the escrow
securities will be eligible for accelerated release according to the criteria for established issuers. In such a
scenario, that number of escrow securities that would have been eligible for release from escrow if the
Company had been an "established issuer" on the Listing Date will be immediately released from escrow.
The remaining escrow securities would be released in accordance with the time release provisions for
established issuers, with all escrow securities being released 18 months from the Listing Date.
The following Common Shares of the Company are held by, and are subject to the terms of an escrow
agreement (the “Escrow Agreement”) dated January 8, 2008 among these principals, the Company and
Olympia Trust Company, of 925 West Georgia Street, Suite 1900, Vancouver, British Columbia V6C
3L2:
No. of
Common Shares
Name
Lohengrin Foundation(1)
David Rose
Ken Thorsen
Stephen Leahy
Kristin Leahy
Michael Leahy
Total:
Notes:
(1)
1,950,000
925,000
375,000
1,050,000
25,000
25,000
4,350,000
Percentage of
Issued Shares at
the date of this
Prospectus
10.06%
4.77%
1.93%
5.42%
0.13%
0.13%
22.43%
Percentage of Issued
Shares on
Completion of the
Offering
7.12%
3.38%
1.37%
3.83%
0.09%
0.09%
15.88%
A Panamanian foundation of which Andres Rivero and Eduardo Rivero, Salvador Rivero’s children, are the
beneficiaries.
Pursuant to the terms of the Escrow Agreement, the securities of the Company held in escrow may be
transferred within escrow to an individual who is a director or senior officer of the Company or of a
material operating subsidiary of the Company, subject to the approval of the Company’s board of
directors, or to a person or company that before the proposed transfer holds more than 20% of the voting
rights attached to the Company’s outstanding securities, or to a person or company that after the proposed
transfer will hold more than 10% of the voting rights attached to the Company’s outstanding securities
and that has the right to elect or appoint one or more directors or senior officers of the Company or of any
of its material operating subsidiaries.
Pursuant to the terms of the Escrow Agreement, upon the bankruptcy of a holder of escrowed securities,
the securities held in escrow may be transferred within escrow to the trustee in bankruptcy or other person
legally entitled to such securities. Upon the death of a holder of escrowed securities, all securities of the
deceased holder will be released from escrow to the deceased holder’s legal representative.
Pursuant to the terms of the Escrow Agreement, 10% of the escrowed shares (a total of 435,000 Common
Shares) will be released from escrow on the Listing Date. The remaining 3,915,000 Common Shares of
the Company which will be held in escrow immediately following the Listing Date will represent 14.29%
of the Common Shares of the Company issued and outstanding immediately following the completion of
the Offering.
38
The complete text of the Escrow Agreement is available for inspection at the office of the Company's
legal counsel, Suite 1200-750 West Pender Street, Vancouver, British Columbia, V6C 2T8.
Shares Subject to Voluntary Pooling Agreement
The following Common Shares of the Corporation are held by, and are subject to the terms of a voluntary
pooling agreement (the “Pooling Agreement”) dated January 8, 2008, among the following persons, the
Company and Olympia Trust Company:
No. of
Common Shares
Name
Terry Kirby
Wendy Kirby
Marouska Smith
Sunda Mining Corp.(1)
G. Royal Smith
Colleen Dalziel
Hayes Davis Investments Inc.(2)
Ostia Management Corp.(3)
Helena Cortina Barroso
Total:
Notes:
(1)
(2)
(3)
450,000
75,000
925,000
545,000
100,000
250,000
675,000
500,000
300,000
3,820,000
Percentage of
Issued Shares at
the date of this
Prospectus
2.32%
0.39%
4.77%
2.81%
0.52%
1.29%
3.48%
2.58%
1.55%
19.70%
Percentage of
Issued Shares on
Completion of
the Offering
1.64%
0.27%
3.38%
1.99%
0.37%
0.91%
2.46%
1.83%
1.10%
13.95%
A private British Columbia company owned by Colleen Dalziel, Craig Dalziel and David Rose.
A private British Columbia company owned by Craig Dalziel, Colleen Dalziel, Ryan Dalziel, Spencer Dalziel, Jordan
Dalziel and Taylor Dalziel.
A private British Columbia company owned by Terry Kirby, J. Casey Forward and Ping Shen.
10% of the pooled securities will be released on the Listing Date, with the securities being released in
15% tranches every 6 months thereafter.
Shares Subject to Resale Restrictions
Statutory Hold Periods
Canadian securities legislation generally provides that shares issued by a company during its private
stage, commonly referred to as “seed shares”, may not be resold until the expiration of certain hold
periods. The legislation which imposes and governs these hold periods is National Instrument 45-102
(“NI 45-102”). Pursuant to NI 45-102, securities of an issuer issued prior to an initial public offering are
either subject to a “seasoning period” lasting 4 months from the date an issuer becomes a reporting issuer,
or both a seasoning period and a “restricted period” of 4 months from the date of distribution of the
securities. During either a seasoning period or a restricted period securities may not be resold except
pursuant to an exemption from applicable prospectus and registration requirements. Where an issuer
becomes a reporting issuer in certain Canadian jurisdictions (including British Columbia, Alberta and
Ontario) by filing a prospectus in that jurisdiction, however, the 4 month seasoning period is eliminated.
Thus, only securities which are subject to a 4 month restricted period will be subject to resale restrictions
under NI 45-102 after an initial public offering.
930,000 of the Company’s seed shares will be subject to a two month restricted period under NI 45-102
escrow requirements described above. Exchange hold periods and voluntary pooling restrictions
described below, will, however, apply to certain of these shares as described herein.
39
Exchange Seed Share Resale Restrictions
In addition to the resale restrictions imposed by NI 45-102 and the escrow requirements imposed by
National Policy 46-201, the Exchange can impose additional resale restrictions and escrow requirements
on principals and non-principals of a company. In the Company’s case, the Exchange’s seed share resale
matrix will be applicable to the following shares:
Shares
3,150,000 Common Shares issued as a finder’s fee,
August 2006(1)
5,350,000 Common Shares issued for $0.01 per
share, August 2006(1)
2,700,000 Common Shares issued for $0.075 per
share, September 22 - November 10, 2006(1)
1,150,000 Common Shares issued for $0.125 per
share, October 31, 2006 – February 13, 2007(1)
4,150,000 Common Shares issued for $0.25 per
share, October 31, 2006 – January 31, 2007
1,660,000 Common Shares issued for $0.35 per
share, June 1 – August 10, 2007
930,000 Common Shares issued for $0.35 per
share, October 29 – November 30, 2007
300,000 Common Shares issued for $0.35 per
shares, January 31, 2008
Notes:
(1)
Resale Restrictions
1 year hold period, 20% released on the Listing
Date and 20% released every 3 months thereafter
1 year hold period, 20% released on the Listing
Date and 20% released every 3 months thereafter
1 year hold period, 20% released on the Listing
Date and 20% released every 3 months thereafter
1 year hold period, 20% released on the Listing
Date and 20% released every 3 months thereafter
4 month hold period, 20% released on the Listing
Date and 20% released every month thereafter
4 month hold period, 20% released on the Listing
Date and 20% released every month thereafter
4 month hold period, 20% released on the Listing
Date and 20% released every month thereafter
4 month hold period, 20% released on the Listing
Date and 20% released every month thereafter
A total of 8,170,000 of the shares from the combined seed share offerings are also subject to escrow or pooling (See
“Shares Subject to Voluntary Pooling Agreement”).
PRINCIPAL SHAREHOLDERS
To the knowledge of the directors and officers of the Company, as of the date of this Prospectus no person
beneficially owns or exercises control or direction over Common Shares carrying more than 10% of the
votes attached to Common Shares except for the following:
Name
Lohengrin
Foundation(1)
Notes:
(1)
Prior to the Offering
Number of Common
Shares Beneficially
Percentage of
Owned Directly or
Common Shares
Indirectly
Held
1,950,000
10.21%
After Giving the Effect to the Offering
Number of Common
Percentage of
Shares Beneficially
Common Shares
Owned Directly or
Held
Indirectly
1,950,000
7.12%
A Panamanian Foundation of which Andreas Rivero and Eduardo Rivero, sons of Salvador Rivero, are beneficiaries.
DIRECTORS AND OFFICERS
The following table provides the names, municipalities of residence, position, principal occupations and
the number of voting securities of the Company that each of the directors and executive officers
beneficially owns, directly or indirectly, or exercises control over, as of the date hereof:
40
Name and Municipality
of Residence and Position
with the Company
Stephen Leahy(2)
President, Chief Executive
Officer and Director
Vancouver, British
Columbia
Ken Thorsen(2)
Director
Port Coquitlam, British
Columbia
J. Casey Forward
Chief Financial Officer and
Director
Vancouver, British
Columbia
Robert Friesen(2)
Director
Port Coquitlam, British
Columbia
David Rose
Secretary
Vancouver, British
Columbia
Notes:
(1)
(2)
Director/
Officer
Since
November
8, 2006
Principal Occupation for
the Past Five Years
Chairman and Chief Executive Officer, North
American Tungsten Corporation.
Common
Shares
Beneficially
Owned
Directly or
Indirectly (1)
(at the date
of this
Prospectus)
1,050,000
November
8, 2006
President, Thorsen Consulting Ltd., a private company
offering consulting services to the mining exploration
industry.
375,000
April 23,
2007
Certified General Accountant; Chief Financial Officer,
Raytec Development Corp. and Lateegra Gold Corp.
100,000
November
9, 2007
Consultant, Friesen Geological Services offering
consulting services to the mining exploration industry.
0
August 24,
2006
Lawyer and management consultant.
925,000
Does not include options to purchase Common Shares held by directors and officers. See “Options to Purchase
Securities”.
Denotes a member of the Audit Committee of the Company.
The term of office of the directors expires annually at the time of the Company’s annual general meeting.
The term of office of the officers expires at the discretion of the Company’s directors. The Company has
not entered into any non-competition or non-disclosure agreements with its directors and officers.
As at the date of this Prospectus, the directors and officers of the Company as a group owned beneficially,
directly or indirectly or exercised control or discretion over an aggregate of 2,450,000 Common Shares of
the Company, which is equal to 12.64% of the Common Shares of the Company’s currently issued and
outstanding Common Shares.
The directors and officers of the Company anticipate that they will dedicate the following percentage of
their time to the affairs of the Company: Stephen Leahy, 33%; Ken Thorsen, 10%; J. Casey Forward,
20% and David Rose, 50%. Actual time spent by each individual may be more or less depending on the
Company’s requirements.
All of the members of the Company’s management are independent contractors and not employees of the
Company. Only Stephen Leahy, David Rose and J. Casey Forward will perform services pursuant to a
written agreement. Refer to “Termination of Employment, Changes in Responsibility and Employment
Contracts” for a description of the Company’s Management Agreements with Stephen Leahy, David Rose
and J. Casey Forward.
