UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM CB
TENDER OFFER/RIGHTS OFFERING NOTIFICATION FORM
Please place an X in the box(es) to designate the appropriate
rule provision(s) relied upon to file this Form:
Securities Act Rule 801 (Rights Offering) [ ]
Securities Act Rule 802 (Exchange Offer) [X]
Exchange Act Rule
13e-4(h)(8) (Issuer Tender Offer) [ ]
Exchange Act Rule 14d-1(c)
(Third Party Tender Offer) [ ]
Exchange Act Rule 14e-2(d)
(Subject Company Response) [ ]
Filed or submitted in paper if
permitted by Regulation S-T Rule 101(b)(8) [ ]
AMERIX PRECIOUS METALS
CORPORATION
(Name of Subject Company)
N/A
(Translation of Subject Company's Name
into English (if applicable))
Ontario, Canada
(Jurisdiction of Subject
Company's Incorporation or Organization)
Amerix Precious Metals Corporation
(Name of
Person(s) Furnishing Form)
Common Shares
(Title of Class of Subject
Securities)
03075E202
(CUSIP Number of Class of
Securities (if applicable))
DL Services Inc.
Columbia Center
701
Fifth Avenue, Suite 6100
Seattle, Washington 98104-7043
Telephone: (206) 903-5448
(Name, Address (including
zip code) and Telephone Number (including area code)
of Person(s) Authorized
to Receive Notices and Communications on Behalf of Subject Company)
November 25, 2014
(Date Tender Offer/Rights
Offering Commenced)
PART I
INFORMATION SENT TO SECURITY HOLDERS
Item
1.
Home Jurisdiction Documents
(a) The following documents have
been delivered to holders of securities of, or published in the home
jurisdiction of, Amerix Precious Metals Corporation, and are required to be
disseminated to U.S. security holders or published in the United States:
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Notices of Special Meetings and Joint Information
Circular for the Special Meeting of Shareholders of Amerix Precious Metals
Corporation and the Special Meeting of Shareholders of Eagle Graphite
Corporation, each to be held on December 19, 2014, in respect of the
reverse takeover of Amerix Precious Metals Corporation by Eagle Graphite
Corporation (the Circular); and |
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Letter of Transmittal, a copy of which is furnished as
Exhibit 99.2 to this Form CB. |
The Exhibits attached to this
Form CB shall be deemed to be furnished and shall not be deemed to be filed
with the United States Securities Exchange Commission.
(b) Not applicable
Item
2. Informational
Legends
The legends required by Rule
802(b) of the Securities Act of 1933, as amended, are included under the heading
Information for United States Shareholders on page 33 of the Circular.
PART II
INFORMATION NOT REQUIRED TO BE SENT TO SECURITY HOLDERS
See the Exhibit Index hereto.
PART III
CONSENT TO SERVICE OF PROCESS
A written irrevocable consent and power of
attorney on Form F-X has been filed by Amerix Precious Metals Inc. concurrently
with the filing of this Form CB.
Any change in the name or address of the agent for service of
process of Amerix Precious Metals Inc. shall be promptly communicated to the
Securities and Exchange Commission by an amendment to the Form F-X.
PART IV
SIGNATURES
After
due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct as of
November 28, 2014.
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AMERIX PRECIOUS METALS CORPORATION
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By:
/s/ Dan Hamilton
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Name: Dan Hamilton |
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Title: Chief Financial Officer
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EXHIBIT INDEX
NOTICES OF SPECIAL MEETINGS
- AND -
JOINT INFORMATION CIRCULAR
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
AMERIX PRECIOUS METALS CORPORATION
- AND -
THE SPECIAL MEETING OF SHAREHOLDERS OF
EAGLE GRAPHITE CORPORATION
EACH TO BE HELD ON DECEMBER 19, 2014
IN RESPECT OF THE PROPOSED REVERSE TAKEOVER OF
AMERIX PRECIOUS METALS CORPORATION BY EAGLE
GRAPHITE CORPORATION
DATED NOVEMBER 25, 2014
Neither the TSX Venture Exchange Inc. (the
Exchange) nor any securities regulatory authority has in
any way passed upon the merits of the Reverse Takeover described in this
Information Circular.
1
AMERIX PRECIOUS METALS CORPORATION
40 University
Avenue, Suite 606
Toronto, Ontario M5J 1TI
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the special meeting (the
Amerix Meeting) of the shareholders of Amerix Precious Metals
Corporation (Amerix, or the Company) will be held at
the offices of Wildeboer Dellelce LLP, Suite 800, Wildeboer Dellelce Place, 365
Bay Street, Toronto, Ontario at 10:00 a.m. (Toronto time) on December 19, 2014
for the following purposes:
1. |
to consider, and if deemed appropriate, to pass, with or
without variation, an ordinary resolution, the full text of which is set
forth in the accompanying management information circular of the Company
(the Circular) and incorporated herein by reference, approving
and authorizing the disposition by the Company of title to certain mineral
interests in Brazil, which disposition may constitute a Reviewable
Disposition by the Company in accordance with the applicable policies of
the TSX Venture Exchange, as more specifically set out in the
Circular; |
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2. |
to consider and, if deemed appropriate, to pass, with or
without variation, an ordinary resolution, the full text of which is set
forth in the Circular and incorporated herein by reference, approving and
authorizing the acquisition (the Acquisition) by the Company of
Eagle Graphite Corporation (Eagle), which acquisition will be
effected by means of an amalgamation, pursuant to the provisions of the
Canada Business Corporations Act, of Eagle and 9073329 Canada Inc.,
a wholly-owned subsidiary of Amerix, and whereby, among other things, each
of the issued and outstanding common shares of Eagle will be exchanged for
one (1) post-consolidation common share of Amerix, all as more
specifically set out in the Circular; and |
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3. |
to transact such other business as may properly be
brought before the Amerix Meeting or any adjournment(s)
thereof. |
An ordinary resolution is a resolution passed (with or
without amendment) by at least a majority of the votes cast by shareholders of
the Company entitled to vote at the Amerix Meeting and present in person or
represented by proxy.
Specific details of the matters to be put before the Amerix
Meeting are set forth in the accompanying Circular and form of proxy
accompanying this notice of meeting (the Amerix Notice of Meeting).
The record date for the determination of shareholders of the
Company entitled to receive the Amerix Notice of Meeting and to vote at the
Amerix Meeting is November 17, 2014 (the Amerix Record Date).
Shareholders whose names have been entered in the register of shareholders at
the close of business on the Amerix Record Date will be entitled to receive
notice of, and to vote at, the Amerix Meeting or any adjournments or
postponements thereof.
Shareholders who are unable to attend the Amerix Meeting, or
any adjournment thereof, in person are requested to date, sign and return the
accompanying form of proxy for use at the Amerix Meeting or any adjournment
thereof. To be effective, the proxy must be mailed so as to reach or be
deposited with the Company c/o Equity Financial Trust Company, 200 University
Avenue, Suite 300, Toronto, Ontario, M5H 4H1 (Attention: Proxy Department), not
later than forty-eight (48) hours (excluding Saturdays, Sundays and statutory
holidays in the Province of Ontario) prior to the time set for the Amerix
Meeting or any adjournment thereof. Late instruments of proxy may be delivered
to the Chairman of the Amerix Meeting on the day of the Amerix Meeting or any
adjournment thereof prior to the time of voting and may be accepted or rejected
by the Chairman of the Amerix Meeting in his discretion, and the Chairman is
under no obligation to accept or reject any particular late proxy.
DATED at Toronto, Ontario this 25th day of
November, 2014.
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BY ORDER OF THE BOARD OF DIRECTORS
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(Signed) Steve Brunelle
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STEVE BRUNELLE |
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President & Chief Executive Officer
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2
EAGLE GRAPHITE CORPORATION
6420 Eagles Drive
Courtenay, British Columbia V9J 1V4
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the special meeting (the
Eagle Meeting) of the shareholders (the Eagle Shareholders) of
Eagle Graphite Corporation (Eagle) will be held at the offices of
Cassels Brock & Blackwell LLP, 2100 Scotia Plaza, 40 King Street West,
Toronto, Ontario at 10:00 a.m. (Toronto time) on December 19, 2014 for the
following purposes:
1. |
to consider, and if deemed appropriate, to pass, with or
without variation, a special resolution, the full text of which is set
forth in the accompanying management information circular of Eagle (the
Circular) authorizing an amendment to the articles of Eagle to
split Eagles issued and outstanding common share capital on the basis of
up to twenty (20) new common shares for every one (1) old common share, as
more specifically set out in the Circular; |
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2. |
to consider and, if deemed appropriate, to pass, with or
without variation, a special resolution (the Amalgamation
Resolution), the full text of which is set forth in the Circular and
incorporated herein by reference, approving and authorizing the
amalgamation (the Amalgamation) of Eagle and 9073329 Canada Inc.
(Amerix Subco), a wholly-owned subsidiary of Amerix Precious
Metals Corporation (Amerix), pursuant to the provisions of the
Canada Business Corporations Act (the CBCA), to form a
continuing corporation pursuant to an amalgamation agreement among Eagle,
Amerix and Amerix Subco whereby, among other things, each of the issued
and outstanding common shares of Eagle will be exchanged for one (1)
post-consolidation common share of Amerix, all as more specifically set
out in the Circular; and |
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3. |
to transact such other business as may properly be
brought before the Eagle Meeting or any adjournment(s)
thereof. |
A special resolution is a resolution passed (with or without
amendment) by not less than 66 2/3% of the votes cast
by shareholders of Eagle entitled to vote at the Eagle Meeting and present in
person or represented by proxy.
Specific details of the matters to be put before
the Eagle Meeting are set forth in the accompanying Circular and form of proxy
accompanying this notice of meeting (the Eagle Notice of
Meeting).
TAKE NOTICE that each registered Eagle Shareholder has
been granted the right to dissent in respect of the Amalgamation and, if the
Amalgamation becomes effective, to be paid the fair value of the shares in the
capital of Eagle (the Eagle Shares) held by such Eagle
Shareholders in accordance with the provisions of Section 190 of the CBCA. To
exercise such right, (a) a written objection to the Amalgamation Resolution must
be received by Eagle c/o its legal counsel, Cassels Brock & Blackwell LLP,
2100 Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3C2, Attention:
Chad Accursi, on or before December 17, 2014 or the second business day
immediately preceding the date of any adjustment or postponement of the Eagle
Meeting; (b) the Eagle Shareholder shall not have voted in favour of the
Amalgamation Resolution; and (c) the Eagle Shareholder must have otherwise
complied with the provisions of Section 190 of the CBCA. The right to dissent is
described in the Circular and the text of Section 190 of the CBCA is set forth
in Exhibit D to the Circular. Persons who are beneficial owners of Eagle
Shares registered in the name of a broker, custodian, nominee or other
intermediary who wish to dissent should be aware that only registered Eagle
Shareholders are entitled to dissent. Accordingly, a beneficial owner of Eagle
Shares desiring to exercise this right to dissent must make arrangements for the
Eagle Shares beneficially owned by such person to be registered in his, her or
its name prior to the time the written objection to the Amalgamation Resolution
is required to be received by Eagle or, alternatively, make arrangements for the
registered Eagle Shareholders to dissent on his, her or its behalf. Failure to
strictly comply with the requirements set forth in Section 190 of the CBCA will
result in the loss of any right of dissent.
A non-registered beneficial holder of Eagle Shares who wishes
to exercise dissent rights with respect to the Amalgamation Resolution should
immediately contact the intermediary or broker with whom the non-registered
holder deals in respect of its Eagle Shares and instruct the intermediary or
broker in respect of its Eagle Shares.
3
The record date for the determination of shareholders of Eagle
entitled to receive the Eagle Notice of Meeting and to vote at the Eagle Meeting
is November 17, 2014 (the Eagle Record Date). Shareholders whose
names have been entered in the register of shareholders at the close of business
on the Eagle Record Date will be entitled to receive notice of, and to vote at,
the Eagle Meeting or any adjournments or postponements thereof.
Shareholders who
are unable to attend the Eagle Meeting, or any adjournment thereof, in person
are requested to date, sign and return the accompanying form of proxy for use at
the Eagle Meeting or any adjournment thereof. To be effective, the proxy must be
mailed so as to reach or be deposited with Eagle c/o its legal counsel, Cassels
Brock & Blackwell LLP, 2100 Scotia Plaza, 40 King Street West, Toronto,
Ontario, M5H 3C2, Attention: Chad Accursi,, not later than forty-eight (48)
hours (excluding Saturdays, Sundays and statutory holidays in the Province of
Ontario) prior to the time set for the Eagle Meeting or any adjournment thereof.
Late instruments of proxy may be delivered to the Chairman of the Eagle Meeting
on the day of the Eagle Meeting or any adjournment thereof prior to the time of
voting and may be accepted or rejected by the Chairman of the Eagle Meeting in
his discretion, and the Chairman is under no obligation to accept or reject any
particular late proxy.
DATED at Courtenay, British Columbia this
25th day of November, 2014.