41
Stephen Leahy, age 51, President and Director of the Company. Mr. Leahy has more than 26 years
experience in the venture capital markets, primarily in the resource sector. Mr. Leahy is the CEO,
Chairman and a Director of North American Tungsten Corporation Ltd. (since 1994) and a Director of
Helio Resource Corp. (since 1998), both companies listed on the Exchange. With North American
Tungsten Corporation Ltd., he was instrumental in facilitating the Company's acquisition and the bringing
into production of its wholly-owned Cantung Mine and Mactung deposit. Mr. Leahy has previously acted
as a senior officer or director of StarTech Energy Inc. (TSX) (from 1985-1996), First Silver Reserve Inc.
(CDNX) (from 1988-1998) and Wellco Energy Services Inc. (TSX) from (1993-2000).
Ken Thorsen, age 61, Director of the Company. Mr. Thorsen has more than 40 years experience in
mining and mineral exploration. Prior to retirement from a 21 year career with Teck Cominco Ltd., Mr.
Thorsen held several senior positions, including a two year term as President of Teck Exploration Ltd., a
subsidiary of Teck Cominco Ltd., a position in which he was responsible for administration of all
worldwide exploration offices and field operations. Mr. Thorsen is currently President of Thorsen
Consulting Ltd. which offers services to the mining exploration industry, and he serves as a member of
the board of directors of several junior mining companies. He received a Bachelor of Science from the
Southern Dakota School of Mining and is a professional engineer.
J. Casey Forward, age 65, Chief Financial Officer and Director of the Company. Mr. Forward is
currently CFO for Raytec Development Corp. and Lateegra Gold Corp., both companies listed on the
Exchange. He was previously CFO for Stream Communications Network & Media Inc. and he was Chief
Accountant for Kensington Resources Ltd. until 2005. Mr. Forward is a Certified General Accountant.
Robert Friesen, age 62, Director of the Company. Mr. Friesen has more than 40 years of experience in
mining and mineral exploration including seventeen years with the Noranda Group, mainly as Chief
Geologist of the Geco Mine in Ontario and Samatosum Mine in B.C. He also has five years of experience
with Teck Exploration Ltd., a subsidiary of Teck Cominco Ltd., mainly as Project Geologist. Mr. Friesen
is currently a geological consultant to the mining industry and since 2003 has been a director of Abacus
Mining & Exploration Corp.
David Rose, LLB., age 49, Corporate Secretary of the Company. Mr. Rose has been a practicing lawyer
since 1990. After working as an agent prosecutor for the Department of Justice and as Crown Counsel for
the Attorney General of BC into the mid 1990’s, Mr. Rose began working in a mix of private legal
practice and venture finance. He has been providing legal and consulting services to and structuring and
financing resource companies and venture start-ups for the last ten years.
Corporate Cease Trade Orders or Bankruptcies
North American Tungsten Corporation Ltd. (“NTC”) was granted protection under the Companies’
Creditors Arrangement Act (“CCAA”) on December 11, 2003. NTC successfully implemented a Plan of
Arrangement under CCAA and emerged from protection on March 30, 2005. Stephen Leahy is the CEO
and director of NTC.
Yaletown Entertainment Corp. was subject of a Cease Trade Order issued by the British Columbia
Securities Commission on January 26, 2005 and by the Alberta Securities Commission on May 9, 2005
for failing to file its annual financial statements and first quarter interim financial statements within the
required time. J. Casey Forward was a director of Yaletown Entertainment Corp. at that time.
Net Soft Systems Inc. (“Net Soft”) was subject of a Cease Trade Order issued by the British Columbia
Securities Commission on June 2, 2004 for failing to file its annual financial statements, first quarter
interim financial statements and Management’s Discussion and Analysis within the required time. The
Cease Trade Order was revoked on the July 8, 2004. Net Soft was subject of a Cease Trade Order issued
42
by the British Columbia Securities Commission on June 1, 2005 for failing to file its annual financial
statements, first quarter interim financial statements and Management’s Discussion and Analysis within
the required time. Net Soft was subject of a Cease Trade Order issued by the Alberta Securities
Commission on October 21, 2005 for failing to file its annual financial statements and interim financial
statements within the required time. J. Casey Forward is the CFO and director of Net Soft Systems Inc.
Other than as disclosed herein, to the best of the Company’s knowledge, no existing or proposed director,
officer, promoter or other member of management of the Company, nor any shareholder holding
sufficient securities of the Company to materially affect control of the Company is, or within the ten years
prior to the date hereof has been, a director, officer, promoter or other member of management of any
other corporation that, while that person was acting in the capacity of a director, officer, promoter or other
member of management of that corporation, was the subject of a cease trade order or similar order or an
order that denied the corporation access to any statutory exemptions for a period of more than 30
consecutive days, was declared bankrupt or made a voluntary assignment in bankruptcy, made a proposal
under any legislation relating to bankruptcy or insolvency or has been subject to or appointed to hold the
assets of that director, officer or promoter.
Penalties or Sanctions
Other than as disclosed herein, to the Company’s knowledge, no director or officer of the Company, nor
any shareholder holding sufficient securities of the Company to materially affect control of the Company
has:
(a)
been subject to any penalties or sanctions imposed by a court relating to Canadian securities
legislation or by a Canadian securities regulatory authority or has entered into a settlement
agreement with a Canadian securities regulatory authority; or
(b)
been subject to any other penalties or sanctions imposed by a court or regulatory body that
would likely be considered important to a reasonable investor making an investment decision.
Personal Bankruptcies
To the Company’s knowledge, no director or officer of the Company, nor any shareholder holding
sufficient securities of the Company to affect materially the control of the Company, nor any personal
holding company of any such person has, within the ten years before the date of this Prospectus, become
bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to
or instituted any proceedings, arrangements or compromise with creditors, or had a receiver, receiver
manager or trustee appointed to hold the assets of that person.
Conflicts of Interest
The directors of the Company are required by law to act honestly and in good faith with a view to the best
interests of the Company and to disclose any interests, which they may have in any project or opportunity
of the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a
conflict will disclose his interest and abstain from voting on such matter.
To the best of the Company’s knowledge, and other than as disclosed herein, there are no known existing
or potential conflicts of interest among the Company, its promoters, directors and officers or other
members of management of the Company or of any proposed promoter, director, officer or other member
of management as a result of their outside business interests except that certain of the directors and
officers serve as directors and officers of other companies, and therefore it is possible that a conflict may
43
arise between their duties to the Company and their duties as a director or officer of such other
companies.
EXECUTIVE COMPENSATION
The following table discloses compensation paid to or awarded to the Company's Chief Executive Officer
and the Company’s Chief Financial Officer (the “Named Executive Officers”) for the financial year ended
May 31, 2007 for services rendered to the Company or a subsidiary of the Company.
Summary Compensation Table
Annual Compensation
Long Term Compensation
Awards
Name and
Principal
Position
Year
Stephen Leahy
Nil
President, Chief
Executive Officer and
Director
J. Casey Forward
Nil
Chief Financial Officer
and Director
Salary
Bonus
Other
Annual
Compensation
Nil
Nil
Nil
$5,000
Nil
Nil
Securities
Under
Options/
SARs
Granted
(#)
Payouts
Restricted
Shares
or
Restricted
Share
Units
All other
Compensation
LTIP
Payouts
Long-Term Incentive Plan Awards During the Most Recently Completed Financial Year
The Company did not have any long-term incentive plans during the period from incorporation (July 7,
2006) to May 31, 2007.
Option/SAR Grants During the Most Recently Completed Financial Year
No stock options were granted to the Named Executive Officers, during the period from incorporation
(July 7, 2006) to May 31, 2007. For information respecting options granted subsequent to May 31, 2007
see “Options to Purchase Securities”.
Aggregated Options/SAR Exercises in Last Financial Year and Financial Year-End Option/SAR
Values
None of the Named Executive Officers, directors or officers of the Company exercised any options in
respect of the Company's Common Shares during the period from incorporation (July 7, 2006) to May 31,
2007. As at the date of this prospectus, none of the Named Executive Officers, directors or officers of the
Company have exercised any options in respect of the Company's Common Shares.
44
Termination of Employment, Changes in Responsibility and Employment Contracts
The Company entered into a consulting agreement with Mustang Management Ltd. (“Mustang”) and
Stephen Leahy (“Leahy”) dated effective July 31, 2007 pursuant to which Mustang agreed to provide the
services of Leahy to serve as the President of the Company. Pursuant to the terms of the agreement, the
Company agreed to pay Mustang $3,500 per month for Leahy’s services and to grant Mustang 250,000
options (“Options”) to purchase common shares in the capital stock of the Company at a price per share of
$0.55. These Options vest as follows: 85,000 on the Listing Date; 85,000 six months after the Listing Date;
and 80,000 on the first anniversary of the Listing Date. These Options expire at 5:00p.m. on the fifth
anniversary of the Listing Date. The Company is also required to reimburse Mustang or Leahy for
reasonable expenses incurred in connection with Leahy’s duties as President of the Company. The
agreement is for a one year term, but will be renewed automatically until terminated by the Company or
Mustang. The Company may terminate the agreement at any time upon paying Mustang twenty-four
months pay in lieu of notice. Mustang may terminate the agreement on giving the Company three months
notice. Mustang is a private company which is wholly owned 50% by Stephen Leahy and 50% by
Shelagh Leahy. Mustang may terminate this agreement by giving 30 days written notice to the Company
at any time within six months of a change of control of the Company. Upon receipt of such notice, the
Company will provide Mustang with 24 months pay and benefits less any statutory deductions.
The Company entered into a consulting agreement with J. Casey Forward (“Forward”) dated effective
July 31, 2007 pursuant to which Forward agreed to serve as the Chief Financial Officer of the Company.
Pursuant to the terms of the agreement, the Company agreed to pay to Forward $2,500 per month and to
grant to him 200,000 Options exercisable at $0.55 per share. These Options will vest as follows: 70,000
on the Listing Date; 65,000 six months after the Listing Date; and 65,000 on the first anniversary of the
Listing Date. These Options expire at 5:00p.m. on the fifth anniversary of the Listing Date. The
Company will reimburse Forward for reasonable expenses incurred in connection with his services under
the agreement. The agreement is for an indefinite term but may be terminated by either party on three
months written notice. The Company may terminate the agreement on paying to Forward three months
termination pay in lieu of notice.
The Company entered into a consulting agreement with David Rose (“Rose”) dated September 1, 2007
pursuant to which Rose agreed to provide legal and management consulting services to the Company and
to serve as its Corporate Secretary. Pursuant to the terms of the agreement, the Company shall pay Rose a
per diem fee of $350 per day plus applicable taxes, with a minimum aggregate monthly total of $3,000
plus applicable taxes. The Company will grant to Rose 200,000 Options exercisable at $0.55 per share.
These Options will vest as follows: 70,000 on the Listing Date; 65,000 six months after the Listing Date;
and 65,000 on the first anniversary of the Listing Date. These Options will expire at 5:00p.m. on the fifth
anniversary of the Listing Date. The Company will reimburse Rose for reasonable expenses incurred in
connection with his services under the agreement. The agreement is for an indefinite term but may be
terminated by either party on three months written notice.