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BY ORDER OF THE BOARD OF DIRECTORS
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(Signed) Jamie Deith
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JAMIE DEITH |
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President and Director |
4
TABLE OF CONTENTS
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Page |
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FORWARD LOOKING INFORMATION |
7 |
EXCHANGE RATE INFORMATION |
8 |
GLOSSARY OF TERMS |
9 |
SUMMARY OF CIRCULAR |
18 |
THE ACQUISITION |
26 |
INFORMATION FOR UNITED STATES SHAREHOLDERS |
33 |
GENERAL INFORMATION CONCERNING THE
AMERIX MEETING |
36 |
SOLICITATION OF PROXIES |
36 |
APPOINTMENT OF PROXYHOLDERS
AND REVOCATION OF PROXIES |
36 |
EXERCISE OF DISCRETION BY PROXYHOLDERS
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36 |
NOTICE AND ACCESS |
37 |
ADVICE TO BENEFICIAL SHAREHOLDERS |
37 |
NOTICE TO BENEFICIAL
HOLDERS |
38 |
INTEREST OF CERTAIN PERSONS OR COMPANIES IN
MATTERS TO BE ACTED UPON |
38 |
INTEREST OF INFORMED
PERSONS IN MATERIAL TRANSACTIONS |
38 |
AMERIX RECORD DATE |
38 |
QUORUM |
38 |
VOTING SECURITIES AND PRINCIPAL HOLDERS OF
VOTING SECURITIES |
39 |
PARTICULARS OF MATTERS TO BE ACTED ON AT
THE AMERIX MEETING |
39 |
THE PROPOSED DISPOSITION |
39 |
THE ACQUISITION |
41 |
GENERAL INFORMATION CONCERNING THE EAGLE MEETING |
43 |
SOLICITATION OF PROXIES
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43 |
DEPOSIT OF PROXIES |
43 |
EXERCISE OF VOTE BY PROXIES
AND DISCRETIONARY AUTHORITY |
43 |
REVOCATION OF PROXIES |
43 |
INTEREST OF CERTAIN PERSONS
OR COMPANIES IN MATTERS TO BE ACTED UPON |
43 |
INTEREST OF INFORMED PERSONS IN MATERIAL
TRANSACTIONS |
43 |
EAGLE RECORD DATE |
43 |
QUORUM |
44 |
VOTING SECURITIES AND
PRINCIPAL HOLDERS OF VOTING SECURITIES |
44 |
PARTICULARS OF MATTERS TO BE ACTED ON AT THE EAGLE
MEETING |
44 |
STOCK SPLIT |
44 |
THE AMALGAMATION |
45 |
INFORMATION CONCERNING AMERIX |
47 |
CORPORATE STRUCTURE |
47 |
GENERAL DEVELOPMENT OF THE
BUSINESS |
47 |
SELECTED FINANCIAL INFORMATION AND
MANAGEMENTS DISCUSSION AND ANALYSIS |
49 |
DESCRIPTION OF THE
SECURITIES |
51 |
AMERIX STOCK OPTION PLAN |
52 |
PRIOR SALES |
53 |
EXECUTIVE COMPENSATION |
54 |
NON-ARMS LENGTH PARTY
TRANSACTIONS |
58 |
ARMS LENGTH TRANSACTION |
59 |
LEGAL PROCEEDINGS |
59 |
AUDITOR, TRANSFER AGENTS AND REGISTRARS
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59 |
MATERIAL CONTRACTS |
59 |
RISK FACTORS |
59 |
ADDITIONAL INFORMATION
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65
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5
TABLE OF CONTENTS
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Page |
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INFORMATION CONCERNING EAGLE |
66 |
CORPORATE STRUCTURE |
66 |
GENERAL DEVELOPMENT OF THE
BUSINESS |
66 |
THE BLACK CRYSTAL PROPERTY |
67 |
SELECTED FINANCIAL
INFORMATION AND MANAGEMENTS DISCUSSION AND ANALYSIS |
79 |
DESCRIPTION OF THE SECURITIES |
81 |
CONSOLIDATED
CAPITALIZATION |
82 |
PRIOR SALES |
82 |
STOCK EXCHANGE PRICE
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83 |
EXECUTIVE COMPENSATION |
83 |
NON-ARMS LENGTH PARTY
TRANSACTIONS |
85 |
LEGAL PROCEEDINGS |
86 |
AUDITOR |
86 |
MATERIAL CONTRACTS |
86 |
RISK FACTORS |
86 |
INFORMATION CONCERNING THE RESULTING ISSUER |
90 |
CORPORATE STRUCTURE |
90 |
NARRATIVE DESCRIPTION OF THE BUSINESS
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90 |
DESCRIPTION OF THE
SECURITIES |
91 |
PRO FORMA CONSOLIDATED CAPITALIZATION
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92 |
AVAILABLE FUNDS AND
PRINCIPAL PURPOSES |
94 |
DIVIDENDS |
95 |
PRINCIPAL
SECURITYHOLDERS |
96 |
DIRECTORS, OFFICERS AND PROMOTERS |
96 |
EXECUTIVE COMPENSATION
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99 |
INDEBTEDNESS OF DIRECTORS AND OFFICERS
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99 |
INVESTOR RELATIONS
ARRANGEMENTS |
99 |
OPTIONS TO PURCHASE SECURITIES |
99 |
RESULTING ISSUER STOCK
OPTION PLAN |
100 |
ESCROWED SECURITIES |
100 |
AUDITORS, TRANSFER AGENT
AND REGISTRAR |
100 |
RISK FACTORS |
100 |
GENERAL MATTERS |
103 |
SPONSORSHIP AND AGENT RELATIONSHIP |
103 |
EXPERTS |
103 |
OTHER MATERIAL FACTS |
103 |
BOARD APPROVAL |
103 |
CERTIFICATES |
104 |
CERTIFICATE OF AMERIX
PRECIOUS METALS CORPORATION |
104 |
CERTIFICATE OF EAGLE GRAPHITE
CORPORATION |
105 |
EXHIBIT A EAGLE FINANCIAL
STATEMENTS AND MD&A |
A-1 |
EXHIBIT B AMERIX FINANCIAL STATEMENTS AND MD&A
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B-1 |
EXHIBIT C PRO FORMA FINANCIAL
STATEMENTS |
C-1 |
EXHIBIT D SECTION 190 OF THE CANADA
BUSINESS CORPORATIONS ACT |
D-1 |
6
FORWARD LOOKING INFORMATION
This information circular (the Circular), including
documents incorporated by reference, contains forward-looking information as
defined under Canadian securities laws concerning the business, operations and
financial performance and condition of each of Amerix Precious Metals
Corporation (Amerix, or the Company), Eagle Graphite
Corporation (Eagle) and the Resulting Issuer (as hereinafter defined).
When used in this Circular, the words believe, anticipate, intend,
estimate, expect, should, will, project and similar expressions are
intended to identify forward-looking information, although not all
forward-looking information contains such words. Forward-looking information
involves known and unknown risks, uncertainties and other factors, many of which
are outside the control of the Company and Eagle, which may cause the actual
results, performance or achievements of the Resulting Issuer to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking information. Actual results and developments are
likely to differ, and may differ materially, from those expressed or implied by
the forward-looking information contained in this Circular. Such forward-looking
information is based on a number of assumptions which may prove to be incorrect,
including, but not limited to, the ability of the Resulting Issuer to obtain
necessary financing, satisfying the requirements of the Exchange with respect to
the Acquisition (as hereinafter defined), the economy generally, competition and
anticipated and unanticipated costs. Such statements could also be materially
affected by the impact of environmental risks, environmental regulation,
taxation policies, competition, the lack of available and qualified personnel or
management, stock market volatility and the ability to access sufficient capital
from internal or external sources. See Information Concerning the Resulting
Issuer Risk Factors, Information Concerning Amerix Risk
Factors and Information Concerning Eagle Risk Factors. Actual
results, performance or achievement could differ materially from those expressed
herein. While the Company and Eagle anticipate that subsequent events and
developments may cause their respective views to change, the Company and Eagle
specifically disclaim any obligation to update the forward-looking information
except as required by applicable securities laws. The forward-looking
information should not be relied upon as representing the Companys or Eagles
views as of any date subsequent to the date of this Circular. Although the
Company and Eagle have attempted to identify important factors that could cause
actual actions, events or results to differ materially from those described in
the forward-looking information, there may be other factors that cause actions,
events or results not to be as anticipated, estimated or intended. There can be
no assurance that forward-looking information will prove to be accurate, as
actual results and future events could differ materially from those anticipated
in such information. Accordingly, readers should not place undue reliance on
forward-looking information. Additional factors are noted in this Circular.
The forward-looking information includes the following items:
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the completion of the Acquisition, including the
satisfaction of each of the Eagle and Amerix Escrow Release Conditions (as
hereinafter defined); |
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the completion of the Consolidation; |
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the completion of the Stock Split; |
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the Resulting Issuers expectations that its capital
resources, and both its operational and capital structure, are sufficient
to meet its ongoing business requirements, including its short-term and
long-term financial requirements and obligations, given the current
economic environment; |
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Eagles expectations regarding the gross proceeds to be
raised under the Eagle Private Placement (as hereinafter defined);
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Amerixs expectations regarding the Proposed Disposition
(as hereinafter defined); |
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the Resulting Issuers expectations regarding available
funds following the Acquisition that will be impacted by the actual net
proceeds of the Private Placement and the actual expenses relating to the
Acquisition, which may be higher or lower than estimates contained in this
Circular; |
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information regarding use of funds and future exploration
plans, including proposed budgets, all of which may be impacted by many
factors, including the amount of cash available following the Acquisition,
initial testing results and availability of necessary exploration
resources; and |
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all financial information regarding the Resulting Issuer
under the following headings: |
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Information Concerning the Resulting
Issuer Pro Forma Consolidated Capitalization of the Resulting
Issuer; and |
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Information Concerning the Resulting
Issuer Available Funds and Principal Purposes. |
7
EXCHANGE RATE INFORMATION
The following table sets out (1) the rate of exchange for one
Canadian dollar in United States dollars in effect at the end of each of the
following periods, (2) the high and low rate of exchange during those periods,
(3) the average rate of exchange during those periods, and (4) the rate of
exchange in effect as of the last day of such period, each based on the noon
spot rate published by the Bank of Canada. On November 25, 2014 the closing noon
spot rate for one Canadian dollar in U.S. dollars published by the Bank of
Canada was C$1.00=U. S.$0.8880.
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High
(USD) |
Low
(USD) |
Average
(USD) |
End of Period
(USD) |
Year ended December 31, |
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2013 |
1.0164 |
0.9348 |
0.9710 |
0.9419 |
2012 |
1.0299 |
0.9599 |
1.0004 |
1.0054 |
2011 |
1.0583 |
0.9430 |
1.0110 |
0.9841 |
8
GLOSSARY OF TERMS
The following is a glossary of certain terms used in this
Circular. Terms and abbreviations used in the respective financial statements of
Amerix, Eagle and the Resulting Issuer in the appendices to this Circular are
defined separately and the terms and abbreviations defined below are not
necessarily used therein, except where otherwise indicated. Words importing the
singular, where the context requires, include the plural and vice versa and
words importing any gender include all genders. All dollar amounts herein are in
Canadian dollars, unless otherwise stated.
In this Circular, the following terms shall have the meaning
ascribed thereto as set out below:
Acquisition means the acquisition by Amerix of Eagle
effective upon the Closing of the Amalgamation, as detailed in this Circular,
which shall constitute a Reverse Takeover of Amerix by Eagle;
Acquisition Resolution has the meaning ascribed
thereto under Particulars of Matters to be Acted On at the Amerix Meeting
The Acquisition;
Affiliate means a company that is affiliated with
another company as described below.
A company is an Affiliate of another company if:
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one of them is the subsidiary of the other, or |
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(b) |
each of them is controlled by the same
person. |
A company is controlled by a person if:
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(a) |
voting securities of the company are held, other than by
way of security only, by or for the benefit of that person, and |
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(b) |
the voting securities, if voted, entitle the person to
elect a majority of the directors of the company. |
A person beneficially owns securities that are beneficially
owned by:
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(a) |
a company controlled by that person, or |
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(b) |
an Affiliate of that person or an Affiliate of any
company controlled by that person; |
Agent means Canaccord Genuity Corp., the sole agent in
respect of each of the Private Placements;
Amalco means the corporation that will result from the
Amalgamation and which will be a wholly-owned subsidiary of the Resulting Issuer
existing under the CBCA after giving effect to the Amalgamation;
Amalgamation means the amalgamation of Eagle and
Amerix Subco pursuant to the provisions of the CBCA that will result in the
formation of Amalco;
Amalgamation Agreement means the amalgamation
agreement dated November 5, 2014 among Amerix, Amerix Subco and Eagle pursuant
to which Amerix has agreed, among other things, to issue Resulting Issuer Common
Shares to Eagle Shareholders upon completion of the Amalgamation, which
agreement is available on Amerixs SEDAR profile at www.sedar.com;
Amalgamation Resolution has the meaning ascribed
thereto under Particulars of Matters to be Acted On at the Eagle Meeting
The Amalgamation;
Amerix or the Company means Amerix Precious
Metals Corporation, a corporation existing under the OBCA;
Amerix Board means the board of directors of Amerix;
Amerix Broker Warrants means the 765,100 broker
warrants to acquire Amerix Common Shares issued to the Agent in connection with
the Amerix Private Placement;
Amerix Common Shares means the common shares in
the capital of Amerix, of which 82,454,934 are issued and outstanding as at the
date of this Circular;
9
Amerix Escrow Release Conditions means,
collectively:
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(a) |
the completion of the Amalgamation; |
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(b) |
the distribution of the Resulting Issuer Common Shares in
connection with the Amerix Private Placement being exempt from applicable
prospectus and registration requirements of applicable securities
laws; |
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(c) |
conditional approval of the Exchange for the issuance and
the listing of the Resulting Issuer Common Shares issuable pursuant to the
Amerix Private Placement having been obtained; and |
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(d) |
Amerix and the Agent having delivered the Amalgamation
Notice (as defined under the Amerix Private Placement Subscription Receipt
Agreement); |
Amerix Escrow Release Deadline has the meaning
ascribed thereto under Summary of Circular;
Amerix First Preference Shares has the meaning
ascribed thereto in General Information Concerning the Amerix Meeting
Voting Securities and Principal Holders of Voting Securities;
Amerix MD&A has the meaning ascribed thereto under
Information Concerning Amerix Selected Financial Information for
Amerix;
Amerix Meeting means the special meeting of
Amerix Shareholders to be held on December 19, 2014 and any adjournments or
postponements thereof;
Amerix Meeting Materials has the meaning
ascribed thereto under General Information Concerning the Amerix Meeting
Advice to Beneficial Shareholders;
Amerix Mineral Interests means, collectively, the
Companys exploration licenses to the Limão Project and the Ouro Roxo NSR, which
the Company holds indirectly through MVPR;
Amerix Notice of Meeting has the meaning
ascribed thereto under General Information Concerning the Amerix Meeting
Solicitation of Proxies;
Amerix Private Placement means the brokered private
placement of Amerix of 10,930,000 Amerix Subscription Receipts for gross
proceeds of $1,093,000;
Amerix Private Placement Agency Agreement means
the agency agreement entered into on November 5, 2014 between Amerix and the
Agent in connection with the Amerix Private Placement;
Amerix Private Placement Subscription Receipt
Agreement means the subscription receipt agreement entered into on November
5, 2014 among Amerix, the Agent and Equity as subscription receipt agent;
Amerix Purchasers means, collectively, the
purchasers under the Amerix Private Placement;
Amerix Record Date has the meaning ascribed
thereto under General Information Concerning the Amerix Meeting Record
Date;
Amerix Second Preference Shares has the meaning
ascribed thereto in General Information Concerning the Amerix Meeting
Voting Securities and Principal Holders of Voting Securities;
Amerix Shareholders means the registered Holders of
Amerix Common Shares;
Amerix Stock Option Plan has the meaning ascribed
thereto under Information Concerning Amerix Amerix Stock Option Plan;
Amerix Stock Options means the 3,533,332 stock options
of Amerix granted in accordance with the Amerix Stock Option Plan;
Amerix Subco means 9073329 Canada Inc., a wholly-owned
subsidiary of Amerix existing under the CBCA;
10
Amerix Subscription Receipts means the 10,930,000
subscription receipts of Amerix issued under the Amerix Private Placement at a
price of $0.10 per subscription receipt, each such subscription receipt
exercisable into a Resulting Issuer Common Share, which shall, for purposes of
the Tax Act, be designated as a flow through share;
ANH means ANH Refractories Company, as further
described under Information Concerning Eagle General Development of the
Business ANH Off-Take Agreement;
ANH LOI has the meaning attributed thereto under
Information Concerning Eagle General Development of the Business
Description of the Business ANH Off-Take Agreement;
ANH Off-Take Agreement means the off-take
agreement dated January 1, 2014, as amended May 30, 2014, between Eagle and ANH,
as the same may be further amended from time to time;
ANH Options has the meaning ascribed thereto
under Information Concerning Eagle Description of the Securities;
ANH Security Assignment Agreement means the security
assignment of certain contracts, rights, permits and licenses to ANH and certain
ANH related parties as security for the performance of the obligations of Eagle
under the ANH Off-Take Agreement;
Appropriate Regulatory Approvals means all of the
rulings, consents, orders, exemptions, permits and other approvals of
Governmental Entities and the Exchange required or necessary for the completion
of the Acquisition;
Arms Length Transaction means a transaction which is
not a Related Party Transaction;
Articles of Amalgamation means the articles of
amalgamation of Eagle and Amerix Subco in respect of the Amalgamation, to be
filed with the Director under the CBCA;
Associate, when used to indicate a relationship with a
person, means:
|
(a) |
an issuer of which the person beneficially owns or
controls, directly or indirectly, voting securities entitling him to more
than 10% of the voting rights attached to outstanding securities of the
issuer, |
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(b) |
any partner of the person, |
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(c) |
any trust or estate in which the person has a substantial
beneficial interest or in respect of which a person serves as trustee or
in a similar capacity, |
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(d) |
in the case of a person, who is an
individual: |
|
(i) |
that persons spouse or child, or |
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(ii) |
any relative of the person or of his spouse who has the
same residence as that person; |
but
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(e) |
where the Exchange determines that two persons shall, or
shall not, be deemed to be associates with respect to a Member firm,
Member corporation or holding company of a Member corporation, then such
determination shall be determinative of their relationships in the
application of Rule D.1.00 of the Exchange Rule Book and Policies with
respect to that Member firm, Member corporation or holding
company; |
BayFront Options has the meaning ascribed thereto
under Information Concerning Eagle Description of the Securities;
Beneficial Holders has the meaning ascribed thereto
under General Information Concerning the Amerix Meeting Advice to
Beneficial Shareholders;
Black Crystal Property means Eagles interest in
the mining properties located in the Slocan Mining Division in British Columbia,
which is the subject of the Technical Report;
Broadridge means Broadridge Financial Solutions Inc.;
Business Day means any day other than a Saturday,
Sunday or a statutory or civic holiday in the city of Toronto, Ontario;
CBCA means the Canada Business Corporations
Act, including the regulations promulgated thereunder, as amended;
11
Certificate of Amalgamation means the certificate of
amalgamation to be issued by the Director under the CBCA giving effect to the
Amalgamation;
Change of Control includes situations where
after giving effect to the contemplated transaction and as a result of such
transaction:
|
(a) |
any one person holds a sufficient number of the voting
shares of the issuer or resulting issuer to affect materially the control
of the issuer or resulting issuer, or |
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(b) |
any combination of persons, acting in concert by virtue
of an agreement, arrangement, commitment or understanding hold in total a
sufficient number of the voting shares of the issuer or resulting issuer
to affect materially the control of the issuer or resulting
issuer, |
where such person or combination of persons did not previously
hold a sufficient number of voting shares to materially affect the control of
the issuer or resulting issuer. In the absence of evidence to the contrary, any
person or combination of persons acting in concert by virtue of an agreement,
arrangement, commitment or understanding, holding more than 20% of the voting
shares of the issuer or resulting issuer is deemed to materially affect the
control of the issuer or resulting issuer;
Circular means this joint information circular of
Amerix and Eagle together with all exhibits and schedules hereto and including
the summary hereof;
Closing means completion of the Amalgamation in
accordance with the terms and conditions of the Amalgamation Agreement;
Closing Date means the date of Closing;
company, unless specifically indicated otherwise,
means a corporation, incorporated association or organization, body corporate,
partnership, trust, association or other entity other than an individual;
Consolidation means the consolidation of the Amerix
Common Shares prior to the Amalgamation on the basis of one (1)
post-Consolidation Amerix Common Share for every twenty (20) pre-Consolidation
Amerix Common Shares;
Control Person means any person that holds or is
one of a combination of persons that holds a sufficient number of any of the
securities of an issuer so as to affect materially the control of that issuer,
or that holds more than 20% of the outstanding voting securities of an issuer
except where there is evidence showing that the holder of those securities does
not materially affect the control of the issuer;
Controlling Individual has the meaning ascribed
thereto under The Acquisition Eligibility for Investment;
CRA means the Canada Revenue Agency;
Director means the Director appointed under section
260 of the CBCA;
Dissent Notice has the meaning ascribed thereto
under The Acquisition Dissent Rights;
Dissent Rights means the rights of a registered Eagle
Shareholder to dissent to the Amalgamation Resolution and to be paid the fair
value of such securities in respect of which the Holder dissents;
Dissenting Shareholder means a registered Eagle
Shareholder who properly exercised dissent rights with respect to the
Amalgamation Resolution;
DNPM means the Departamento Naçional da Prudução
Mineral;
Eagle means Eagle Graphite Corporation, a corporation
existing under the CBCA;
Eagle Board means the board of directors of Eagle;
Eagle Broker Warrants means the broker warrants
issued to the Agent on November 5, 2014 exercisable to acquire an aggregate of
1,053,500 Eagle Common Shares at a price of $0.10 per share until November 5,
2016;
Eagle Common Shares means the common shares in the
capital of Eagle, of which 11,009,940 are issued and outstanding as at
the date of this Circular;
12
Eagle Escrow Release Conditions means,
collectively:
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(a) |
the satisfaction or waiver of all conditions precedent to
the Acquisition in accordance with the terms of the Amalgamation
Agreement; |
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(b) |
the receipt of conditional approval for the Acquisition
from the Exchange, including the listing of the Resulting Issuer Common
Shares issued and issuable under the Eagle Private Placement; |
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(c) |
Eagle not being in breach or default of any of its
covenants or obligations under the Eagle Private Placement Agency
Agreement in any material respect except those breaches or defaults that
have been cured by Eagle or waived by the Agent; |
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(d) |
the Acquisition being completed (other than the
Amalgamation taking effect) on substantially the terms which the Agent
approved prior to the closing of the Eagle Private Placement (unless
otherwise agreed by the Agent); and |
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(e) |
no material change having occurred in respect of Eagle
or the Resulting Issuer; |
Eagle Escrow Release Deadline has the meaning
ascribed thereto under Summary of Circular;
Eagle Letter of Transmittal means the form of letter
of transmittal to be used by Eagle Shareholders for the purpose of surrendering
certificates representing the Eagle Common Shares and exchanging them for
certificates representing the Resulting Issuer Common Shares;
Eagle MD&A has the meaning ascribed thereto under
Information Concerning Eagle Managements Discussion and Analysis;
Eagle Meeting means the special meeting of
Eagle Shareholders to be held on December 19, 2014 and any adjournments or
postponements thereof;
Eagle Meeting Materials has the meaning
ascribed thereto under General Information Concerning the Eagle Meeting
Advice to Beneficial Shareholders;
Eagle Note Units has the meaning attributed thereto
under Summary of Circular The Eagle Private Placement The Eagle
Notes;
Eagle Notes means the $825,000 aggregate principal
amount of unsecured convertible promissory notes of Eagle due June 22,
2015, each such note automatically convertible into Eagle Common Shares and
Eagle Warrants immediately prior to the Effective Time;
Eagle Notice of Meeting has the meaning ascribed
thereto under General Information Concerning the Eagle Meeting
Solicitation of Proxies;
Eagle Private Placement means the brokered private
placement of Eagle of up to 70,000,000 Eagle Subscription Receipts for total
gross proceeds of up to $7,000,000;
Eagle Private Placement Agency Agreement means
the agency agreement entered into on November 5, 2014 between Eagle and
the Agent in connection with the Eagle Private Placement;
Eagle Private Placement Subscription Receipt
Agreement means the subscription receipt agreement entered into on November
5, 2014 among Eagle, the Agent and Equity as subscription receipt agent;
Eagle Purchasers means, collectively, the
purchasers under the Eagle Private Placement;
Eagle Record Date has the meaning ascribed
thereto under General Information Concerning the Eagle Meeting Record
Date;
Eagle Securities means the Eagle Common Shares, the
Eagle Subscription Receipts, the Eagle Notes, the Eagle Broker Warrants, the ANH
Options and the BayFront Options;
Eagle Shareholders means the registered Holders of
Eagle Common Shares;
13
Eagle Subscription Receipts means the up to 70,000,000
subscription receipts of Eagle issued under the Eagle Private Placement at a
price of $0.10 per subscription receipt, each such subscription receipt
exercisable into an Eagle Unit;
Eagle Underlying Securities means the Eagle Units
issuable upon the exercise (or deemed exercise) of the Eagle Subscription
Receipts, the Eagle Warrants, the Eagle Broker Warrants (including the
underlying Eagle Common Shares issuable upon exercise of the Eagle Broker
Warrants), the Eagle Common Shares issuable upon exercise of the ANH Options and
the BayFront Options, and the Eagle Common Shares and Eagle Warrants underlying
the Eagle Notes;
Eagle Unit means the units of Eagle to be issued upon
the automatic exercise of the Eagle Subscription Receipts, each unit comprised
of one Eagle Common Share and one-half of one Eagle Warrant;
Eagle Warrants means the warrants partially comprising
the Eagle Units (each such Eagle Unit comprised of one-half of one Warrant) to
be issued upon the automatic exercise of the Eagle Subscription Receipts, each
such full warrant entitling the Holder thereof to acquire one Eagle Common Share
at a price of $0.15 per share for a period of sixty months following the
exercise of the Eagle Subscription Receipts;
Effective Date means the effective date of the
Amalgamation shown on the Certificate of Amalgamation;
Effective Time means 12:01 a.m. (Toronto time)
on the Effective Date;
Equity means Equity Financial Trust Company, the
registrar and transfer agent of the Company;
Exchange means TSX Venture Exchange Inc.;
Exchange Policy means the Exchange policy being
referenced that is contained in the Exchanges Corporate Finance
Manual;
Final Exchange Bulletin means the bulletin
issued by the Exchange following the Closing and the submission of all
Post-Approval Documents which evidences final Exchange acceptance of the
Acquisition;
GSA has the meaning ascribed thereto under
Information Concerning Eagle General Development of the Business ANH
Off-Take Agreement;
Holder, when used with reference to Amalco,
Amerix, Amerix Subco or Eagle, means a holder of any class of outstanding or
issued securities of Amalco, Amerix, Amerix Subco or Eagle, as applicable, shown
from time to time in the register maintained by or on behalf of Amalco, Amerix,
Amerix Subco or Eagle, as applicable, in respect of such securities;
IFRS means International Financial Reporting
Standards;
Insider, if used in relation to an issuer,
means:
|
(a) |
a director or senior officer of the issuer, |
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(b) |
a director or senior officer of the company that is an
insider or subsidiary of the issuer, |
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(c) |
a person that beneficially owns or controls, directly or
indirectly, voting shares carrying more than 10% of the voting rights
attached to all outstanding voting shares of the issuer, or |
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(d) |
the issuer itself if it holds any of its own
securities; |
Intermediary has the meaning ascribed thereto under
General Information Concerning the Amerix Meeting Advice to Beneficial
Shareholders;
January Meeting means the annual and special meeting
of the Amerix Shareholders held on January 31, 2014;
Latitude means Latitude Minerals Inc., a corporation
incorporated under the Business Corporations Act (British Columbia);
Letter of Intent means the letter of intent between
Amerix and Eagle dated July 6, 2014, as amended, relating to the Acquisition;
Limão Project means the Limão gold project located in
Pará state, northern Brazil comprising two exploration licenses, 850.653/2009
and 850.654/2009, that total 10,407 hectares;
14
Listing Date means the date of listing of the
Resulting Issuer Common Shares on the Exchange following the completion of the
Acquisition;
Matapi means Matapi Exploração Mineral Ltda.;
Member has the meaning given to it in Rule A.1.00 of
the Exchange Rule Book and Policies;
MVPR means Mineração Vila Porto Rico Ltda., an
indirect wholly-owned subsidiary of Amerix existing under the laws of Brazil;
Name Change means a change of the name of Amerix from
Amerix Precious Metals Corporation to Eagle Graphite Corporation or such
other name as is agreed upon by Eagle and Amerix and as is permitted by
applicable law and acceptable to the Exchange;
NEX means the market on which former Exchange and
Toronto Stock Exchange issuers that do not meet Exchange Tier 2 tier maintenance
requirements may continue to trade;
NI 43-101 means National Instrument 43-101
Standards of Disclosure for Mineral Projects;
NI 54-101 means National Instrument 54-101
Communication with Beneficial Owners of Securities of a Reporting Issuer;
NI 58-101 means National Instrument 58-101
Disclosure of Corporate Governance Practices;
Non-Arms Length Party means, in relation to a
company, a Promoter, officer, director, other Insider or Control Person of that
company (including an issuer) and any Associates or Affiliates of any of such
persons; and in relation to an individual, means any Associate of the individual
or any company of which the individual is a Promoter, officer, director, Insider
or Control Person;
OBCA means the Business Corporations Act
(Ontario), including the regulations promulgated thereunder, as amended;
Original Supply Agreement has the meaning attributed
thereto under Information Concerning Eagle General Development of the
Business Description of the Business ANH Off-Take Agreement;
Ouro Roxo NSR means the 2.5% net smelter royalty
interest in the southern Ouro Roxo properties, held indirectly by the Company
through MVPR;
person means a company or individual;
Post-Approval Documents means the documents prescribed
as such in Exchange Policy 5.2 Changes of Business and Reverse
Takeovers;
Prepayment Amount has the meaning attributed thereto
under Information Concerning Eagle General Development of the Business
Description of the Business ANH Off-Take Agreement;
Private Placements means, collectively, the
Amerix Private Placement and the Eagle Private Placement;
Promoter has the meaning specified in Exchange Policy
2.2 Sponsorship and Sponsorship Requirements;
Proposed Amendments means all proposed amendments to
the Tax Act publicly announced by the Minister of Finance prior to the date
hereof;
Proposed Disposition has the meaning ascribed thereto
under Particulars of Matters to be Acted On at the Amerix Meeting The
Proposed Disposition;
Regulation S means Regulation S under the U.S.