The Company entered into a consulting agreement with Javelin Management Ltd. (“Javelin”) and Adam
Smith (“Smith”) dated effective September 1, 2007 pursuant to which Javelin agreed to provide the
services of Smith to provide Mexican business development and property management consulting
services to the Company. Pursuant to the terms of the agreement, the Company will pay Javelin a per
diem fee of $350 per day plus applicable taxes, with a minimum aggregate monthly total of $3,000 plus
applicable taxes. The Company will grant to Javelin 200,000 Options exercisable at $0.55 per share.
These Options will vest as follows: 70,000 on the Listing Date; 65,000 six months after the Listing Date;
and 65,000 on the first anniversary of the Listing Date. These Options will expire at 5:00p.m. on the fifth
anniversary of the Listing Date. The Company will reimburse Javelin or Smith for reasonable expenses
45
incurred in connection with his services under the agreement. The agreement is for an indefinite term but
may be terminated by either party on three months written notice. Javelin is a private company which is
wholly owned by Adam Smith as to 50% and Marouska Smith as to 50%.
The Company entered into a consulting agreement with Warner Payton Investments Inc. (“WPI”) and
Craig Dalziel (“Dalziel”) dated September 1, 2007 pursuant to which WPI and Dalziel agreed to provide
the services of Dalziel to provide business development and market consulting services to the Company.
Pursuant to the terms of the agreement the Company will grant to Warner 200,000 Options exercisable at
$0.55 per share. These Options will vest as follows: 70,000 on the Listing Date; 65,000 six months after
the Listing Date; and 65,000 on the first anniversary of the Listing Date. These Options will expire at
5:00p.m. on the fifth anniversary of the Listing Date. The Company will reimburse Warner for
reasonable expenses incurred in connection with providing the services under the agreement, such
expenses not to exceed $1,000 per month without the written consent of the Company. The agreement is
for an indefinite term but may be terminated by either party on 30 days written notice. WPI is a private
company which is wholly owned by Craig Dalziel as to 20%, Colleen Dalziel as to 60% and Gregory
Haugen as to 20%.
The Company entered into a consulting agreement with 0701287 B.C. Ltd (“0701287”) and Terry Kirby
(“Kirby”) dated September 1, 2007 pursuant to which 0701287 and Kirby agreed to provide the services
of Kirby to provide business development and market consulting services to the Company. Pursuant to
the terms of the agreement the Company will grant to 0701287 200,000 Options exercisable at $0.55 per
share. The Options will vest as follows: 70,000 on the Listing Date; 65,000 six months after the Listing
Date; and 65,000 on the first anniversary of the Listing Date. The Options will expire at 5:00p.m. on the
fifth anniversary of the Listing Date. The Company will reimburse 0701287 for reasonable expenses
incurred in connection with providing the services under the agreement, such expenses not to exceed
$1,000 per month without the written consent of the Company. The agreement is for an indefinite term
but may be terminated by either party on 30 days written notice. 0701287 is a private company which is
wholly owned by Terry Kirby.
The Company entered into a consulting services agreement with Ravinder Deol (“Deol”) dated effective
September 1, 2007, as amended November 14, 2007, pursuant to which Deol will provide investor
relations services to the Company. Pursuant to the terms of the agreement the Company will pay Deol a
fee to be agreed between them from time to time, subject to a monthly maximum of $5,000 and a
minimum of $2,500 and it will grant to Deol 150,000 Options exercisable at $0.55 per share. The
Options will vest as follows: 30,000 on the Listing Date; 30,000 three months after the Listing; 30,000 six
months after the Listing; 30,000 nine months after the Listing Date; and 30,000 on the first anniversary of the
Listing Date. The Options will expire at 5:00p.m. on the fifth anniversary of the Listing Date. The
Company is also required to reimburse Deol for reasonable expenses incurred in connection with
providing the services under the agreement. All agreements for investor relations services are subject to
Exchange approval. The agreement may be terminated by either party on one month’s written notice.
The Company entered into a consulting agreement with Kaiser International S.A. de C.V. (“Kaiser”) and
Salvador Rivero (“Rivero”) dated effective January 4, 2008 pursuant to which Kaiser and Rivero agreed
to provide the services of Rivero to provide business development and property acquisition consulting
services to the Company. Pursuant to the terms of the agreement the Company will grant to Kaiser
250,000 Options exercisable at $0.55 per share. The Options will vest as follows: 83,333 on the Listing
Date; 83,333 six months after the Listing Date; and 83,334 on the first anniversary of the Listing Date. The
Options will expire at 5:00p.m. on the fifth anniversary of the Listing Date. The Company will reimburse
Kaiser for reasonable expenses incurred in connection with providing the services under the agreement,
such expenses not to exceed $1,000 per month without the written consent of the Company. The
agreement is for an indefinite term but may be terminated by either party on 30 days written notice.
Kaiser is a private company which is owned 90% by Rivero and 10% by Monica Gonzalez.
46
The Company and its subsidiaries are not parties to any contracts, and have not entered into any plans or
arrangements which require compensation to be paid to any of their directors, officers or employees in the
event of:
(a) resignation, retirement or any other termination of employment with the Company or one of its
subsidiaries;
(b) a change of control of the Company or one of its subsidiaries; or
(c) a change in the director, officer or employee’s responsibilities following a change of control.
Compensation of Directors
The only arrangements the Company has, standard or otherwise, pursuant to which directors are
compensated by the Company for their services in their capacity as directors, or for committee
participation, involvement in special assignments or for services as consultant or expert during the most
recently completed financial year or subsequently, are by the issuance of stock options. The directors are
paid a stipend in the amount of $5,000 per year plus $1,000 per meeting and $500 per committee meeting.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No existing or proposed director, executive officer or senior officer of the Company or any associate of
any of them, was indebted to the Company as at May 31, 2007, or is currently indebted to the Company.
PLAN OF DISTRIBUTION
Common Shares
The Company, through the Agent, is offering 8,000,000 Units to the public under this Prospectus at a
price of $0.55 per Unit to the public under this Prospectus for aggregate gross proceeds of $4,400,000.
Each Unit is comprised of one Common Share and one half of one transferable Warrant. Each whole
Warrant will entitle the holder thereof to acquire one additional Common Share upon payment of the
exercise price of $0.90 at any time prior to 4:30 p.m. (Vancouver time) on the date which is eighteen
months from the Closing Date. This Prospectus qualifies the distribution of the Common Shares and the
Warrants.
The offering date will be a day (the “Offering Date”) determined by the Agent and will be on or before
the day which is 90 days from the Effective Date or such later day as may be approved by the
Commissions and any person who has subscribed during that period (the “Offering Period”). During the
Offering Period, funds received from subscriptions will be held by the Agent. If the Offering is not
subscribed for during the Offering Period, subscription funds will be returned to the Subscribers (unless
the Subscribers have otherwise instructed the Agent). If the Offering is subscribed for during the
Offering Period, then subject to the terms of the Agency Agreement, all subscription proceeds deposited
with the Agent will be delivered to the Company at the Closing. The closing of the Offering (the
“Closing”) is expected to occur on the day which falls 10 days after the Offering Date.
Pursuant to the Agency Agreement dated for reference February 12, 2008, the Company has engaged the
Agent as its exclusive agent for the purposes of the Offering, and the Company, through the Agent,
hereby offers for sale to the public in the provinces of British Columbia, Alberta and Ontario under this
Prospectus, on a commercially reasonable efforts basis, the Units to be issued and sold under the Offering
at the Offering Price, subject to prior sale if, as and when issued. The Offering Price was established
47
through negotiation between the Company and the Agent. The Agent has agreed to use its commercially
reasonable efforts to secure subscriptions for the Units offered pursuant to the Offering in the provinces of
Alberta, British Columbia, Ontario and in other jurisdictions where the Offering may be lawfully made.
This Prospectus qualifies the distribution of the Units to the Subscribers in British Columbia, Alberta and
Ontario. The Agent may, in connection with the Offering and in its sole discretion, retain one or more
licensed dealers, brokers and investment dealers (referred to herein as the “Selling Firms”) as sub-agents
and may receive subscriptions for Units from such Selling Firms. The Agent is not obligated to purchase
any of the Units in connection with the Offering.
Pursuant to the terms of the Agency Agreement, the Company has agreed to pay to the Agent the cash
Agent’s Commission equal to 8% of the gross proceeds received from the sale of Units under the
Offering. The Agent will have the option to receive the commission in cash or, in whole or in part, in
Units of the Company at a deemed price of $0.55 per Unit. The Company has also agreed to issue the
Compensation Options to the Agent (or, as directed by the Agent, to other Selling Firms) upon
completion of the Offering. The Compensation Options will entitle the holder(s) thereof to purchase that
number of Common Shares which is equal to 10% of the number of Units sold pursuant to the Offering.
The Compensation Options will be exercisable at a price of $0.55 per Common Share for a period of 18
months from the Closing Date. This Prospectus qualifies the distribution of the Compensation Options.
In addition to the foregoing, the Company has also agreed to pay to the Agent the Corporate Finance Fee
consisting of $25,000 plus GST, of which $12,500 plus GST has been paid, as consideration for corporate
finance services provided by the Agent in connection with the Offering. The Agent will have the option
to receive the Corporate Finance Fee in cash or, in whole or in part, in Units at a deemed price of $0.55
per Unit. This Prospectus qualifies the distribution of the Corporate Finance Fee.
The Company has also agreed to pay the Agent’s reasonable expenses in connection with the Offering,
including legal expenses and the Agent’s reasonable out-of-pocket expenses. Pursuant to the Agency
Agreement, the Company has provided the Agent with a retainer of $20,000 to be applied to expenses,
legal fees and disbursements.
The Agency Agreement provides that, upon the occurrence of certain events or at the sole discretion of
the Agent on the basis of its assessment of the state of financial markets, the Agent may terminate the
Offering and the obligations of Subscribers to purchase the Units will then cease. The Agent may also
terminate the Agency Agreement if the Effective Date has not occurred within 120 days from the date of
the Agency Agreement.
The Company has granted the Agent a right of first refusal respecting the conduct of any equity
financings carried out by the Company during the twelve month period following the Listing Date.
The Units offered hereby and the Common Shares and Warrants comprising the Units and the Warrant
Shares have not been and will not be registered under the United States Securities Act of 1933, as
amended (the “1933 Act”), or the securities laws of any state of the United States and, subject to certain
exceptions, may not be offered, sold, pledged, transferred, exercised, or delivered, directly or indirectly,
in the United States or to, or for the account or benefit of, a U.S. Person or a person within the United
States, except as provided in the Agency Agreement in certain transactions exempt from the registration
requirements of the 1933 Act and in compliance with any applicable state securities laws. The Agent has
agreed that it will not offer, sell or deliver the Units or the Common Shares or Warrants comprising the
Units within the United States, or to, or for the account or benefit of, a U.S. Person or person within the
United States, except in accordance with the Agency Agreement. The Agency Agreement permits the
Agent, acting through its U.S. broker-dealer affiliates, to designate institutional accredited investors that
satisfy one or more of the criteria set forth in Rule 501(a)(1),(2),(3) or (7) of Regulation D under the 1933
48
Act to purchase Units directly from the Company in transactions exempt from registration pursuant to
Rule 506 of Regulation D promulgated under the 1933 Act.
Subscriptions will be received for the Units offered hereby subject to rejection or allotment in whole or in
part and the right is reserved to close the subscription books at any time. Upon rejection of a
subscription, or in the event that the Offering does not complete within the time required, the subscription
price and the subscription will be returned to the Subscriber forthwith without interest or deduction.
Listing of Common Shares and Warrants
The TSX Venture Exchange has conditionally accepted the listing of the Common Shares. Listing will be
subject to the Company fulfilling all of the listing requirements of the Exchange. The Company will also
apply to list the Warrants on the Exchange.
RISK FACTORS
General
The Company is in the business of exploring and developing mineral properties, which is a highly
speculative endeavor. A purchase of any of the securities offered hereunder involves a high degree of risk
and should be undertaken only by purchasers whose financial resources are sufficient to enable them to
assume such risks and who have no need for immediate liquidity in their investment. An investment in
the securities offered hereunder should not constitute a major portion of an individual’s investment
portfolio and should only be made by persons who can afford a total loss of their investment. Prospective
purchasers should evaluate carefully the following risk factors associated with an investment in the
Company’s securities prior to purchasing any of the securities offered hereunder.
Limited Operating History
The Company has no history of earnings. There are no known commercial quantities of mineral reserves
on any of the Companies properties. The purpose of the Offering is to raise funds to carry out exploration
and development on the Company’s principal property. There is no guarantee that economic quantities of
mineral reserves will be discovered on any of the Company’s properties.
The Company has paid no dividends on its Common Shares since incorporation and does not anticipate
doing so in the foreseeable future. Payment of any future dividends will be at the discretion of the
Company’s board of directors after taking into account many factors, including operating results,
financial condition and anticipated cash needs.
Exploration and Development Risks
Resource exploration and development is a speculative business, characterized by a number of significant
risks including, among other things, unprofitable efforts resulting not only from the failure to discover
mineral deposits but also from finding mineral deposits that, though present, are insufficient in quantity
and quality to return a profit from production. The marketability of minerals acquired or discovered by
the Company may be affected by numerous factors which are beyond the control of the Company and
which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling
facilities, mineral markets and processing equipment, and such other factors as government regulations,
including regulations relating to royalties, allowable production, importing and exporting of minerals, and
environmental protection, the combination of which factors may result in the Company not receiving an
adequate return of investment capital.
49
There is no assurance that the Company's mineral exploration and development activities will result in
any discoveries of commercial bodies of ore. The long-term profitability of the Company's operations
will in part be directly related to the costs and success of its exploration programs, which may be affected
by a number of factors. Substantial expenditures are required to establish reserves through drilling and to
develop the mining and processing facilities and infrastructure at any site chosen for mining. Although
substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can
be given that minerals will be discovered in sufficient quantities to justify commercial operations or that
funds required for development can be obtained on a timely basis.
Acquisition Of Additional Mineral Properties
If the Company loses or abandons its interest in its properties, there is no assurance that it will be able to
acquire another mineral property of merit or that such an acquisition would be approved by the Exchange.
There is also no guarantee that the Exchange will approve the acquisition of any additional properties by
the Company, whether by way of option or otherwise, should the Company wish to acquire any additional
properties.
Commercial Ore Deposits
The Company’s properties are in the exploration stage only and are without known bodies of commercial
ore. Development of any of the properties would follow only if favourable exploration results are
obtained. The business of exploration for minerals and mining involves a high degree of risk. Few
properties that are explored are ultimately developed into producing mines.
Uninsurable Risks
In the course of exploration, development and production of mineral properties, certain risks, and in
particular, unexpected or unusual geological operating conditions including rock bursts, cave-ins, fires,
flooding and earthquakes may occur. It is not always possible to fully insure against such risks and the
Company may decide not to take out insurance against such risks as a result of high premiums or other
reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in
increasing costs and a decline in the value of the securities of the Company.
Permits And Government Regulations
The future operations of the Company may require permits from various federal, provincial and local
governmental authorities and will be governed by laws and regulations governing prospecting,
development, mining, production, export, taxes, labour standards, occupational health, waste disposal,
land use, environmental protections, mine safety and other matters. There can be no guarantee that the
Company will be able to obtain all necessary permits and approvals that may be required to undertake
exploration activity or commence construction or operation of mine facilities on any of its properties.
Environmental And Safety Regulations And Risks
Environmental laws and regulations may affect the operations of the Company. These laws and
regulations set various standards regulating certain aspects of health and environmental quality. They
provide for penalties and other liabilities for the violation of such standards and establish, in certain
circumstances, obligations to rehabilitate current and former facilities and locations where operations are
or were conducted. The permission to operate can be withdrawn temporarily where there is evidence of
serious breaches of health and safety standards, or even permanently in the case of extreme breaches.
Significant liabilities could be imposed on the Company for damages, clean-up costs or penalties in the
event of certain discharges into the environment, environmental damage caused by previous owners of
50
acquired properties or noncompliance with environmental laws or regulations. In all major developments,
the Company generally relies on recognized designers and development contractors from which the
Company will, in the first instance, seek indemnities. The Company intends to minimize risks by taking
steps to ensure compliance with environmental, health and safety laws and regulations and operating to
applicable environmental standards. There is a risk that environmental laws and regulations may become
more onerous, making the Company’s operations more expensive.
Mineral Titles
No assurances can be given that title defects to the Company’s properties do not exist. The Company’s
properties may be subject to prior unregistered agreements, transfers or claims and title may be affected
by undetected defects. If title defects do exist, it is possible that the Company may lose all or a portion of
its right, title and interest in and to the properties. Although the Company has taken reasonable measures
to ensure valid and proper title to its properties, there is no guarantee that title to its properties will not be
challenged or impaired.
Loss Of Interest In Properties
The Company’s Cerro Prieto Property is subject to the Polimetalicos Share Purchase Agreement which
requires the Company to make cash payments in order to complete the acquisition of Polimetalicos and
complete its acquisition of an the Cerro Prieto Property. If the Company does not make the final payment
pursuant to the Polimetalicos Share Purchase Agreement, then the Company may lose its interest in the
Cerro Prieto Property.
Fluctuating Mineral Prices
The Company’s revenues, if any, are expected to be in large part derived from the extraction and sale of
precious and base minerals and metals. Factors beyond the control of the Company may affect the
marketability of metals discovered, if any. Metal prices have fluctuated widely, particularly in recent
years. Consequently, the economic viability of any of the Company’s exploration projects cannot be
accurately predicted and may be adversely affected by fluctuations in mineral prices.
Competition
The mining industry is intensely competitive in all its phases. The Company competes for the acquisition
of mineral properties, claims, leases and other mineral interests as well as for the recruitment and
retention of qualified employees with many companies possessing greater financial resources and
technical facilities than the Company. The competition in the mineral exploration and development
business could have an adverse effect on the Company's ability to acquire suitable properties or prospects
for mineral exploration in the future.
Management
The success of the Company is currently largely dependent on the performance of its directors and
officers. The loss of the services of any of these persons could have a materially adverse effect on the
Company’s business and prospects. There is no assurance the Company can maintain the services of its
directors, officers or other qualified personnel required to operate its business.
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No Currently Known Commercial Mineral Deposits
The properties on which the proceeds of the Offering are to be expended contain no currently known
amounts of commercial mineral deposits. The Company’s programs are an exploratory search for such
deposits.
Financing Risks
The Company has no history of significant earnings and, due to the nature of its business, there can be no
assurance that the Company will be profitable. The Company has paid no dividends on its shares since
incorporation and does not anticipate doing so in the foreseeable future. The only present source of funds
available to the Company is through the sale of its equity shares. Even if the results of exploration are
encouraging, the Company may not have sufficient funds to conduct the further exploration that may be
necessary to determine whether or not a commercially minable deposit exists on any of its properties.
While the Company may generate additional working capital through further equity offerings or through
the sale or possible syndication of its properties, there is no assurance that any such funds will be
available on terms acceptable to the Company, or at all. If available, future equity financing may result in
substantial dilution to purchasers under the Offering. At present it is impossible to determine what
amounts of additional funds, if any, may be required.
Dilution
There are a number of outstanding options and warrants pursuant to which additional Common Shares of
the Company may be issued in the future. Exercise of such options and warrants may result in dilution to
the Company’s shareholders. In addition, if the Company raises additional funds through the sale of
equity securities, shareholders may have their investment further diluted.
Resale of Shares
The continued operation of the Company will be dependent upon its ability to generate operating
revenues and to procure additional financing. There can be no assurance that any such revenues can be
generated or that other financing can be obtained. If the Company is unable to generate such revenues or
obtain such additional financing, any investment in the Company may be lost. In such event, the
probability of resale of the shares purchased would be diminished.
Price Volatility of Publicly Traded Securities
In recent years, the securities markets in the United States and Canada have experienced a high level of
price and volume volatility, and the market prices of securities of many companies have experienced wide
fluctuations in price which have not necessarily been related to the operating performance, underlying
asset values or prospects of such companies. There can be no assurance that continual fluctuations in
price will not occur. It may be anticipated that any quoted market for the Common Shares will be subject
to market trends generally, notwithstanding any potential success of the Company in creating revenues,
cash flows or earnings. The value of the securities distributed hereunder will be affected by such
volatility. There is no public market for the Company’s Common Shares. An active public market for the
Common Shares might not develop or be sustained after the Offering. The initial public offering price of
the Units has been determined by negotiations between the Company and representatives of the Agent
and this price will not necessarily reflect the prevailing market price of the Common Shares following the
Offering. If an active public market for the Common Shares does not develop, the liquidity of a
shareholder’s investment may be limited and the share price may decline below the initial public offering
price.
52
Conflicts of Interest
Some of the directors and officers are engaged and will continue to be engaged in the search for
additional business opportunities on behalf of other corporations, and situations may arise where these
directors and officers will be in direct competition with the Company. Conflicts, if any, will be dealt with
in accordance with the relevant provisions of the Business Corporations Act (British Columbia). Some of
the directors and officers of the Company are or may become directors or officers of other companies
engaged in other business ventures. In order to avoid the possible conflict of interest which may arise
between the directors’ duties to the Company and their duties to the other companies on whose boards
they serve, the directors and officers of the Company have agreed to the following:
1.
2.
3.
participation in other business ventures offered to the directors will be allocated between the
various companies and on the basis of prudent business judgment and the relative financial
abilities and needs of the companies to participate;
no commissions or other extraordinary consideration will be paid to such directors and officers;
and
business opportunities formulated by or through other companies in which the directors and
officers are involved will not be offered to the Company except on the same or better terms than
the basis on which they are offered to third party participants.
Tax Issues
Income tax consequences in relation to the Units will vary according to circumstances of each investor.
Prospective investors should seek independent advice from their own tax and legal advisers prior to
subscribing for the Units.