Securities Act;
Related Party Transaction has the meaning ascribed to
that term in Exchange Policy 5.9 Protection of Minority Security Holders in
Special Transactions, and includes a related party transaction that is
determined by the Exchange to be a Related Party Transaction;
15
Resulting Issuer means Amerix following completion of
the Acquisition which, pursuant to the Acquisition, proposes to change its name
to Eagle Graphite Corporation or such other name as is agreed to by Eagle and
Amerix and as is permitted by applicable law and acceptable to the Exchange;
Resulting Issuer Broker Warrants means the broker
warrants of the Resulting Issuer to be issued in exchange for, and on the same
economic terms as, the Eagle Broker Warrants pursuant to the terms of the
Amalgamation Agreement;
Resulting Issuer Common Shares means the common
shares of the Resulting Issuer following completion of the Acquisition;
Resulting Issuer First Preference Shares has the
meaning ascribed thereto in Information Concerning the Resulting Issuer
Description of the Securities;
Resulting Issuer Second Preference Shares has the
meaning ascribed thereto in Information Concerning the Resulting Issuer
Description of the Securities;
Resulting Issuer Stock Options means the stock options
of the Resulting Issuer following the Acquisition;
Resulting Issuer Warrants means the warrants of the
Resulting Issuer that shall replace the Eagle Warrants, exercisable for an
equivalent underlying security of the Resulting Issuer without adjustment to the
exercise price thereof;
Reverse Takeover, within the meaning of such term
under Exchange policies, means a transaction or series of transactions,
involving an acquisition by an issuer or of an issuer, and a securities issuance
by an issuer that results in:
|
(a) |
new shareholders holding more than 50% of the outstanding
voting securities of the issuer, and |
|
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(b) |
a Change of Control of the
issuer; |
RRIF has the meaning ascribed thereto under The
Acquisition Eligibility for Investment;
RRSP has the meaning ascribed thereto under The
Acquisition Eligibility for Investment;
satisfaction of the Escrow Release Conditions means
satisfaction of each of the Amerix Escrow Release Conditions and the Eagle
Escrow Release Conditions on or prior to the Amerix Escrow Release Deadline
and immediately prior to the Closing of the Amalgamation;
SEC means the United States Securities and Exchange
Commission;
Shareholder Demand has the meaning ascribed thereto
under The Acquisition Dissent Rights;
Sponsor has the meaning specified in Exchange Policy
2.2 Sponsorship and Sponsorship Requirements;
Stock Split means the split of the Eagle Common Shares
on the basis of up to twenty (20) new Eagle Common Shares for every one (1) old
Eagle Common Share to be effected immediately prior to the Amalgamation;
Stock Split Resolution has the meaning ascribed
thereto under Particulars of Matters to be Acted on at the Eagle Meeting
Stock Split Resolution Approving the Stock Split;
Tax Act means the Income Tax Act (Canada), as
amended;
taxable capital gain has the meaning ascribed thereto
under The Acquisition Certain Canadian Federal Income Tax
Considerations;
Technical Report means the report entitled Technical
Report on the Black Crystal Graphite Property Slocan Mining Division, British
Columbia, Canada in respect of the Black Crystal Property, prepared by T.H.
Carpenter and A. Koffyberg, and dated November 24, 2014;
TFSA has the meaning ascribed thereto under The
Acquisition Eligibility for Investment;
U.S. Exchange Act means the United States
Securities and Exchange Act of 1934, as amended;
U.S. Securities Act means the United States
Securities Act of 1933, as amended; and
16
Warrant Indenture means the warrant indenture dated
November 5, 2014 among Eagle, Amerix and Equity providing for the issuance of
the Eagle Warrants.
17
SUMMARY OF CIRCULAR
The following is a summary of information relating to
Amerix, Eagle and the Resulting Issuer (assuming satisfaction of the Escrow
Release Conditions and completion of the Acquisition) and should be read
together with the more detailed information and financial data and statements
contained elsewhere in this Circular.
This Circular is being prepared and filed on SEDAR in
accordance with Exchange Policy 5.2 Change of Business and Reverse
Takeovers in connection with the Acquisition. Information contained in this
Circular is given as of November 25, 2014 unless otherwise indicated.
The Amerix Meeting
The Amerix Meeting will be held at the offices of
Wildeboer Dellelce LLP, Suite 800, Wildeboer Dellelce Place, 365 Bay Street,
Toronto, Ontario at 10:00 a.m. (Toronto time) on December 19, 2014, or at any
adjournment thereof, for the purposes set forth in the accompanying Amerix
Notice of Meeting. At the Amerix Meeting, the Amerix Shareholders
will be asked to consider, and if deemed advisable, approve, with or without
variation, the Disposition Resolution, as more specifically set out in
Particulars of Matters to be Acted on at the Amerix Meeting The Proposed
Disposition, the Acquisition Resolution, as more specifically set out in
Particulars of Matters to be Acted on at the Amerix Meeting The
Acquisition, and to consider such other matters as may properly come before
the Amerix Meeting. Proxies must be received by Equity, the Companys
transfer agent, not later than 10:00 a.m. (Toronto time) on December 17, 2014.
To be effective, the Acquisition Resolution and the Disposition
Resolution must each be approved by a majority of the votes cast at the
Amerix Meeting by the eligible Amerix Shareholders present in person or
represented by proxy at the Amerix Meeting.
The Amerix Board has fixed the Amerix Record Date for the
Amerix Meeting as the close of business on November 17, 2014. As at such
date, 82,454,934 Amerix Common Shares were issued and outstanding. Only Amerix
Shareholders of record as of the close of business on the Amerix Record Date
will be entitled to vote at the Amerix Meeting. Amerix Shareholders
entitled to vote shall have one vote each on a show of hands and one vote per
Amerix Common Share on a poll. See General Information Concerning the
Amerix Meeting Appointment of Proxyholders and Revocation of
Proxies and Particulars of Matters to be Acted on at the Amerix
Meeting.
The Eagle Meeting
The Eagle Meeting will be held at the offices of Cassels
Brock & Blackwell LLP, 2100 Scotia Plaza, 40 King Street West, Toronto,
Ontario at 10:00 a.m. (Toronto time) on December 19, 2014, or at any adjournment
thereof, for the purposes set forth in the accompanying Eagle Notice of
Meeting. At the Eagle Meeting, the Eagle Shareholders will be
asked to consider, and if deemed advisable, approve, with or without variation,
the Stock Split Resolution, as more specifically set out in Particulars of
Matters to be Acted On at the Eagle Meeting Stock Split, the Amalgamation
Resolution, as more specifically set out in Particulars of Matters to be
Acted On at the Eagle Meeting The Amalgamation, and to consider such
other matters as may properly come before the Eagle Meeting. Proxies must
be received by Eagle c/o Cassels Brock & Blackwell LLP, not later than
10:00 a.m. (Toronto time) on December 17, 2014.
To be effective, the Amalgamation Resolution and the Stock
Split Resolution must each be approved by not less than 66 2 / 3
% of the votes cast at the Eagle Meeting by the eligible Eagle
Shareholders present in person or represented by proxy at the Eagle
Meeting.
The Eagle Board has fixed the Eagle Record Date
for the Eagle Meeting as the close of business on November 17, 2014. As
at such date, 11,009,940 Eagle Common Shares were issued and outstanding. Only
Eagle Shareholders of record as of the close of business on the Eagle Record
Date will be entitled to vote at the Eagle Meeting. Eagle Shareholders entitled
to vote shall have one vote each on a show of hands and one vote per Eagle
Common Share on a poll. See General Information Concerning the Eagle
Meeting Exercise of Vote by Proxies and Discretionary Authority
and Particulars of Matters to be Acted on at the Eagle Meeting.
Amerix
Amerix was originally incorporated under the Company Act
of British Columbia and completed its continuance in the Province of Ontario
effective May 31, 2004. The Company has not earned any income. The registered
office of the Company is located at 40 University Avenue, Suite 710, Toronto,
Ontario, M5J 1T1, Canada. The head office of the Company is located at 40
University Avenue, Suite 606, Toronto, Ontario, M5J 1T1, Canada.
18
The Amerix Common Shares are listed on the Exchange under the
symbol APM. Trading of the Amerix Common Shares was halted on July 7,
2014 pending the announcement of the Acquisition and remains halted as at the
date hereof. The last trading price of the Amerix Common Shares on the Exchange
prior to the trading halt was $0.005 per Amerix Common Share.
Eagle
Eagle was incorporated under the Canada Business
Corporations Act on December 29, 2004. The head office of Eagle is located
at 6420 Eagles Drive, Courtenay, British Columbia, V9J 1V4 and the registered
office of Eagle is located at 2100 Scotia Plaza, 40 King Street West, Toronto,
Ontario, M5H 3C2.
There is no public market for the Eagle Common Shares.
The Proposed Disposition
Amerix intends to pursue a sale of its indirect 100% interest
in MVPR, which holds the Amerix Mineral Interests (the Proposed
Disposition). MVPR is 90% owned by Brazourcay Ltd. and 10% owned by S.A.
Ventures II Limited. Amerix directly holds 100% of the issued and outstanding
securities of Brazourcay Ltd. which in turn owns 100% of the issued and
outstanding securities of S.A. Ventures II Limited. See Information
Concerning Amerix Corporate Structure.
The Company does not expect to receive any material proceeds
from the Proposed Disposition. Substantially all proceeds will be in the form of
the buyer assuming the liabilities of MVPR. Any proceeds that do accrue to
Amerix from the Proposed Disposition will be used for general working capital
purposes and to continue to pursue and develop other resource and mining
opportunities in the ordinary course of its business.
Completion of the Proposed Disposition is subject to a number
of conditions, including Amerix finding a suitable purchaser and entering into a
definitive agreement in respect of the Proposed Disposition, the approval of the
Amerix Shareholders as well as the final approval of the Exchange.
The Acquisition
In June 2014, Amerix began arms length negotiations with Eagle
with respect to the Acquisition. On July 6, 2014, Amerix and Eagle entered into
the Letter of Intent to complete the Acquisition, which was superceded by the
Amalgamation Agreement, dated November 5, 2014. The Acquisition will
constitute a Reverse Takeover transaction within the meaning of Exchange Policy
5.2 Change of Business and Reverse Takeovers. When completed, Amerix
will become the Resulting Issuer, and will carry on the business of Eagle, being
the exploration and development of the Black Crystal Property and other
prospective graphite properties in British Columbia. It is anticipated that, on
or prior to completion of the Acquisition, Amerix (the Resulting Issuer) will
change its name to Eagle Graphite Corporation, or such other name as agreed
upon by Amerix and Eagle and as is permitted by applicable law and acceptable to
the Exchange.