Eligibility for Investment
Upon the Common Shares being listed for trading on Tier 1 or Tier 2 of the TSX Venture Exchange, the
Common Shares will be qualified investments under the Income Tax Act (Canada) for trusts governed by
registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and
registered education savings plans.
Dividends
The Company does not anticipate paying any dividends on its Common Shares in the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings and is not aware of any such proceedings known to
be contemplated.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as disclosed in this Prospectus, no insider of the Company, director, or associate or affiliate of
them, has any material interest, direct or indirect, in any transaction since incorporation or in any proposed
transaction that has materially affected or will materially affect the Company.
RELATIONSHIP BETWEEN THE COMPANY AND AGENT
The Company is not a related party or connected party to the Agent as such terms are utilized in the
Securities Act (British Columbia) and NI 33-105.
53
AUDITORS
The auditors of the Company are Dale Matheson Carr-Hilton Labonte LLP, Chartered Accountants, of
1500 - 1140 West Pender Street, Vancouver, B.C., V6E 4G1.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent of the Company is Olympia Trust Company of 925 West Georgia Street,
Suite 1900, Vancouver, British Columbia, V6C 3L2.
MATERIAL CONTRACTS
Except for contracts made in the ordinary course of business, the following are the only material contracts
entered into by the Company since incorporation which are currently in effect and considered to be
currently material:
1.
Agency Agreement between the Company and PI Financial Corp. dated February 12, 2008
referred to under “Plan of Distribution”;
2.
Escrow Agreement dated January 8, 2008 among the Company, Olympia Trust Company,
Lohengrin Foundation, David Rose, Ken Thorsen, Stephen Leahy, Kristin Leahy, and Michael
Leahy referred to under “Escrowed Shares”;
3.
Pooling Agreement dated January 8, 2008 among the Company, Olympia Trust Company, Terry
Kirby, Wendy Kirby, Marouska Smith, Sunda Mining Corp., G. Royal Smith, Colleen Dalziel,
Hayes Davis Investments Inc., Ostia Management Corp., and Helena Cortina Barroso referred to
under “Shares Subject to Voluntary Pooling Agreement”;
4.
2007 Stock Option Plan dated July 31, 2007 referred to under “Options to Purchase Securities”;
5.
Consulting Agreement dated effective July 31, 2007 between the Company, Mustang Management
Ltd. and Stephen Leahy, referred to under “Termination of Employment, Changes in
Responsibility and Employment Contracts”;
6.
Consulting Agreement dated effective July 31, 2007 between the Company and J. Casey Forward,
referred to under “Termination of Employment, Changes in Responsibility and Employment
Contracts”;
7.
Consulting Agreement dated effective September 1, 2007 between the Company and David Rose,
referred to under “Termination of Employment, Changes in Responsibility and Employment
Contracts”;
8.
Registrar and Transfer Agent Agreement dated August 17, 2007 between the Company and
Olympia Trust Company;
9.
Assignment Agreement dated August 26, 2006 as amended effective December 15, 2006 and May
18, 2007 among the Company, ATM Mining Corp. and Salvador Rivero Cortina, respecting the
Cerro Prieto Property and the Xochipala property, referred to under “Significant Acquisitions and
Dispositions”;
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10.
Xochipala Assignment Agreement dated January 11, 2007 among Celia Alvarez Duran Vda. de
Adame, Jose Luis Adame Alvarez, Carlos Humberto Adame Alvarez as heirs to the estate of
Carlos Adame Camacho, and Donaciano Adame Arcos and Minera Xochipala respecting the
respecting the Xochipala Property, referred to under “Significant Acquisitions and Dispositions”;
11.
Trust Declaration dated April 19, 2007 between German Gonzalez Canas and the Company
pursuant to which German Gonzalez Canas is holding one share of Minera Xochipala in trust for
the Company;
12.
Polimetalicos Share Purchase Agreement dated June 19, 2007, as amended September 24, 2007
and January 28, 2008 among the Company, Ruben Rodriquez Villegas and Rosa Delia Salazar
Parra;
13.
Trust Declaration dated June 19, 2007 between German Gonzalez Canas and the Company
pursuant to which German Gonzalez Canas is holding the Cerro Prieto North Property in trust for
the Company;
14.
Consulting Agreement dated effective September 1, 2007 between the Company, Javelin
Management Ltd. and Adam Smith, referred to under “Termination of Employment, Changes in
Responsibility and Employment Contracts”;
15.
Consulting Agreement dated September 1, 2007 between the Company, Warner Payton
Investments Inc. and Craig Dalziel, referred to under “Termination of Employment, Changes in
Responsibility and Employment Contracts”;
16.
Consulting Agreement dated September 1, 2007 between the Company, 0701287 B.C. Ltd. and
Terry Kirby, referred to under “Termination of Employment, Changes in Responsibility and
Employment Contracts”;
17.
Consulting Agreement dated September 1, 2007, as amended November 14, 2007 between the
Company and Ravinder Deol, referred to under “Termination of Employment, Changes in
Responsibility and Employment Contracts”.
18.
Consulting Agreement dated January 4, 2008 between the Company, Kaiser International S.A. de
C.V. and Salvador Rivero, referred to under “Termination of Employment, Changes in
Responsibility and Employment Contracts”; and
19.
Warrant Indenture dated February 12, 2008 between the Company and Olympia Trust Company,
as warrant agent in respect of the Warrants to be issued as part of the Units under this Offering, to
be entered into on or before the completion of the Offering. See “Description of Securities
Distributed – Warrants”.
A copy of any material contract and the technical report may be inspected during distribution of the
Common Shares being offered under this Prospectus and for a period of 30 days thereafter during normal
business hours at the Company’s offices at Suite 789, 999 West Hastings Street, Vancouver, British
Columbia, Canada.
LEGAL MATTERS
Certain legal matters related to the Offering have been passed upon on behalf of the Company by Morton
& Company and on behalf of the Agent by Miller Thomson LLP.
55
EXPERTS
Duncan J. Bain, P. Geo, the author of the Report, holds no interest in the Company, the Company’s
securities or the Company’s properties.
Income tax consequences to Subscribers are not viewed as a material aspect of the Offering of the Units
hereunder. Subscribers should consult their own tax advisors for advice with respect to the income
tax consequences associated with their acquisition of Units under this Prospectus.
RELATIONSHIP BETWEEN THE COMPANY’S PROFESSIONAL
PERSONS AND EXPERTS
There is no beneficial interest, direct or indirect, in any securities in excess of one percent of the
Company’s issued capital or property of the Company or of an associate or affiliate of the Company, held
by a professional person as referred to in section 106(2) of the Rules under the Securities Act (British
Columbia), a responsible solicitor or any partner of a responsible solicitor's firm or by any person or
company whose profession or business gives authority to a statement made by the person or company and
who is named as having prepared or certified a part of this Prospectus or prepared or certified a report or
valuation described or included in this Prospectus. No such person is or is expected to be elected,
appointed or employed as a director or employee of the Company.
OTHER MATERIAL FACTS
There are no other material facts other than as disclosed herein.
PURCHASERS’ STATUTORY RIGHT OF WITHDRAWAL AND RESCISSION
Securities legislation in the Province of British Columbia, Alberta and Ontario provides purchasers with
the right to withdraw from an agreement to purchase securities. This right may be exercised within two
business days after receipt or deemed receipt of a prospectus and any amendment. The securities
legislation further provides a purchaser with remedies for rescission or damages if the prospectus and any
amendment contains a misrepresentation or is not delivered to the purchaser, provided that the remedies
for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities
legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the
securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal
adviser.
56
Oroco Resource Corp.
Consolidated Financial Statements
May 31, 2007
Index to Financial Statements
Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations and Deficit
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Oroco Resource Corp.
Consolidated Balance Sheet
May 31, 2007
ASSETS
Current Assets
Cash
Refundable GST
Prepaid expenses
$
Interest in resource properties (note 4)
Equipment (note 5)
3,398,498
14,460
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (note 8)
Resource property purchase obligations (note 4)
Loans payable (note 6)
$
3,430,993
$
274,001
1,824,287
67,000
2,165,288
SHAREHOLDERS' EQUITY
Share Capital (note 7)
Authorized
100,000,000 common shares of no par value
Issued and outstanding
Deficit
1,468,750
(203,045)
1,265,705
$
Going Concern (note 1)
Commitments (note 4, 6 and 11)
Approved by the Board:
"Stephen Leahy"
Director
10,074
2,989
4,972
18,035
"Casey Forward"
Director
The accompanying notes form an integral part of these consolidated financial statements.
3,430,993
Oroco Resource Corp.
Consolidated Statement of Operations and Deficit
For the period from July 7, 2006 (inception) to May 31, 2007
Expenses
Amortization
Bank charges and interest
Consulting fees (note 8)
Office
Professional fees (note 8)
Rent
Travel
$
Total expenses
1,562
401
74,992
5,315
65,414
11,000
45,631
(204,315)
Other items
Interest income
Foreign exchange gain
2,014
(744)
1,270
Net loss
(203,045)
Deficit, beginning
-
Deficit, ending
$
(203,045)
Loss per share, basic and diluted
$
(0.02)
Weighted average shares outstanding
The accompanying notes form an integral part of these consolidated financial statements.
11,170,916
Oroco Resource Corp.
Consolidated Statement of Cash Flows
For the period from July 7, 2006 (inception) to May 31, 2007
Operating Activities
Net loss
Items not involving cash
Amortization
$
(203,045)
1,562
(201,483)
Changes in non-cash working capital
Refundable GST
Prepaid expenses
Accounts payable and accrued liabilities
(2,989)
(4,972)
96,261
Net cash used in operating activities
(113,183)
Financing Activities
Shares issued for cash
Loans payable
1,437,250
67,000
Net cash provided from financing activities
1,504,250
Investing Activities
Acquisition of equipment
Acquisition and exploration of resource properties
(16,022)
(1,364,971)
Net cash used in investing activities
(1,380,993)
Change in cash
10,074
Cash, beginning
-
Cash, ending
Supplemental cash flow information (note 3)
The accompanying notes form an integral part of these consolidated financial statements.
$
10,074
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
1.
NATURE OF OPERATIONS
Oroco Resource Corp. (the “Company”) is a private company incorporated on July 7, 2006 under the Business Corporations Act
of British Columbia and is in the business of acquiring, exploring and evaluating mineral resource properties. At May 31, 2007
the Company was in the exploration stage and had interests in properties located in Mexico.
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to
realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. The
recoverability of amounts shown for resource properties is dependent upon the discovery of economically recoverable reserves,
confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain financing to
complete their development, and future profitable production or the disposition thereof.
For the period ended May 31, 2007, the Company had a loss of $203,045, an accumulated deficit of $203,045 and a working
capital deficiency of $2,147,253. These factors cause there to be substantial uncertainty over the Company's ability to continue
as a going concern.
The Company is filing a prospectus in the Provinces of British Columbia, Alberta and Ontario to offer investors 8,000,000 units at
$0.55 per unit which, if completed, will net $4,048,000 to the treasury.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted
accounting principles and are presented in Canadian dollars. The following is a summary of the significant accounting policies
used in the preparation of the financial statements.
Consolidation
These consolidated financial statements include the accounts of the Company and the following subsidiary. All intercompany
transactions and balances have been eliminated.
Minera Xochipala S.A. de C.V. ("Minera Xochipala")
Country of
Incorporation
Percentage
ownership May
31, 2007
Mexico
100.0%
Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires
management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and expenses for the periods reported. Actual results
could differ from those estimates. Significant areas requiring the use of management estimates relate to the determination of
impairment of mineral property interests and the determination of fair value for stock based transactions. Where estimates have
been used financial results as determined by actual events could differ from those estimates.
Equipment
Equipment is stated at cost less accumulated amortization. Amortization is provided for using the declining-balance method at
the following rates per annum:
Automotive equipment
30%
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES continued
Mineral properties
The Company records its interests in mineral properties at the lower of cost or estimated recoverable value. Where specific
exploration programs are planned and budgeted by management, the cost of mineral properties and related exploration
expenditures are capitalized until the properties are placed into commercial production, sold, abandoned or determined by
management to be impaired in value. These costs will be amortized over the estimated useful lives of the properties following
the commencement of production or written off if the properties are sold or abandoned.
The costs include the cash or other consideration and the fair value of shares issued, if any, on the acquisition of mineral
properties. Costs related to properties acquired under option agreements or joint ventures, whereby payments are made at the
sole discretion of the Company, are recorded in the accounts at such time as the payments are made. For properties held jointly
with other parties the Company only records its proportionate share of acquisition and exploration costs. The proceeds from
options granted are deducted from the cost of the related property and any excess is deducted from other remaining capitalized
property costs. The Company does not accrue estimated future costs of maintaining its mineral properties in good standing.
Capitalized costs as reported on the balance sheet represent costs incurred to date and may not reflect actual, present, or future
values. Recovery of carrying value is dependent upon future commercial success or proceeds from disposition of the mineral
interests.
Management evaluates each mineral interest on a reporting period basis or as events and circumstances warrant, and makes a
determination based on exploration activity and results, estimated future cash flows and availability of funding as to whether
costs are capitalized or charged to operations.
Mineral property interests, where future cash flows are not reasonably determinable, are evaluated for impairment based on
management’s intentions and determination of the extent to which future exploration programs are warranted and likely to be
funded.
General exploration costs not related to specific properties and general administrative expenses are charged to operations in the
year in which they are incurred.
The Company does not have any producing mineral properties and all of its efforts to date have been exploratory in nature.
Upon the establishment of commercial production, carrying values of deferred acquisition and exploration costs will be amortized
over the estimated life of the mine using the units of production method.
Environmental costs
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the
Company’s commitment to a plan of action based on the then known facts.
Foreign currency translation
Financial statements of the Company's integrated foreign subsidiary are translated into Canadian dollar equivalents using the
temporal method whereby all monetary assets and liabilities are translated at the rate of exchange at the balance sheet date.
Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Income and expenses
are translated at rates which approximate those in effect on transaction dates. Gains and losses arising from translation of
foreign currency monetary assets and liabilities at each period end are included in earnings. Transaction amounts denominated
in foreign currencies are translated into their Canadian dollar equivalents at exchange rates prevailing at the transaction date.
Gains and losses arising from translation of foreign currency monetary assets and liabilities and transactions are included in
earnings.
Loss per share
Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive
securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is
computed by application of the treasury stock method and the effect of convertible securities by the “if converted” method. Fully
diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred. Accordingly,
there is no difference in the amounts presented for basic and diluted loss per share.
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
2.
SIGNIFICANT ACCOUNTING POLICIES continued
Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, current income taxes are
recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are
recognized for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of
losses available to be carried forward to future years for tax purposes only if it is more likely than not that they can be realized.
Impairment
The Company monitors the recoverability of long-lived assets (including automotive equipment) whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. The Company reviews factors such as
current market value, future asset utilization and business climate and compares the carrying value of the assets to the future
undiscounted cash flows expected to result from the use of the related asset. If such cash flows are less than the carrying value,
the impairment charge to be recognized equals the excess of the asset carrying value over the fair value.
Financial instruments
The fair values of cash, accounts payable and accrued liabilities and loans payable approximate their carrying values due to the
short term or demand nature of these instruments. It is management's opinion that the Company is not exposed to significant
interest or credit risks arising from these financial instruments.
Stock-based compensation
The Company follows the Canadian Institute of Chartered Accountants Handbook section 3870, Stock-based Compensation and
Other Stock-based Payments, and accounts for all grants of options to employees, non-employees and directors in accordance
with the fair value method for accounting for stock-based compensation as defined by accounting principles generally accepted
in Canada. The fair value of stock-based compensation awards are calculated using the Black-Scholes option pricing model
("Black-Scholes"). Option pricing models require the input of highly subjective assumptions, including the expected price
volatility. Changes in these assumptions can materially affect the fair value estimate and, therefore, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company’s share purchase options. To May 31, 2007, no
stock options have been granted.
Asset Retirement Obligations
The Company has adopted the CICA Handbook section 3110, Asset Retirement Obligations. This standard focuses on the
recognition and measurement of liabilities related to legal obligations associated with the retirement of property, plant and
equipment. Under this standard, these obligations are initially measured at fair value and subsequently adjusted for any
changes resulting from the passage of time and revisions to either the timing or the amount of the original estimate of
undiscounted cash flows. The asset retirement cost is to be capitalized to the related asset and amortized into earnings over
time. Management is of the opinion that the Company does not have any asset retirement obligations at this time.
3.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid
Taxes paid
Non-cash transactions not included in investment or financing activities
Acquisition of resource properties by the issuance of shares
For the period from July 7, 2006
(inception) to May 31, 2007
$
$
-
$
31,500
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
4.
RESOURCE PROPERTIES
Cerro Prieto
Acqusition costs
Cash consideration
Obligation payable
Shares
$
Deferred exploration expenditures
Assessment and taxes
Consulting
Sampling
Survey
Transportation
Travel and accommodation
Balance, ending
$
932,089
1,824,287
17,500
Xochipala
$
270,330
14,000
Cerro Prieto
North
Salvador
$
113,010
-
$
96,041
-
1,411,470
1,824,287
31,500
96,041
3,267,257
2,773,876
284,330
4,416
30,261
84,284
2,908
1,976
5,202
2,194
-
-
-
6,610
30,261
84,284
2,908
1,976
5,202
129,047
2,194
-
-
131,241
2,902,923
$
286,524
113,010
Total
$
113,010
$
96,041
$
3,398,498
(a) Cerro Prieto Property, Sonora State, Mexico
On August 26, 2006, as amended on December 15, 2006 and May 18, 2007, the Company entered into an assignment
agreement (the "Assignment Agreements") whereby Salvador Rivero Cortina ("Rivero") and ATM Mining Corp. ("ATM")
assigned their rights and interests in the Cerro Prieto and the Xochipala properties to the Company. Under the assignment
agreement, the Company paid $69,000 to ATM for costs associated with the Xochipala property, accepted share subscriptions
from ATM to purchase 5,350,000 common shares of the Company, and assumed ATM's obligation to issue 3,150,000 common
shares (note 7).
The Cerro Prieto Property is located 150 kilometres northeast of the city of Hermosillo, and consists of two concessions covering
a total area of 215 hectares. Of these two concessions, the San Francisco concession, consisting of 10 hectares, covers the
underground workings of the Cerro Prieto Mine. The second concession, San Felix, consisting of 205 hectares, surrounds the
San Francisco concession to the north, south, east and west.
The title to the Cerro Prieto Property is held by Minas de Oroco S.A. ("Minas de Oroco"), a Mexican company, which in turn is
owned by Polimetalicos Mexicanos S.A. ("Polimetalicos"), a Panamanian company, which holds 98% of the issued and
outstanding shares of Minas de Oroco. In connection with the Assignment Agreements, the Company entered into an
agreement with the shareholders of Polimetalicos to purchase their shares in consideration for $2,500,000 USD, of which
$800,000 USD was paid during the period ending May 31, 2007 and the remainder was due in two additional payments. The
Company will receive title to the Cerro Prieto Property through the acquisition of Polimetalicos after the following additional
payments have been made:
(1) $200,000 USD (C$214,622) before October 1, 2007 (paid) and (2) $1,500,000 USD (C$1,609,665) before February 1,
2008.
The Cerro Prieto Property is subject to a 2% net smelter royalty in favor of the Cerro Prieto Vendors. If the Company does not
commence production on the Cerro Prieto Property by April 1, 2009, the Company will pay the Cerro Prieto Vendors a minimum
royalty payment in the amount of US$30,000 per quarter until payments commence pursuant to the net smelter royalty.
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
4.
RESOURCE PROPERTIES continued
(b) Xochipala Property, Guerrero State, Mexico
The Company, through its subsidiary, holds a 100% interest in two contiguous mining concessions, Celia Generosa and Celia
Gene, referred to as the Xochipala Property. They have a combined area of 193 hectares. The property is located in the
municipality of Zumpango del Rio in the state of Guerrero, Mexico, 30 kilometres northwest of Chilpancingo, the regional capital
and within the southeast extreme of the original Morelos National Mining Reserve.
In connection with the Assignment Agreements the Company paid approximately $18,000 (186,000 pesos) to the Xochipala and
various other vendors, assumed liability for all arrears and penalties for the outstanding mining fees with regard to the Xochipala
Property in the aggregate amount of 670,612 pesos (approximately $67,000), assumed a lien settlement of 500,000 pesos
(approximately $50,000) and legal fees and other fees of 650,000 pesos (approximately $65,000). In addition the Company paid
ATM $69,000 as mentioned above.
(c) Salvador Property, Guerrero State, Mexico
The Salvador Property is a 100 hectare mining concession 100% owned by Minera Xochipala. The concession is approximately
30 km. west of the regional centre of Chilpancingo, Guerrero. The concession was acquired for the sum of $108,201 (1,021,877
pesos) paid in cash.
(d) Cerro Prieto North Property
The Cerro Prieto North property is a 2,507 hectare property located in the Cucurpe Municipality of Sonora State, Mexico. It was
staked by the Company for total cost of $96,041.
5.
EQUIPMENT
May 31, 2007
Automotive equipment
6.
Cost
$
15,948
Accumulated
amortization
$
1,488
Net book value
$
14,460
LOANS PAYABLE
Loans payable are from unrelated third parties, are unsecured, are non-interest bearing, and are repayable on demand.
Subsequent to year end, the loans were repaid in full (note 11).
7.
SHARE CAPITAL
(a) Authorized
100,000,000 common shares of no par value
(b) Issued and outstanding
Issued on incorporation
Seed shares issued in cash
Shares issued for properties (note 4)
Private placement - October 2006
Exercise of warrants
Private placement - January 2007
Balance at May 31, 2007
Shares
1
5,350,000
3,150,000
2,700,000
1,150,000
4,150,000
16,500,001
Price
$
0.01
0.01
0.01
0.075
0.125
0.25
Amount
$
53,500
31,500
202,500
143,750
1,037,500
$
1,468,750
In August 2006 a total of 6,250,000 shares were issued at $0.01 per share. Subsequently on December 15, 2006 900,000
shares were cancelled for a net issued of 5,350,000 and cash proceeds of $53,500.