Consolidation, Name Change and Stock Split
At the annual meeting of shareholders of the Company held on
January 31, 2014, the Amerix Shareholders approved a special resolution
authorizing an amendment to the articles of the Company to consolidate the
Amerix Common Shares at a ratio of up to twenty (20) pre-consolidation shares to
one (1) post-consolidation share (the Consolidation) in accordance with
applicable corporate laws and the policies of the Exchange. The Amerix Board has
the authority to implement the Consolidation at any time. The Amerix
Shareholders also approved a special resolution authorizing the Amerix Board to
amend the articles of the Company to change the name of the Company to any name
it deems appropriate in accordance with applicable corporate laws and the
policies of the Exchange. The Amerix Board has the authority to change the name
of the Company at any time. In connection with the Acquisition, the Company
intends to implement the Consolidation on the basis of twenty (20)
pre-consolidation shares to one (1) post-consolidation share, as well as
implement the Name Change, under which the Company will change the name of the
Company to Eagle Graphite Corporation or such other name as agreed upon by
Amerix and Eagle and which is permitted by applicable law and acceptable to the
Exchange, both to be effective immediately prior to the completion of the
Acquisition. All securities to be issuable in connection with the Acquisition
will be on a post-Consolidation, post-Name Change basis. After giving effect to
the Consolidation, there will be approximately 4,122,746 Amerix Common Shares
outstanding and 176,666 Amerix Stock Options outstanding. For greater certainty,
the Amerix Common Shares issuable upon conversion of the Amerix Subscription
Receipts are post-Consolidation shares.
At the Eagle Meeting, Eagle intends to obtain the approval of a
special resolution of its shareholders authorizing Eagle to subdivide the Eagle
Common Shares on the basis of one (1) old share for up to twenty (20) new shares
(the Stock Split). The Resulting Issuer Common Shares issuable to the
holders of Eagle Securities in connection with the Acquisition are on a post-Consolidation, post-Stock Split basis. For greater
certainty, all securities issuable upon conversion of the Eagle Subscription
Receipts are on a post-Stock Split basis.
19
The Amalgamation Agreement
In accordance with the terms of the Amalgamation Agreement, the
Acquisition will be completed by way of a three-cornered amalgamation between
Eagle, Amerix and Amerix Subco, a newly-incorporated wholly-owned subsidiary of
Amerix, pursuant to which Eagle and Amerix Subco will complete the Amalgamation
to form Amalco, and Amalco will be a wholly-owned subsidiary of Amerix (the
Resulting Issuer) after the completion of the Acquisition.
The Eagle Common Shares outstanding as of the date of this
Circular are subject to the Stock Split, whereby such Eagle Common Shares will,
if approved by the Eagle Shareholders at the Eagle Meeting, be subdivided on an
up to 20:1 basis. However, the Eagle Common Shares issuable upon conversion of
the Eagle Subscription Receipts, the Eagle Notes, the Eagle Broker Warrants, the
ANH Options, and the BayFront Options are issuable after the effectiveness of
the Stock Split and therefore issuable on a post-Stock Split basis. Following
the Stock Split (which will be effective immediately prior to the effectiveness
of the Amalgamation), upon completion of the Amalgamation, the Eagle
Shareholders will receive, for each Eagle Common Share held, one (1) Resulting
Issuer Common Share (on a post-Consolidation basis). All outstanding Eagle
Warrants will be replaced with Resulting Issuer Warrants having economically
equivalent terms and conditions, and each Eagle Broker Warrant shall be
exchanged for one Resulting Issuer Broker Warrant.
In conjunction with the completion of the Acquisition, and
assuming satisfaction of the Escrow Release Conditions:
|
(a) |
Eagle will amalgamate with Amerix Subco to form Amalco,
which will be a wholly-owned subsidiary of the Resulting Issuer; |
|
|
|
|
(b) |
the Eagle Shareholders as of the date of this Circular
will hold an aggregate of 220,198,800 Resulting Issuer Common Shares
representing approximately 82.30% of the issued and outstanding Resulting
Issuer Common Shares; |
|
|
|
|
(c) |
the Holders of Eagle Notes in the aggregate value of
$825,000 will hold an aggregate of 9,240,000 Resulting Issuer Common
Shares representing approximately 3.45% of the issued and outstanding
Resulting Issuer Common Shares; |
|
|
|
|
(d) |
the Holders of the 100,000 ANH Options and the 300,000
BayFront Options will hold an aggregate of 8,000,000 Resulting Issuer
Common Shares (assuming that both the ANH Options and the BayFront Options
are exercised in full) representing approximately 2.99% of the issued and
outstanding Resulting Issuer Common Shares; |
|
|
|
|
(e) |
the current Amerix Shareholders will hold an aggregate of
approximately 4,122,746 Resulting Issuer Common Shares following the
Consolidation representing approximately 1.54% of the outstanding
Resulting Issuer Common Shares; and |
|
|
|
|
(f) |
purchasers under the Private Placements will hold an
aggregate of 25,980,000 Resulting Issuer Common Shares representing
approximately 9.71% of the outstanding Resulting Issuer Common
Shares. |
In the event that there are additional closing(s) of the Eagle
Private Placement after the date hereof and prior to the date of completion of
the Acquisition, purchasers thereunder will hold a greater number of Resulting
Issuer Common Shares than is set out in (f) above. As a result, the percentages
of Resulting Issuer Common Shares as set out in (b) through (e) above will each
be reduced accordingly and the percentage of Resulting Issuer Common Shares held
by purchasers under the Eagle Private Placement will be increased.
The Acquisition will constitute a Reverse Takeover of
Amerix.
The completion of the Acquisition is subject to a number of
conditions, including obtaining all Appropriate Regulatory Approvals, Holders of
not more than 5% of the outstanding Eagle Common Shares having validly exercised
their Dissent Rights, the exercise or cancellation of the ANH Options and the
BayFront Options, and additional conditions precedent, including no material
adverse change in the business, affairs or operations of Eagle or Amerix and
certain other conditions customary for transactions of this nature. Please see
the Amalgamation Agreement for greater detail.
Dissent Rights
Each registered Eagle Shareholder has the right to dissent to
the Amalgamation and to be paid the fair value for the Eagle Common Shares they
hold in accordance with Section 190 of the CBCA.
20
Strict compliance with the provisions of the CBCA is required
in order to exercise the right to dissent. See Exhibit D for the full text of
Section 190 of the CBCA.
Persons who are beneficial owners of Eagle Common Shares
registered in the name of a broker, custodian, nominee or other intermediary who
wish to dissent should be aware that only the registered Holders of such Eagle
Common Shares are entitled to dissent. Accordingly, a beneficial owner of Eagle
Common Shares desiring to exercise the right of dissent must make arrangements
for such Eagle Common Shares beneficially owned by the Eagle Shareholder to be
registered in such Eagle Shareholders name prior to the time the written
objection to the Amalgamation Resolution is required to be received by Eagle, or
alternatively, make arrangements for the registered Holder of such Eagle Common
Shares to dissent on such Eagle Shareholders behalf.
To exercise such right of dissent with respect to the
Amalgamation, the Dissenting Shareholder must send to Eagle a written objection
to the Amalgamation Resolution, which written objection in respect of Eagle
Common Shares must be received by Eagle c/o Cassels Brock & Blackwell LLP,
2100 Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3C2, Attention:
Chad Accursi, on or before December 17, 2014 or the second business day
immediately preceding the date of any adjustment or postponement of the Eagle
Meeting and the Dissenting Shareholder must otherwise comply with Section 190 of
the CBCA.
The statutory provisions covering the right of dissent are
technical and complex. Failure to strictly comply with the requirements set
forth in Section 190 of the CBCA will result in the loss of any right of
dissent.
The Amerix Private Placement
On November 5, 2014, Amerix completed the Amerix Private
Placement, pursuant to which Amerix issued 10,930,000 Amerix Subscription
Receipts at a price of $0.10 per Amerix Subscription Receipt for gross proceeds
of $1,093,000, which proceeds have been placed in escrow pending satisfaction of
the Amerix Escrow Release Conditions. Upon satisfaction of the Amerix Escrow
Release Conditions prior to 5:00 p.m. (Toronto time) on December 31, 2014 (the
Amerix Escrow Release Deadline) and immediately following the Closing,
the Amerix Subscription Receipts will automatically be exercised, without
payment of any additional consideration and with no further action on the part
of the Holders thereof, for one Resulting Issuer Common Share, which will
qualify as a flow-through share within the meaning of the Tax Act.
If the Amerix Escrow Release Conditions are not satisfied prior
to the Amerix Escrow Release Deadline, all of the escrowed funds plus accrued
interest, if any, will be returned to the Amerix Purchasers in accordance with
the terms of the Amerix Private Placement. To the extent that the escrowed funds
plus accrued interest, if any, are not sufficient to repay the purchase price
for all Amerix Subscription Receipts, Amerix has agreed to satisfy any
shortfall.
The Eagle Private Placement
On November 5, 2014, Eagle completed the first tranche of the
Eagle Private Placement, pursuant to which Eagle issued 15,050,000 Eagle
Subscription Receipts at a price of $0.10 per Eagle Subscription Receipt for
gross proceeds of $1,505,000, which proceeds have been placed in escrow pending
satisfaction of the Eagle Escrow Release Conditions. Upon satisfaction of the
Eagle Escrow Release Conditions prior to 5:00 p.m. (Toronto time) on January 30,
2015 (the Eagle Escrow Release Deadline) and immediately prior
to the Closing, the Eagle Subscription Receipts will automatically be exercised,
without payment of any additional consideration and with no further action on
the part of the Holders thereof, for one Eagle Unit. Each Eagle Unit will be
comprised of one (1) Eagle Common Share and one-half of one ( 1
/ 2 ) Eagle Warrant.
If the Eagle Escrow Release Conditions are not satisfied prior
to the Eagle Escrow Release Deadline, all of the escrowed funds plus accrued
interest, if any, will be returned to the Eagle Purchasers in accordance with
the terms of the Eagle Private Placement. To the extent that the escrowed funds
plus accrued interest, if any, are not sufficient to repay the purchase price
for all Eagle Subscription Receipts, Eagle has agreed to satisfy any
shortfall.
See Information Concerning Eagle General Development of
the Business The Eagle Private Placement.
The Eagle Notes
Eagle has raised bridge financing by issuing the Eagle Notes in
the gross amount of $825,000. Eagle Notes in the aggregate amount of
approximately $375,000 were issued on May 22, 2014, $100,000 on June 22, 2014
and $350,000 on October 22, 2014. Of these amounts, as at October 31, 2014,
approximately $350,000 is available to Eagle. Each $25,000 principal amount of
the Eagle Notes is automatically convertible into $28,000 of units of Eagle on a
post-Stock Split basis at a price of approximately $0.0893 per unit (the
Eagle Note Units) immediately prior to the completion of the
Acquisition. Each Eagle Note Unit is comprised of one Eagle Common Share and
one-half of one Eagle Warrant. The 9,240,000 Eagle Common Shares and 4,620,000 Eagle Warrants issued on conversion of the
Eagle Notes in connection with the Acquisition will be exchanged on a 1:1 basis
for 9,240,00 Resulting Issuer Common Shares and 4,620,000 Resulting Issuer
Warrants. Unless otherwise converted into Eagle Note Units upon satisfaction of
the Eagle Escrow Release Conditions, each Eagle Note is due on June 22, 2015.
21
The ANH Off-Take Agreement
In September, 2010, ANH and Eagle entered into the Original
Supply Agreement, effective until December 31, 2013, under which Eagle would
supply certain quantities of graphite to ANH at agreed-upon prices.
In March, 2012, ANH and Eagle entered a prepayment agreement
under which ANH would advance the Prepayment Amount of US$1,552,000 (converted
into approximately $1,522,000 in Canadian funds) as prepayment for a certain
quantity of graphite to be delivered during 2012 in accordance with the Original
Supply Agreement. As security for the Prepayment Amount, Eagle granted a
security interest in its present and after-acquired property to ANH pursuant to
the GSA.
Effective January 1, 2014, Eagle and ANH entered the ANH Off-Take
Agreement in substitution and replacement of the Original Supply Agreement. On
May 30, 2014, Eagle and ANH entered an amending agreement to the ANH Off-Take
Agreement under which ANH agreed to amend the terms of Eagles production
commitments under the ANH Off-Take Agreement.
ANH and Eagle have subsequently entered into the ANH LOI,
effective November 20, 2014, under which the parties expressed their intent to
negotiate an expansion of the ANH Off-Take Agreement, including a commitment to
increased production commitments from Eagle, an extension of the term of the ANH
Off-Take Agreement, and certain adjustments to the pricing formulae by February
15, 2015, or such other date as may be mutually agreed upon by the parties. In
consideration for entering into the ANH LOI and the ANH Security Assignment
Agreement, ANH consented to the issuance of the Eagle Notes and to the proposed
Amalgamation on the terms set forth in the Amalgamation Agreement. For further
information on the ANH Off-Take Agreement, the Prepayment Amount, the GSA, and
the ANH LOI, see Information Concerning Eagle General Development of the
Business Description of the Business ANH Off-Take Agreement.
Business of the Resulting Issuer Following Closing
The Resulting Issuer will be engaged in the exploration and
development of the mining interests of Eagle. Eagles material property is the
Black Crystal Property, located in the Slocan Mining Division in British
Columbia. In addition to further developing the Black Crystal Property, the
Resulting Issuer also intends to continue to explore opportunities for the
acquisition of additional mining interests in prospective mining districts in
British Columbia.
The board of directors of the Resulting Issuer is expected to
be comprised of the following four (4) directors:
|
(a) |
Steve Brunelle; |
|
|
|
|
(b) |
Jamie Deith; |
|
|
|
|
(c) |
Bryan Bapty; and |
|
|
|
|
(d) |
Robert Matter. |
Mr. Brunelle is currently a director of Amerix, and Mr. Deith
is currently the President and sole director of Eagle. It is expected that
immediately following completion of the Acquisition, all other directors of
Amerix will resign, to be replaced by these four individuals.
The executive management team of the Resulting Issuer
immediately following completion of the Acquisition is expected to be comprised
of:
|
(a) |
Jamie Deith, President, Chief Executive Officer and
Director; and |
|
|
|
|
(b) |
Daniel Hamilton, Chief Financial
Officer. |
Mr. Brunelle is currently the President and Chief Executive
Officer of Amerix. Immediately following the completion of the Acquisition, Mr.
Brunelle will resign as President and Chief Executive Officer of the Resulting
Issuer in favour of Mr. Deith.
Additional management personnel may be added in
the future depending on the Resulting Issuers requirements. See Information
Concerning the Resulting Issuer Directors, Officers and Promoters.
22
Interests of Insiders
Except as disclosed herein, no Insider, Promoter or Control
Person of Amerix or Eagle, or any Associate or Affiliate thereof, has any
interest in the Acquisition other than that which arises from the holding of
securities of Amerix or Eagle, as the case may be.
Arms Length Transaction
The proposed Acquisition is an Arms Length Transaction.
Available Funds and Principal Purposes
Management of Eagle estimates that Amerix and Eagle have
working capital deficiencies of approximately ($535,000) and ($2,000,000),
respectively, as at October 31, 2014, assuming no material change in working
capital from September 1, 2014 to October 31, 2014 other than transaction costs.
The working capital of Amerix as of October 31, 2014 includes ($465,000)
attributable to MVPR, which is expected to be assumed by the buyer in the event
that MVPR is sold. In any case, Amerix will not fund the MVPR deficiency. The
working capital of Eagle as of October 31, 2014 includes approximately
$1,522,000 attributable to the Prepayment Amount provided by ANH under the ANH
Off-Take Agreement; this amount is repayable by Eagle under the terms of the ANH
Off-Take Agreement in product out of inventoried stock and future production
rather than cash. See Information Concerning Eagle General Development of
the Business Description of the Business ANH Off-Take Agreement and
Information Concerning the Resulting Issuer Risk Factors Meeting the
Obligations under the ANH Off-Take Agreement and GSA. Consequently, of the
combined estimated working capital deficit of ($2,535,000) of Amerix and Eagle
as at October 31, $1,987,000 of this deficit is not payable in cash. Also
included in the negative working capital position is $825,000 owing to the
Holders of the Eagle Notes, which will be automatically converted into
securities of the Resulting Issuer upon completion of the Acquisition and will
therefore not be settled in cash, assuming completion of the Acquisition.
Consequently, taking into account the proceeds of the Private
Placements of an aggregate of $2,598,000 (of which $1,093,000 will be spent to
incur Canadian Exploration Expenses within the meaning of that term in the Tax
Act) which are currently held in escrow pending satisfaction of the Escrow
Release Conditions, and approximately $350,000 in other funds on hand due to the
Promissory Notes, that after the Closing Date and after giving effect to the
Acquisition and assuming satisfaction of the Escrow Release Conditions, the
Resulting Issuer will have available to it approximately $2,400,000 from those
sources (before deducting costs associated with the Acquisition and the Private
Placements). The intended use of those funds is as follows: (i) to incur
Canadian Exploration Expenses (within the meaning of such term in the Tax Act)
in the gross amount raised pursuant to the Amerix Private Placement; (ii) to pay
for exploration expenditures incurred in connection with the exploration of the
Black Crystal Property, including the first phase of the recommended exploration
programs set out in the Technical Report; (iii) to pay for capital costs
associated with the Black Crystal Property; (iv) to pay expenses incurred in
connection with the Private Placements and the Acquisition; and (v) to pay for
general and administrative expenses of the Resulting Issuer over the ensuing 12
months following the completion of the Acquisition. Budgets are expected to be
regularly reviewed in light of the success of the expenditures and other
opportunities which may become available to the Resulting Issuer. Accordingly,
while it is expected that the Resulting Issuer will have the ability to spend
the funds available to it as stated in above and elsewhere in this Circular,
there may be circumstances where, for sound business reasons, a reallocation of
funds may be prudent (other than the amount to be spent incurring Canadian
Exploration Expenses). See Information Concerning the Resulting Issuer
Available Funds and Principal Purposes.
Selected Pro Forma Combined Financial
Information for the Resulting Issuer
The following table presents selected unaudited pro
forma combined financial information for the Resulting Issuer in respect of
the periods indicated, after giving effect to the Consolidation, the Stock
Split, the Acquisition and assuming satisfaction of the Escrow Release
Conditions. This table should be read in conjunction with the pro forma
combined financial statements of the Resulting Issuer and the notes thereto, set
forth in Exhibit C to this Circular.
This table contains financial information derived from
financial statements that have been prepared in accordance with IFRS. The
pro forma financial information is provided for informational purposes
only and does not purport to be indicative of results of operations of the
Resulting Issuer following the completion of the Acquisition and the Private
Placements as of any future date or for any future period.
23
Balance Sheet Data
|
Resulting Issuer
Pro
Forma as at August 31, 2014 (Cdn$) |
Assets |
|
Current Assets |
2,872,850 |
Capital Assets |
431,876 |
Total Assets |
3,439,726 |
Liabilities |
|
Current Liabilities |
2,370,352 |
Total Liabilities |
2,505,352 |
Shareholders Equity |
|
Share Capital |
8,069,537 |
Reserves |
580,837 |
Retained Earnings (Deficit) |
(7,716,000) |
Total Shareholders Equity |
934,374 |
Listing and Share Price on the Exchange
The Amerix Common Shares are listed on the Exchange under the
symbol APM. Trading of the Amerix Common Shares was halted on July 7,
2014 pending the announcement of the Acquisition and remain halted as at the
date hereof. The last trading price of the Amerix Common Shares on the Exchange
prior to the trading halt was $0.005 per Amerix Common Share. There is no
public market for the Eagle Common Shares.
Following the Listing Date, it is expected that the Resulting
Issuer Common Shares will trade on the Exchange under the symbol EGA.
Conflicts of Interest
There are potential conflicts of interest to which the
directors, officers, Insiders, Promoters and Control Persons of the Resulting
Issuer may be subject in connection with the operations of the Resulting Issuer.
Certain of the directors, officers, Insiders, Promoters and Control Persons are
engaged in and will continue to be engaged in corporations or businesses which
may be in competition with the business of the Resulting Issuer. Accordingly,
situations may arise where the directors, officers, Insiders, Promoters and
Control Persons will be in direct competition with the Resulting Issuer.
Conflicts, if any, will be subject to the procedures and remedies as provided
under the OBCA. See Information Concerning Eagle Risk Factors Possible
Conflicts of Interest of Directors and Officers of the Resulting Issuer.
Relationship between Eagle and the Agent
As consideration for the services of the Agent in connection
with the Eagle Private Placement, Eagle agreed to pay the Agent a commission
equal to 7% of the gross proceeds from the sale of the Eagle Subscription
Receipts ($105,350), which shall be released to the Agent upon satisfaction of
the Eagle Escrow Release Conditions. As additional consideration for the
services of the Agent, the Agent was granted 1,053,500 Eagle Broker Warrants.
Each Eagle Broker Warrant entitles the Agent to purchase one Eagle Common Share
at a price of $0.10 per Eagle Common Share until November 5, 2016. In the event
the Eagle Escrow Conditions are not satisfied, no commission will be payable and
the Eagle Broker Warrants will be cancelled, unexercised.
24
Interest of Experts
No experts have any interest, direct or indirect, in Amerix or
Eagle other than as disclosed under General Matters Experts.
Certain Canadian Federal Income Tax Considerations
Eagle Shareholders should carefully read the information under
the heading The Acquisition Certain Canadian Federal Income Tax
Considerations in this Circular, which provides a summary of the principal
Canadian federal income tax considerations applicable to Eagle Shareholders who
participate in or who dissent to the Acquisition and who, for the purposes of
the Tax Act, hold or will hold their Eagle Common Shares and Resulting Issuer
Common Shares, as the case may be, as capital property and deal or will deal at
arms length with, and are not and will not be Affiliated with, Eagle, Amerix or
the Resulting Issuer.
Risk Factors
There are a number of risks associated with the business of
Eagle, which will be the Resulting Issuers business upon Closing. The proposed
transaction must be considered speculative due to the nature of the business of
Eagle, and its relatively formative stage of development. Shareholders must rely
on the ability, expertise, judgment, discretion, integrity and good faith of the
management of the Resulting Issuer. Shareholders should consider all risks and
uncertainties involved in an investment in Resulting Issuer Common Shares,
including risks relating to: (a) the speculative nature of resource exploration
and development; (b) the fluctuation of metal prices; (c) the Companys limited
operating history and lack of cash flow; (d) the limited business of the
Company; (e) the recent market events and conditions; (f) general economic
conditions; (g) the volatility of the Companys share price; (h) the Companys
additional financing options; (i) the Companys insufficient financial resources
to complete all of its planned programs; (j) dilution of the existing
securityholders; (k) increased costs at the Amerix Mineral Interests; (l) the
intensely competitive nature of the mining industry; (m) acquisition of all
necessary permits and licences by the Company; (n) the effect of government
regulation; (o) the effect of environmental restrictions; (p) shifts in
political conditions; (q) dependence upon others and key personnel; (r)
negotiation of surface rights and access; (s) title matters; (t) the economics
of exploration and development of a mining property; (u) regulatory
requirements; (v) the Companys limited experience with development-stage mining
operations; (w) the uncertainty of resource estimates and reserves; (x) lack of
assurance of profitability; (y) uninsured or uninsurable risks; (z) conflicts of
interest; reliability of historical information; (aa) absence of dividends; (bb)
price volatility and lack of active market; (cc) the immediate dilutive effect
of the Acquisition; (dd) failure to realize the anticipated benefits of the
Acquisition; (ee) meeting the obligations under the ANH Off-Take Agreement and
GSA; (ff) managements lack of experience in managing a public entity; (gg)
absence of a prior public market for the Eagle Common Shares; (hh) influence by
Latitude; (ii) future sales of shares by Latitude; (jj) different factors
affecting the Resulting Issuer Common Shares upon completion of the Acquisition
than the factors which affect shares of Amerix or Eagle; (kk) future profits /
losses and production revenues / expenses; and (ll) the possibility that
Exchange approval of the Acquisition, the contents of this Circular, or the
listing of the Resulting Issuer Common Shares may not be granted. See:
Information Concerning Amerix Risk Factors, Information
Concerning Eagle Risk Factors, and Information Concerning the
Resulting Issuer Risk Factors.
Listing Approval
The Exchange has not yet accepted the Acquisition and the
listing of the Resulting Issuer Common Shares and there can be no assurances
that such acceptance will be forthcoming. In the event the Exchange does not
approve the Acquisition, the Acquisition will not proceed. See: Information
Concerning Amerix Risk Factors, Information Concerning Eagle Risk
Factors, and Information Concerning the Resulting
Issuer Risk Factors.
25
THE ACQUISITION
Background to the Acquisition
In June 2014, Amerix began arms length negotiations with Eagle
with respect to the Acquisition. On July 6, 2014, Amerix and Eagle entered into
the Letter of Intent to complete the Acquisition, which was superceded by the
Amalgamation Agreement, dated November 5, 2014. The Acquisition will
constitute a Reverse Takeover transaction within the meaning of Exchange Policy
5.2 Change of Business and Reverse Takeovers. When completed, Amerix
will become the Resulting Issuer, and will carry on the business of Eagle, being
the exploration and development of the Black Crystal Property and other
prospective graphite properties in British Columbia. It is anticipated that, on
or prior to completion of the Acquisition, Amerix (the Resulting Issuer) will
change its name to Eagle Graphite Corporation, or such other name as agreed
upon by Eagle and Amerix and as is permitted by applicable law and acceptable to
the Exchange.
The Acquisition
In accordance with the terms of the Amalgamation Agreement, the
Acquisition will be completed by way of a three-cornered amalgamation between
Eagle, Amerix and Amerix Subco, a newly-incorporated wholly-owned subsidiary of
Amerix, pursuant to which Eagle and Amerix Subco will complete the Amalgamation
to form Amalco, and Amalco will be a wholly-owned subsidiary of Amerix (the
Resulting Issuer).
The Eagle Common Shares outstanding as of the date of this
Circular are subject to the Stock Split, whereby such Eagle Common Shares will,
if approved by the Eagle Shareholders at the Eagle Meeting, be subdivided on an
up to 20:1 basis. However, the Eagle Common Shares issuable upon conversion of
the Eagle Subscription Receipts, the Eagle Notes, the Eagle Broker Warrants, the
ANH Options, and the BayFront Options are issuable after the effectiveness of
the Stock Split and therefore issuable on a post-Stock Split basis. Following
the Stock Split (which will be effective immediately prior to the effectiveness
of the Amalgamation), upon completion of the Amalgamation, the Eagle
Shareholders will receive, for each Eagle Common Share held (on a post-Stock
Split basis), one (1) Resulting Issuer Common Share (on a post-Consolidation
basis). All outstanding Eagle Warrants will be replaced with Resulting Issuer
Warrants having economically equivalent terms and conditions, and each Eagle
Broker Warrant shall be exchanged for one Resulting Issuer Broker Warrant.
With respect to each Eagle Security (or Eagle Underlying
Security, as applicable) exchanged or replaced, as applicable, the Holders
thereof shall cease to be the Holders of such Eagle Securities (or Eagle
Underlying Security, as applicable), and the name of such Holder shall be
removed from the applicable register of Holders of such Eagle Securities (or
Eagle Underlying Security, as applicable). The Eagle Securities (or Eagle
Underlying Security, as applicable) shall be deemed to have been cancelled as of
the Effective Date.