In August 2006 a total of 3,150,000 shares was issued at $0.01 per share as a finders' fee pursuant to the Assignment
Agreements (note 4).
In October 2006 a private placement was completed of 2,700,000 units at $0.075 per unit, each unit consisting of one
common share and one share purchase warrant to purchase one common share at $0.125 per share. The warrants are not
transferable and expired on January 31, 2007. Fair value of warrants are not valued or recorded separately.
In January 2007 a private placement was completed for 4,150,000 shares at $0.25 per share for cash proceeds of
$1,037,500.
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
7.
SHARE CAPITAL continued
(c) Warrants
(i) The changes in warrants were as follows:
Balance of warrants at beginning of period
Issued
Exercised
Expired
Balance of warrants end of period
For the period
Weighted
from July 7,
average
2006 (inception)
exercise
to May 31, 2007
price
$
2,700,000
0.125
(1,150,000)
0.125
(1,550,000)
-
$
-
(d) Escrow
Pursuant to the policies of the TSX Venture Exchange, 4,350,000 shares will be held in escrow. Ten percent will be released
on listing of the Company's securities for trading, and 15 percent released every six months thereafter.
8.
RELATED PARTY TRANSACTIONS
The following expenses were incurred with directors and officers of the Company
Consulting fees
Professional fees
For the period
from July 7, 2006
to May 31, 2007
$
20,975
29,000
Total
$
49,975
As at May 31, 2007 accounts payable and accrued liabilities included $51,553 owing to officers and directors for fees owing of
$32,365 and expenses paid on behalf of the Company of $19,188.
These charges were measured by the exchange amount, which is the amount agreed upon by the related parties.
9.
COMMITMENTS
Office lease
The Company has entered into an agreement to lease office space until June 30, 2010 which require the following annual
payments:
2008 $
59,664
2009
59,664
2010
59,664
2011
4,972
Oroco Resource Corp.
Consolidated Notes to Financial Statements
May 31, 2007
10. INCOME TAXES
The following is a reconciliation of income taxes:
For the period
from July 7, 2006
(inception) to
May 31, 2007
Statutory rates in Canada
Income taxes at Canadian statutory rates
Difference in tax rates in other jurisdictions
31.00%
$
Increase in valuation allowance
Current and future tax expense
Future income taxes
Tax losses carried forward
Other
Future income tax assets
Valuation allowance
Net future income tax assets
(60,647)
(341)
(60,988)
60,988
$
-
$
60,647
193
60,840
(60,840)
$
-
At May 31, 2007 the Company has non-capital losses remaining to be carried forward of approximately $203,000 which may be
available to offset future income for income tax purposes and which expire in 2027.
The Company evaluates the recoverability of its future tax assets based on projected future operations. When circumstances
change and this cause a change in management's judgment about the recoverability of future tax assets, the impact of the
change in the valuation allowance is reflected in current income.
11. SUBSEQUENT EVENTS
The Company has raised additional funds by way of a private placement consisting of 2,890,000 shares at $0.35 per share for a
total of $1,011,500.
Loans payable of $67,000 were repaid in full subsequent to May 31, 2007.
The Company has filed a prospectus in the Provinces of British Columbia, Alberta and Ontario and has engaged Pacific
International Securities Inc. as its agent to offer investors 8,000,000 shares at $0.55 per unit ("IPO Price") which, if completed,
will net $4,048,000 to the treasury after agent's commission. Each Unit is comprised of one common share and one half of one
transferable common share purchase warrant. Each whole Warrant will entitle the holder thereof to acquire one additional
common share of the Company at a price of $0.90 per share for a period of eighteen months from the date the Company’s
shares are listed on the TSX Venture Exchange.
Subsequent to May 31, 2007 the Company granted 2,650,000 stock options to directors, officers, and consultants at $0.55 per
share for a period of five years. Vesting is one-third on listing of the Company's shares on the TSX Venture Exchange, one-third
six months after listing and the balance one year after listing.
A management contract was signed with the president for a period of two years, renewable automatically every year, at an initial
rate of $3,500 per month to be reviewed after six months. Management contracts were signed with two other officers for a total of
$5,500 per month for no fixed term but which can be terminated with three months' notice. Consulting contracts were signed with
three parties for a maximum of $5,000 per month for no fixed term but which can be terminated on one months' notice and one
consultant for $350 per day for no fixed term but which can be terminated on three months' notice.
Subsequent to May 31, 2007 the Assignment Agreements were amended so that the final payment of US$1,500,000 was
deferred to March 16, 2008 in consideration for interest at 7.8% per annum for a 30 day period.
Oroco Resource Corp.
Consolidated Financial Statements
(unaudited)
November 30, 2007
Index to Financial Statements
Consolidated Balance Sheet
Consolidated Statement of Operations and Deficit
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Oroco Resource Corp.
Consolidated Balance Sheet
As at November 30 and May 31, 2007
November 30,
2007
May 31, 2007
(unaudited)
(audited)
ASSETS
Current Assets
Cash
Refundable GST
Prepaid expenses
$
Interest in resource properties (note 4)
Equipment (note 5)
Deferred share offering costs (note 3)
$
3,415,298
13,742
111,652
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Resource property purchase obligations (note 4)
Loans payable
The accompanying notes form an integral part of these consolidated financial statements.
3,398,498
14,460
-
3,745,783
$
3,430,993
$
191,322
1,483,000
1,674,322
$
274,001
1,824,287
67,000
2,165,288
$
"Casey Forward"
10,074
2,989
4,972
18,035
$
SHAREHOLDERS' EQUITY
Share Capital (note 6)
Authorized
100,000,000 common shares of no par value
Issued and outstanding
Deficit
"Stephen Leahy"
189,718
9,373
6,000
205,091
2,375,250
(303,789)
1,468,750
(203,045)
2,071,461
1,265,705
3,745,783
$
3,430,993
Oroco Resource Corp.
Consolidated Statement of Operations and Deficit
(unaudited)
for the six
months ended
November 30,
2007
Expenses
Amortization
Bank charges and interest
Consulting fees
Management fees
Office and filing
Professional fees (note 7)
Rent
Travel
$
Total expenses
728
1,025
40,209
14,000
41,320
94,643
25,532
12,101
(229,558)
Other items
Foreign exchange gain
128,814
128,814
Net and comprehensive loss
(100,744)
Deficit, beginning
(203,045)
Deficit, ending
$
(303,789)
Loss per share, basic and diluted
$
(0.006)
Weighted average shares outstanding
The accompanying notes form an integral part of these consolidated financial statements.
16,991,644
Oroco Resource Corp.
Consolidated Statement of Cash Flows
(unaudited)
for the six
months ended
November 30,
2007
Operating Activities
Net loss
Items not involving cash
Foreign exchange gain
Amortization
$
(100,744)
(128,814)
728
(228,830)
Changes in non-cash working capital
Refundable GST
Prepaid expenses
Accounts payable and accrued liabilities
(6,384)
(1,028)
(95,697)
Net cash used in operating activities
(331,939)
Financing Activities
Shares issued for cash
906,500
Deferred finance fees
Loans payable
(111,652)
(67,000)
Net cash provided from financing activities
727,848
Investing Activities
Resource property acquisition obligation
Exploration of resource properties
(199,465)
(16,800)
Net cash used in investing activities
(216,265)
Change in cash
179,644
Cash, beginning
10,074
Cash, ending
$
189,718
Supplemental cash flow information
Interest paid
Taxes paid
Non-cash transactions not included in investment or financing activities
The accompanying notes form an integral part of these consolidated financial statements.
$
$
$
-
Oroco Resource Corp.
Notes to Consolidated Financial Statements
(Unaudited)
November 30, 2007
1.
NATURE OF OPERATIONS
Oroco Resource Corp. (the “Company”) was incorporated on July 7, 2006 under the Business Corporations Act of British
Columbia and is in the business of acquiring, exploring and evaluating mineral resource properties. At November 30, 2007 the
Company was in the exploration stage and has interests in properties located in Mexico.
These interim financial statements should be read in conjunction with the audited May 31, 2007 annual financial statements. As
the Company's inception was on July 7, 2006 no comparative figures are presented.
These interim financial statements follow the same accounting policies and methods of their application as in the May 31, 2007
annual financial statements. These interim financial statements do not conform in all respects to the requirements of Canadian
generally accepted accounting principles for annual financial statements in that they do not include all note disclosures.
These financial statements have been prepared on a going concern basis which assumes that the Company will be able to
realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. The
recoverability of amounts shown for resource properties is dependent upon the discovery of economically recoverable reserves,
confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain financing to
complete their development, and future profitable production or the disposition thereof. In particular the Company is required to
make a payment of $1,483,000 ($1,500,000 USD) by March 16, 2008. See note 4a.
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires
management to make estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the
financial statements and expenses for the periods reported. Actual results could differ from those estimates.
2.
Financial Instruments
The Canadian Institute of Chartered Accountants issued the following standards effective for the fiscal years beginning on or
after October 1, 2006: Accounting Standards Section 1530 "Comprehensive Income", Accounting Standards Section 3855
"Financial Instruments – Recognition and Measurement", Accounting Standard Section 3861 "Financial Instruments
– Presentation and Disclosure" and Accounting Standards Section 3865 "Hedges". These sections require certain financial
instruments and hedge transactions to be recorded at fair value. The standards also introduce the concept of comprehensive
income and accumulated other comprehensive income.
The Company adopted these standards effective June 1, 2007 on a prospective basis without retroactive restatement of prior
periods. Under the new standard, financial instruments designated as "held for trading" and "available for sale" will be carried at
their fair value while financial instruments designated as "loans and receivables", "financial liabilities" and those classified as
"held to maturity" will be carried at their amortized cost. All derivatives will be carried on the consolidated balance sheet at their
fair value. Mark-to-market adjustments on these instruments will be included in net income. Transaction costs incurred to acquire
financial instruments will be included in the underlying balance. As at November 30, 2007, there was no impact on the
Company’s financial statements.
3.
DEFERRED SHARE OFFERING COSTS
The Company has filed a prospectus in the Provinces of British Columbia, Alberta and Ontario and has engaged PI Financial
Corp. as its agent to offer investors 8,000,000 shares at $0.55 per unit ("IPO Price") which, if completed, will net $4,048,000 to
the treasury after agent's commission. Each Unit is comprised of one common share and one half of one transferable common
share purchase warrant. Each whole Warrant will entitle the holder thereof to acquire one additional common share of the
Company at a price of $0.90 per share for a period of eighteen months from the date the Company’s shares are listed on the
TSX Venture Exchange.
Pursuant to this filing, the Company has deferred the following financing costs and will offset these costs against the proceeds of
the financing:
Legal
Auditing
Finance fee
$
63,402
15,000
33,250
$
111,652
Oroco Resource Corp.