In conjunction with the completion of the Acquisition, and
assuming satisfaction of the Escrow Release Conditions:
|
(a) |
Eagle will amalgamate with Amerix Subco to form Amalco,
which will be a wholly-owned subsidiary of the Resulting Issuer; |
|
|
|
|
(b) |
the Eagle Shareholders as of the date of this Circular
will hold an aggregate of 220,198,800 Resulting Issuer Common Shares
representing approximately 82.30% of the issued and outstanding Resulting
Issuer Common Shares; |
|
|
|
|
(c) |
the Holders of Eagle Notes in the aggregate value of
$825,000 will hold an aggregate of 9,240,000 Resulting Issuer Common
Shares representing approximately 3.45% of the issued and outstanding
Resulting Issuer Common Shares; |
|
|
|
|
(d) |
the Holders of the 100,000 ANH Options and the 300,000
BayFront Options will hold an aggregate of 8,000,000 Resulting Issuer
Common Shares (assuming that both the ANH Options and the BayFront Options
are exercised in full) representing approximately 2.99% of the issued and
outstanding Resulting Issuer Common Shares; |
|
|
|
|
(e) |
the current Amerix Shareholders will hold an aggregate of
approximately 4,122,746 Resulting Issuer Common Shares representing
approximately 1.54% of the outstanding Resulting Issuer Common Shares;
and |
|
|
|
|
(f) |
purchasers under the Private Placements will hold an
aggregate of 25,980,000 Resulting Issuer Common Shares representing
approximately 9.71% of the outstanding Resulting Issuer Common
Shares. |
In the event that there are additional closing(s) of the Eagle
Private Placement after the date hereof and prior to the date of completion of
the Acquisition, purchasers thereunder will hold a greater number of Resulting
Issuer Common Shares than is set out in (f) above. As a result, the percentages
of Resulting Issuer Common Shares as set out in (b) through (e) above will each be reduced accordingly and the percentage of Resulting
Issuer Common Shares held by purchasers under the Eagle Private Placement will
be increased.
26
The completion of the Acquisition is subject to a number of
conditions, including obtaining all Appropriate Regulatory Approvals, Holders of
not more than 5% of the outstanding Eagle Common Shares having validly exercised
their Dissent Rights, the exercise or cancellation of the ANH Options and the
BayFront Options, and additional conditions precedent, including no material
adverse change in the business, affairs or operations of Eagle or Amerix and
certain other conditions customary for transactions of this nature. Please see
the Amalgamation Agreement for greater detail.
Exchange of Certificates Pursuant to the Acquisition
After the Effective Date and pursuant to the Amalgamation
Agreement, certificates formerly representing Eagle Common Shares (other than
Eagle Common Shares held by Eagle Shareholders who have validly executed their
Dissent Rights) will represent only the right to receive Resulting Issuer Common
Shares, to be issued pursuant to the Amalgamation Agreement. In the case of
Dissenting Shareholders, certificates formerly representing Eagle Common Shares
will represent only the right to receive the fair value of such Eagle Common
Shares. Dissenting Shareholders who are ultimately entitled to be paid the fair
value of their Eagle Common Shares will be deemed to have transferred those
securities to the Resulting Issuer on the Effective Date. Dissenting
Shareholders who are ultimately not entitled to be paid the fair value of their
Eagle Common Shares will be treated as if they had participated in the
Acquisition on the same basis as non-dissenting Eagle Shareholders.
Each
registered Eagle Shareholder (other than Eagle Shareholders who have validly
executed their Dissent Rights) will be entitled to receive a certificate
representing the Resulting Issuer Common Shares that such Eagle Shareholder is
entitled to receive pursuant to the Acquisition, upon delivering the certificate
or certificates representing such Holders Eagle Common Shares in accordance
with the instructions contained in the Eagle Letter of Transmittal. Such
certificates must be accompanied by a duly completed Eagle Letter of Transmittal
and such other documents, instruments and payments as Equity may reasonably
require. Equity will register the Resulting Issuer Common Shares as requested in
the Eagle Letter of Transmittal, and will deliver the certificates representing
the Resulting Issuer Common Shares by first class mail, postage prepaid or, in
the case of postal disruption, by such other means as Equity deems prudent, to
Holders of those shares, at such address as the Holders may direct in the Eagle
Letter of Transmittal, as soon as practicable after completion of the
Amalgamation and receipt by Equity of the applicable Eagle Letter of Transmittal
and all related materials.
Alternatively, an Eagle Shareholder may instruct
Equity to hold his/her/its certificate representing the Resulting Issuer Common
Shares for pickup at the office of Equity in Toronto, Ontario. If a registered
Eagle Shareholder deposits more than one certificate representing Eagle Common
Shares, the Resulting Issuer Common Shares issuable to such Eagle Shareholder
will be computed, on the basis of the aggregate number of Eagle Common Shares
held by such Eagle Shareholder in accordance with the Amalgamation Agreement.
Eagle Shareholders are cautioned that the use of the mail to
transmit certificates and related material is at each Eagle Shareholders risk.
Any certificate formerly representing Eagle Common Shares that
is not deposited with all other documents as required by the Amalgamation
Agreement before the 6th anniversary of the Effective Date shall
cease to represent a right or claim of any kind or nature and, for greater
certainty, the right of the Holder of such Eagle Common Shares to receive
certificates representing Resulting Issuer Common Shares shall be deemed to be
surrendered to the Resulting Issuer together with all dividends, distributions
or cash payments thereon held for such Holder.
Benefits of the Acquisition
The purpose of the Acquisition is to facilitate the acquisition
by Amerix of all of the outstanding securities of Eagle such that Eagle, after
amalgamation with Amerix Subco, will become a wholly-owned subsidiary of Amerix.
It is expected that the combined entity will be better able to compete in the
capital intensive mining business than its predecessors. As one of only two
operational flake graphite mines in North America, strategically located close
to the cities of Spokane, Washington and Vancouver, British Columbia, Eagle
offers efficient and economical shipping of high grade material to destinations
worldwide. The extent and size of the high calibre deposit, a highly skilled
team, and Eagles commitment to stringent quality standards ensure customers
receive a steady and secure source of first class product. The 100-hectare open
cast quarry area is surrounded by additional undeveloped mineral claims. The
processing plant, using clean green locally generated hydroelectricity,
incorporates a closed system re-circulating and filtered water supply and uses
low impact purification chemicals such as pine oil. Secondary by-products
include sand and aggregate, which are in good demand in the region. A long
tradition of mining in the region in which the Black Crystal Property is located
provides a skilled work force. The Acquisition is anticipated to provide
increased liquidity and access to a public market for the Eagle Common Shares
and increased liquidity for Amerix Shareholders, along with access
to additional financing sources available to public companies to increase
funding for further advancing Eagles business objectives and developing its
properties and assets.
27
Dissent Rights
Registered Eagle Shareholders have the right to dissent to the
Amalgamation Resolution pursuant to Section 190 of the CBCA. This summary is
expressly subject to section 190 of the CBCA, the text of which is reproduced in
its entirety in Exhibit D hereto. Eagle is not required to notify, and Eagle
will not notify, the Eagle Shareholders of the time periods within which action
must be taken in order for such Eagle Shareholders to exercise their dissent
rights. It is recommended that Eagle Shareholders wishing to avail themselves
of their dissent rights seek legal advice, as failure to comply strictly with
the provisions of Section 190 of the CBCA may prejudice any such rights. Any
Eagle Shareholder who wishes to invoke his or her dissent rights should register
his or her Eagle Common Shares in his or her name or arrange for the registered
Eagle Shareholder to dissent. Any Eagle Shareholder who wishes to invoke his or
her dissent rights is urged to consult with his or her legal or investment
advisor to determine whether they are registered Eagle Shareholders and to be
advised of the strict provisions of Section 190 of the CBCA. Any Eagle
Shareholder who wishes to register his or her Eagle Common Shares in his or her
name is urged to consult with his or her legal or investment advisor or Eagle.
In the event that the Amalgamation Resolution is adopted and
becomes effective, any Eagle Shareholder who dissents in respect of such special
resolution in compliance with Section 190 of the CBCA (a Dissenting
Shareholder) will be entitled to be paid by Eagle, or by the Resulting
Issuer following the Acquisition, a sum representing the fair value of his or
her Eagle Common Shares. No right of dissent or appraisal is available to
Holders of Eagle Common Shares with respect to any other matter to be considered
at the Eagle Meeting.
A Dissenting Shareholder must, on or before December 17, 2014
or the second business day immediately preceding the date of any adjustment or
postponement of the Eagle Meeting, deliver to Eagle c/o Cassels Brock &
Blackwell LLP, 2100 Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H
3C2, Attention: Chad Accursi, a written objection to the Amalgamation Resolution
(a Dissent Notice) to Eagle. A vote against the Amalgamation Resolution
does not constitute a Dissent Notice. The CBCA does not provide for partial
dissent and, accordingly, an Eagle Shareholder may only dissent with respect to
all of the Eagle Common Shares held by such Eagle Shareholder or on behalf of
any one beneficial owner whose Eagle Common Shares are registered in his or her
name.
Under the CBCA, Eagle, or the Resulting Issuer upon completion
of the Acquisition, is required, within ten (10) days after its shareholders
adopt the Amalgamation Resolution to send notice that the Amalgamation
Resolution has been adopted to each Dissenting Shareholder who has not withdrawn
his or her objection or voted for such Amalgamation Resolution. Such a
Dissenting Shareholder shall, within twenty (20) days of receiving such notice
(or if such notice is not received, within twenty (20) days of learning that the
Amalgamation Resolution has been adopted), send to Eagle, or the Resulting
Issuer upon completion of the Acquisition, a written notice in prescribed form
demanding payment of fair value for his or her Eagle Common Shares (a
Shareholder Demand). Not later than the thirtieth (30th) day
after sending a Shareholder Demand to Eagle, or the Resulting Issuer upon
completion of the Acquisition, a Dissenting Shareholder must send the
certificates representing the Eagle Common Shares in respect of which he or she
dissents to Eagle, or the Resulting Issuer upon completion of the Acquisition,
or its transfer agent, who is required to endorse thereon a notice that the
named shareholder thereon is a Dissenting Shareholder and return such
certificates to such Dissenting Shareholder. Not later than seven (7) days after
the day on which the Effective Date or the day Eagle, or the Resulting Issuer
upon completion of the Acquisition, received a Shareholder Demand, Eagle, or the
Resulting Issuer upon completion of the Acquisition (unless it fails to meet
certain solvency criteria) must send to each Dissenting Shareholder who has sent
a Shareholder Demand a written offer to pay for the Dissenting Shareholders
shares in an amount considered by Eagle, or the Resulting Issuer upon completion
of the Acquisition, to be the fair value of the Eagle Common Shares accompanied
by a statement showing how the fair value was determined. If Eagle, or the
Resulting Issuer upon completion of the Acquisition, fails to make such an offer
or a Dissenting Shareholder does not accept such an offer, Eagle, or the
Resulting Issuer upon completion of the Acquisition, may, within fifty (50) days
after the Effective Date or such further period as a court may allow, apply to a
court to fix a fair value for the Eagle Common Shares of any Dissenting
Shareholder. If Eagle, or the Resulting Issuer upon completion of the
Acquisition, fails to apply to a Court, a Dissenting Shareholder may do so for
the same purpose within a further period of twenty (20) days or such further
period as a court may allow.
Under the CBCA, upon the sending of a Shareholder Demand, a
Dissenting Shareholder ceases to have any rights as an Eagle Shareholder, other
than the right to be paid the fair value of his or her Eagle Common Shares in
the amount agreed to between Eagle and the Dissenting Shareholder or in the
amount fixed by a Court. If the Dissenting Shareholder withdraws his or her
Shareholder Demand before Eagle makes an offer to pay or if Eagle rescinds the
Amalgamation Resolution then the dissent and appraisal proceedings in respect of
such Dissenting Shareholder will be discontinued.
28
Dissenting Shareholders will not have any right other than
those granted under the CBCA to have their Eagle Common Shares appraised or to
receive the fair value thereof.
Procedure for Exchange of Eagle Common Shares
The procedures for the exchange of Eagle Common Shares for
Resulting Issuer Common Shares are set out in the Eagle Letter of Transmittal.
Additional copies of the Eagle Letter of Transmittal may be obtained from Eagle.
If the Acquisition does not become effective, the Eagle Letter
of Transmittal will be of no effect and all deposited certificates representing
Eagle Common Shares will be returned forthwith to the Holders entitled thereto.
If the Acquisition becomes effective, as soon as practicable after the Effective
Date, certificates representing Resulting Issuer Common Shares will be forwarded
to former Eagle Shareholders who have duly completed an Eagle Letter of
Transmittal.
Lost or Destroyed Share Certificates
Where a certificate representing Eagle Common Shares has been
lost, destroyed or wrongfully taken, the Holder of such certificates should
immediately contact Eagle so that arrangements can be made to issue a
replacement share certificate to such Holder upon such holder satisfying such
reasonable requirements as may be imposed by Eagle or the Resulting Issuer in
connection with the issuance of such replacement share certificate.
Certain Canadian Federal Income Tax Considerations
The following is, as of the date hereof, a summary of the
principal Canadian federal income tax considerations under the Tax Act generally
applicable in respect of the Acquisition to a Holder of Eagle Common Shares or
Resulting Issuer Common Shares (in this subsection, a Holder) who, for
purposes of the Tax Act and at all relevant times, holds the Eagle Common Shares
and the Resulting Issuer Common Shares as capital property, deals at arms
length with each of Eagle, Amerix, and the Resulting Issuer, and is not
affiliated with Eagle, Amerix, and the Resulting Issuer. Generally, the Eagle
Common Shares and the Resulting Issuer Common Shares will be considered to be
capital property to the Holder thereof unless they are held in the course of
carrying on a business of trading or dealing in securities or were acquired in
one or more transactions considered to be an adventure or concern in the nature
of trade.
This summary is not applicable to a Holder: (i) that is a
financial institution (as defined in the Tax Act) for purposes of the
mark-to-market rules, (ii) that is a specified financial institution (as
defined in the Tax Act), (iii) an interest in which would be a tax shelter
investment (as defined in the Tax Act), (iv) that makes or has made a
functional currency election under the Tax Act to determine its Canadian tax
results (as defined in the Tax Act) in a currency other than Canadian currency,
or (v) that has entered or will enter into a derivative forward agreement (as
defined in the Tax Act) with respect to the Eagle Common Shares or the Resulting
Issuer Common Shares. This summary does not address the deductibility of
interest by a Holder who borrows money to acquire Eagle Common Shares. Such
Holders should consult their own tax advisors.