Notes to Consolidated Financial Statements
(Unaudited)
November 30, 2007
4.
INTEREST IN RESOURCE PROPERTIES
Cerro Prieto
Balance at May 31, 2007
$
Deferred exploration expenditures
Assessment and taxes
Sampling
Balance, November 30, 2007
$
2,902,923
Xochipala
$
286,524
Cerro Prieto
North
Salvador
$
113,010
$
96,041
Total
$
3,398,498
12,474
2,408
1,918
-
-
-
14,392
2,408
14,882
1,918
-
-
16,800
2,917,805
$
288,442
$
113,010
$
96,041
$
3,415,298
(a) Cerro Prieto Property, Sonora State, Mexico
On August 26, 2006, as amended on December 15, 2006, May 18, 2007 and January 29, 2008, the Company entered into an
assignment agreement (the "Assignment Agreements") whereby Salvador Rivero Cortina ("Rivero") and ATM Mining Corp.
("ATM") assigned their rights and interests in the Cerro Prieto and the Xochipala properties to the Company. Under the
assignment agreement, the Company paid $69,000 to ATM for costs associated with the Xochipala property, accepted share
subscriptions from ATM to purchase 5,350,000 common shares of the Company, and assumed ATM's obligation to issue
3,150,000 common shares (note 6).
The Cerro Prieto Property is located 150 kilometres northeast of the city of Hermosillo, and consists of two concessions covering
a total area of 215 hectares. Of these two concessions, the San Francisco concession, consisting of 10 hectares, covers the
underground workings of the Cerro Prieto Mine. The second concession, San Felix, consisting of 205 hectares, surrounds the
San Francisco concession to the north, south, east and west.
The title to the Cerro Prieto Property is held by Minas de Oroco S.A. ("Minas de Oroco"), a Mexican company, which in turn is
owned by Polimetalicos Mexicanos S.A. ("Polimetalicos"), a Panamanian company, which holds 98% of the issued and
outstanding shares of Minas de Oroco. In connection with the Assignment Agreements, the Company entered into an
agreement with the shareholders of Polimetalicos to purchase their shares in consideration for $2,500,000 USD, of which
$1,000,000 USD has been paid with the remainder due before March 16, 2008 (including interest at 7.8% per annum for a 30
day period). The Company will receive title to the Cerro Prieto Property through the acquisition of Polimetalicos after the
payments have been made.
The Cerro Prieto Property is subject to a 2% net smelter royalty in favor of the Cerro Prieto Vendors. If the Company does not
commence production on the Cerro Prieto Property by April 1, 2009, the Company will pay the Cerro Prieto Vendors a minimum
royalty payment in the amount of US$30,000 per quarter until payments commence pursuant to the net smelter royalty.
(b) Xochipala Property, Guerrero State, Mexico
The Company, through its subsidiary, holds a 100% interest in two contiguous mining concessions, Celia Generosa and Celia
Gene, referred to as the Xochipala Property. They have a combined area of 193 hectares. The property is located in the
municipality of Zumpango del Rio in the state of Guerrero, Mexico, 30 kilometres northwest of Chilpancingo, the regional capital
and within the southeast extreme of the original Morelos National Mining Reserve.
In connection with the Assignment Agreements the Company paid approximately $18,000 (186,000 pesos) to the Xochipala and
various other vendors, assumed liability for all arrears and penalties for the outstanding mining fees with regard to the Xochipala
Property in the aggregate amount of 670,612 pesos (approximately $67,000), assumed a lien settlement of 500,000 pesos
(approximately $50,000) and legal fees and other fees of 650,000 pesos (approximately $65,000). In addition the Company paid
ATM $69,000 as mentioned above.
(c) Salvador Property, Guerrero State, Mexico
The Salvador Property is a 100 hectare mining concession 100% owned by Minera Xochipala. The concession is approximately
30 km. west of the regional centre of Chilpancingo, Guerrero. The concession was acquired for the sum of $108,201 (1,021,877
pesos) paid in cash.
(d) Cerro Prieto North Property, Mexico
The Cerro Prieto North property is a 2,507 hectare property located in the Cucurpe Municipality of Sonora State, Mexico. It was
staked by the Company for total cost of $96,041.
Oroco Resource Corp.
Notes to Consolidated Financial Statements
(Unaudited)
November 30, 2007
5.
EQUIPMENT
November 30, 2007
Automotive equipment
6.
Accumulated
amortization
Cost
$
15,948
$
2,206
Net book value
$
13,742
SHARE CAPITAL
(a) Authorized
100,000,000 common shares of no par value
(b) Issued and outstanding
Shares
Issued on incorporation
Seed shares issued in cash
Shares issued for properties (note 4)
Private placement - October 2006
Exercise of warrants
Private placement - January 2007
Balance at May 31, 2007
Private placement - November 2007
1
5,350,000
3,150,000
2,700,000
1,150,000
4,150,000
16,500,001
2,590,000
Balance at November 30, 2007
19,090,001
Price
$
Amount
0.01
0.01
0.01
0.075
0.125
0.25
$
53,500
31,500
202,500
143,750
1,037,500
1,468,750
906,500
$
2,375,250
0.35
The Company completed a private placement in November 2007 for 2,590,000 shares at $0.35 per share.
(c) Stock options
The Company has granted employees, consultants, directors and officers share purchase options. These options were
granted pursuant to the Company’s stock option plan with an exercise price equal to their market value on the date of the
grant less allowable discounts. Under the plan 33% of the options vest at the grant date with additional amounts of 33%
vesting every six months thereafter. In the case of the initial stock options, vesting will start on the day the Company's stock
is listed, with subsequent vesting from that point in time.
The changes in stock options were as follows:
November 30,
2007
2,400,000
-
Balance outstanding, beginning of period
Options granted
Exercised
Expired/ Cancelled
Balance outstanding, end of period
2,400,000
Weighted
Average
Exercise Price
$
0.55
$
0.55
On August 20, 2007 the Company granted 2,275,000 stock options and on October 24, 2007 the company granted an
additional 125,000 stock options to directors, officers, and consultants at $0.55 per share for a period of five years from date
of listing.
Using the fair value method for stock-based compensation, stock-based compensation expense of $220,416 will be recorded
in the consolidated statements of operations and deficit in future periods based on time of vesting.
This amount was determined using the Black Scholes Option Pricing Model assuming no dividends are to be paid, with a
weighted average expected stock option life of 5 years, a weighted average volatility of the Company's share price of 40%
and an average annual risk free interest rate of 3.93%.
The following table summarizes information about fully vested stock options, outstanding at November 30, 2007:
Range of exercise prices
0.55
Number outstanding at November
30, 2007
2,400,000
Weighted average remaining
contractual life (years)
5.0
Oroco Resource Corp.
Notes to Consolidated Financial Statements
(Unaudited)
November 30, 2007
6.
SHARE CAPITAL continued
(d) Warrants
There are no outstanding warrants at November 30, 2007
(e) Escrow
Pursuant to the policies of the TSX Venture Exchange, 4,350,000 shares will be held in escrow. Ten percent will be released
on listing of the Company's securities for trading, and 15 percent released every six months thereafter.
7.
RELATED PARTY TRANSACTIONS
The following expenses were incurred with directors and officers of the Company
Management fees
Professional fees
Total
for the six months ended November
30, 2007
$
14,000
38,885
$
52,885
As at November 30, 2007 accounts payable and accrued liabilities included $24,203 owing to officers and directors for
professional and management fees.
These charges were measured by the exchange amount, which is the amount agreed upon by the related parties.
8.
COMMITMENTS
The Company entered into a consulting agreement with Mustang Management Ltd. (“Mustang”) and Stephen Leahy (“Leahy”)
dated effective July 31, 2007 to which the Company agreed to pay Mustang $3,500 per month and to grant Mustang 250,000
options exercisable at $0.55 per share.
The Company entered into a consulting agreement with J. Casey Forward dated effective July 31, 2007 to which the Company
agreed to pay $2,500 per month and to grant 200,000 options exercisable at $0.55 per share.
The Company entered into a consulting agreement with David Rose dated September 1, 2007 to which the Company will pay a
fee of $350 per day, with a minimum aggregate monthly total of $3,000. The Company will grant 200,000 options exercisable at
$0.55 per share.
The Company entered into a consulting agreement with Javelin Management Ltd. (“Javelin”) and Adam Smith (“Smith”) dated
September 1, 2007 to which the Company will pay Javelin a per diem fee of $350 per day with a minimum monthly amount of
$3,000. The Company will grant to Javelin 200,000 Options exercisable at $0.55 per share.
The Company has entered into a services agreement with Rav Deol to provide investor relations services in consideration for a
monthly fee to be agreed between the Company and Deol from time to time, subject to a minimum of $2,500 per month and a
maximum of $5,000 per month and 25,000 options exercisable at $0.55 per share. The Deol Agreement may be cancelled upon
one months notice.
Refer also to note 6.
9.
SUBSEQUENT EVENTS
Subsequent to November 30, 2007 the Company granted 250,000 stock options to a consultant at $0.55 per share for a period
of five years. Vesting is one-third on listing of the Company's shares on the TSX Venture Exchange, one-third six months after
listing and the balance one year after listing.
Subsequent to November 30, 2007 the Company completed a private placement of 300,000 shares at $0.35 per share
The Company has filed a prospectus in the Provinces of British Columbia, Alberta and Ontario and has engaged Pacific
International Securities Inc. as its agent to offer investors 8,000,000 shares at $0.55 per unit ("IPO Price") which, if completed,
will net $4,048,000 to the treasury after agent's commission. Each Unit is comprised of one common share and one half of one
transferable common share purchase warrant. Each whole Warrant will entitle the holder thereof to acquire one additional
common share of the Company at a price of $0.90 per share for a period of eighteen months from the date the Company’s
shares are listed on the TSX Venture Exchange.
CERTIFICATE OF OROCO RESOURCE CORP.
Dated: February 12, 2008
The foregoing constitutes full, true and plain disclosure of all material facts relating to the securities
offered by this Prospectus as required by Part 9 of the Securities Act (British Columbia), and by Part 9 of
the Securities Act (Alberta) and by Part 15 of the Securities Act (Ontario), and the respective regulations
thereunder.
“Stephen Leahy”
“J. Casey Forward”
STEPHEN LEAHY
President and Chief Executive Officer
J. CASEY FORWARD
Chief Financial Officer
ON BEHALF OF THE BOARD OF DIRECTORS
“Ken Thorsen”
KEN THORSEN
Director
“Robert Friesen”
________________________________
ROBERT FRIESEN
Director
CERTIFICATE OF THE AGENT
Dated: February 12, 2008
To the best of our knowledge, information and belief, the foregoing constitutes full, true and plain
disclosure of all material facts relating to the securities offered by this Prospectus as required by Part 9 of
the Securities Act (British Columbia), and by Part 9 of the Securities Act (Alberta) and by Part 15 of the
Securities Act (Ontario), and the respective regulations thereunder.
PI FINANCIAL CORP.
“Bert Quattrociocchi”
Bert Quattrociocchi
Executive Vice President