This summary also does not address the income tax
considerations of the Acquisition to the holders of Eagle Subscription Receipts,
Eagle Warrants or Eagle Broker Warrants. Such securityholders should consult
their own tax advisors with respect to the Amalgamation.
Additional considerations, not discussed herein, may be
applicable to a Holder that is a corporation resident in Canada, and is, or
becomes, controlled by a non-resident corporation for purposes of the foreign
affiliate dumping rules in section 212.3 of the Tax Act. Such Holders should
consult their own tax advisors with respect to the consequences of acquiring
Resulting Issuer Common Shares.
This summary is based upon the current provisions of the Tax
Act and the regulations thereunder in force as of the date hereof and the
current published administrative policies and assessing practices of the Canada
Revenue Agency (the CRA). This summary takes into account all specific
proposals to amend the Tax Act publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof (the Proposed
Amendments) and assumes that all Proposed Amendments will be enacted in the
form proposed. However, there can be no assurance that the Proposed Amendments
will be enacted in their current form or at all. This summary does not otherwise
take into account or anticipate any changes in the law or administrative or
assessing practice or policy of the CRA whether by legislative, regulatory,
administrative, or judicial action, nor does it take into account tax
legislation or considerations of any province, territory, or foreign
jurisdiction, which may differ significantly from those discussed herein.
This summary is of a general nature only and is not intended
to be, and should not be construed to be, legal, business or tax advice to any
particular Holder. Holders of Eagle Common Shares and Resulting Issuer
Common Shares should consult their own tax advisors to determine the tax
consequences to them of the Acquisition.
29
Residents of Canada
The following portion of the summary is generally applicable to
a Holder who, at all relevant times, is, or is deemed to be, resident in Canada
for the purposes of the Tax Act and any applicable income tax treaty (a
Resident Holder). Certain Holders who are resident in Canada for the
purposes of the Tax Act and whose Eagle Common Shares or Resulting Issuer Common
Shares might not otherwise be capital property may make, in certain
circumstances, an irrevocable election permitted by subsection 39(4) of the Tax
Act to have the Eagle Common Shares, Resulting Issuer Common Shares and every
other Canadian security (as defined in the Tax Act) owned by such Holder in
the taxation year of the election and in all subsequent taxation years deemed to
be capital property. Holders should consult their own tax advisors regarding
this election.
The Amalgamation
A Resident Holder (other than a Dissenting Eagle Shareholder)
generally will be deemed to have disposed of its Eagle Common Shares upon the
Amalgamation for proceeds of disposition equal to the Resident Holders adjusted
cost base thereof immediately prior to the Amalgamation and to have acquired the
Resulting Issuer Common Shares for the same amount. In such circumstances, the
Resident Holder will not realize a capital gain or a capital loss as a result of
the disposition of their Eagle Common Shares upon the Amalgamation.
Dividends on Resulting Issuer Common Shares
A Resident Holder will be required to include in computing its
income for a taxation year any dividends received, or deemed to be received, in
the year by the Resident Holder on Resulting Issuer Common Shares.
In the case of a Resident Holder that is an individual (other
than certain trusts), such dividends will be subject to the gross-up and
dividend tax credit rules normally applicable to taxable dividends received from
taxable Canadian corporations (as defined in the Tax Act), including the
enhanced gross-up and dividend tax credit provisions where the Resulting Issuer
designates the dividend as an eligible dividend in accordance with the
provisions of the Tax Act. A dividend received or deemed to be received by a
Resident Holder that is a corporation will generally be deductible in computing
the corporations taxable income, subject to the rules and restrictions under
the Tax Act.
A Resident Holder that is a private corporation (as defined
in the Tax Act) or any other corporation controlled (whether because of a
beneficial interest in one or more trusts or otherwise) by or for the benefit of
an individual (other than a trust) or a related group of individuals (other than
trusts) may be liable to pay an additional tax (refundable under certain
circumstances) under Part IV of the Tax Act at the rate of 33 1
/ 3 % on dividends received or deemed to be received on
Resulting Issuer Common Shares in a year to the extent that such dividends are
deductible in computing taxable income for the year. This tax will generally be
refunded to a corporate Resident Holder at the rate of $1.00 for every $3.00 of
taxable dividends paid while it is a private corporation.
Disposition of Resulting Issuer Common Shares
A Resident Holder who disposes, or is deemed to dispose, of a
Resulting Issuer Common Share, will generally realize a capital gain (or capital
loss) in the taxation year of disposition equal to the amount, if any, by which
the proceeds of disposition, net of any reasonable costs of disposition, are
greater (or are less) than the adjusted cost base to the Resident Holder of such
Resulting Issuer Common Share, immediately before the disposition or deemed
disposition. The taxation of capital gains and capital losses is described below
under The Acquisition Certain Canadian Federal Income Tax Considerations
Residents of Canada Capital Gains and Capital Losses.
Capital Gains and Capital Losses
Generally, a Resident Holder is required to include in
computing its income for a taxation year one-half of the amount of any capital
gain (a taxable capital gain) realized by the Resident Holder in such
taxation year.
Subject to and in accordance with the provisions of the Tax
Act, a Resident Holder is required to deduct one-half of the amount of any
capital loss (an allowable capital loss) realized in a particular
taxation year against taxable capital gains realized by the Resident Holder in
the year. Allowable capital losses in excess of taxable capital gains for a
taxation year may generally be carried back and deducted in any of the three
preceding taxation years or carried forward and deducted in any subsequent
taxation year against net taxable capital gains realized in such years, to the
extent and under the circumstances described in the Tax Act.
30
The amount of any capital loss realized by a Resident Holder
that is a corporation on the disposition or deemed disposition of a Resulting
Issuer Common Share may be reduced by the amount of any dividends received or
deemed to have been received by such Resident Holder on such shares or the
shares substituted for such shares, subject to and in accordance with the
provisions of the Tax Act. Similar rules may apply where a corporation is,
directly or through a partnership or trust, a member of a partnership or
beneficiary of a trust which owns Resulting Issuer Common Shares. A Resident
Holder that is throughout the relevant taxation year a Canadian-controlled
private corporation (as defined in the Tax Act) may be liable to pay an
additional 6 2 / 3 % tax (refundable in certain
circumstances) on certain investment income, including taxable capital gains.
This tax generally will be refunded to a corporate Resident Holder at the rate
of $1.00 for every $3.00 of taxable dividends paid while it is a private
corporation.
Dissenting Shareholders
A Dissenting Shareholder may be entitled, if the Acquisition
becomes effective, to receive from the Resulting Issuer the fair value of the
Eagle Common Shares held by such Dissenting Shareholder. A Dissenting
Shareholder who, pursuant to the exercise of dissent rights, disposes of Eagle
Common Shares in consideration for a cash payment from the Resulting Issuer in
respect of such Eagle Common Shares will be considered to have disposed of such
Eagle Common Shares for proceeds of disposition equal to the amount of the
payment received (exclusive of interest) by the Dissenting Shareholder and will
realize a capital gain (or capital loss) to the extent that such proceeds of
disposition exceed (or are exceeded by) the aggregate of the adjusted cost base
of the Eagle Common Shares to the Dissenting Shareholder and any reasonable
costs of disposition. The taxation of capital gains and capital losses is
described above under the subheading Certain Canadian Federal Income Tax
Considerations Residents of Canada Capital Gains and Capital
Losses.
A Dissenting Shareholder who receives an amount in respect of
interest on a payment for Eagle Common Shares will be required to include the
full amount thereof in their income.
In addition, a Dissenting Shareholder that is, throughout the
relevant taxation year, a Canadian controlled private corporation, as defined
in the Tax Act, may be liable for a refundable tax of 6 2 / 3
% on investment income, including taxable capital gains and interest
income. Dissenting Shareholders should consult their own tax advisors with
respect to the Canadian federal income tax consequences of exercising their
dissent rights.
Dissenting Resident Holders should consult their own tax
advisors with respect to the Canadian federal income tax consequences of
exercising their Dissent Rights.
Non-Residents of Canada
The following portion of the summary is generally applicable to
a Holder who, for the purposes of the Tax Act and any applicable income tax
treaty and at all relevant times, is neither resident, nor deemed to be resident
in Canada, and who does not use or hold and is not deemed to use or hold Eagle
Common Shares or Resulting Issuer Common Shares in connection with carrying on a
business in Canada (a Non-Resident Holder). Special rules, which are
not discussed in this summary may apply to a Non-Resident Holder that is an
insurer carrying on business in Canada and elsewhere. This summary is not
applicable to such Holders and they should consult their own tax advisors with
respect to the Canadian federal income tax consequences to them of the
Acquisition.
The Amalgamation
A Non-Resident Holder who participates in the Amalgamation will
be deemed to have disposed of its Eagle Common Shares upon the Amalgamation and
will generally be subject to the same Canadian income tax consequences as a
Resident Holder who exchanges their Eagle Common Shares upon the Amalgamation.
See Certain Canadian Federal Income Tax Considerations Residents of Canada
The Amalgamation above.
Disposition of Resulting Issuer Common Shares
Any capital gain realized by a Non-Resident Holder on the
disposition or deemed disposition of Resulting Issuer Common Shares acquired
pursuant to the Acquisition will not be subject to tax under the Tax Act unless
such Resulting Issuer Common Shares are, or are deemed to be, taxable Canadian
property (as defined in the Tax Act) of the Non-Resident Holder at the time of
disposition and the gain is not exempt from tax pursuant to the terms of an
applicable income tax convention or treaty.
Generally, a Resulting Issuer Common Share owned by a
Non-Resident Holder will not be taxable Canadian property of the Non-Resident
Holder at a particular time provided that such share is listed on a designated
stock exchange (as defined in the Tax Act) (which includes the Exchange) at
that time unless at any time during the 60 month period preceding the disposition the following two conditions have been met
concurrently: (i) the Non-Resident Holder, persons with whom the Non-Resident
Holder does not deal at arms length, or the Non-Resident Holder together with
all such persons, owned 25% or more of the shares of any class or series of
Eagle or the Resulting Issuer, as the case may be, and (ii) more than 50% of the
fair market value of such share was derived directly or indirectly from one or
any combination of real or immovable property situated in Canada, Canadian
resource properties, timber resource properties (each as defined in the Tax
Act), or an option in respect of, or interests in, or for civil law rights in,
any such properties, whether or not such property exists. Pursuant to Proposed
Amendments released on July 12, 2013, the ownership test will include shares
held by a partnership in which the Non-Resident Holder or any non-arms length
person holds a membership interest (either directly or indirectly through one or
more partnerships).
31
In the case of a Non-Resident Holder whose Eagle Common Shares
constitute taxable Canadian property to such NonResident Holder at the time of
the Amalgamation as a result of during the 60 month period immediately prior to
the Amalgamation more than 50% of the fair market value of such shares was
derived directly or indirectly from one or any combination of real or immovable
property situated in Canada, Canadian resource properties, timber resource
properties or an option, an interest or right in such property, whether or not
such property exists, any Resulting Issuer Common Shares received by such
Non-Resident Holder in exchange for such Eagle Common Shares upon the
Amalgamation will also constitute taxable Canadian property to such NonResident
Holder for 60 months after the Amalgamation even if the Resulting Issuer Common
Shares would not otherwise constitute taxable Canadian property of the
Non-Resident Shareholder.
Non-Resident Holders who hold, or may hold, Eagle Common
Shares or Resulting Issuer Common Shares as taxable Canadian property should
consult their own tax advisors.
Even if the Resulting Issuer Common Shares are taxable Canadian
property to a Non-Resident Holder at a particular time, such Holder may be
exempt from tax on any capital gain realized on the disposition of such shares
by virtue of an applicable income tax treaty or convention to which Canada is a
signatory. In the case of a Non-Resident Holder that is a resident of the United
States for purposes of the Canada-United States Tax Convention (1980), as
amended (the U.S. Treaty) and that is entitled to benefits under the
U.S. Treaty, any gain realized by the Non-Resident Holder on a disposition of
Resulting Issuer Common Shares that would otherwise be subject to tax under the
Tax Act will be exempt pursuant to the U.S. Treaty provided that the value of
such shares is not derived principally from real property situated in Canada at
the time of disposition.
In circumstances where a Resulting Issuer Common Share
constitutes or is deemed to constitute taxable Canadian property of the
Non-Resident Holder, any capital gain that would be realized on the disposition
of the Resulting Issuer Common Share that is not exempt from tax under the Tax
Act pursuant to an applicable income tax treaty or convention generally will be
subject to the same Canadian tax consequences discussed above for a Resident
Holder under the headings Certain Canadian Federal Income Tax Considerations
Residents of Canada Disposition of Resulting Issuer Common
Shares and Certain Canadian Federal Income Tax Considerations
Residents of Canada Capital Gains and Capital Losses.
Dividends on Resulting Issuer Common Shares
Where a Non-Resident Holder receives or is deemed to receive a
dividend on the Resulting Issuer Common Shares, the amount of such dividend will
be subject to Canadian withholding tax at the rate of 25% of the gross amount of
the dividend unless the rate is reduced under the provisions of an applicable
income tax treaty or convention between Canada and the NonResident Holders
country of residence. Where the Non-Resident Holder is a resident of the United
States who is entitled to benefits under the U.S. Treaty and is the beneficial
owner of the dividends for the purposes of the U.S. Treaty, the rate of Canadian
withholding tax applicable to dividends is generally reduced to 15% and can be
further reduced to 5% where the beneficial owner of the dividend is a company
that is a resident of the United States and such company owns at least 10% of
the voting stock of the Resulting Issuer.
Dissenting Shareholders
A Non-Resident Holder who validly exercises Dissent Rights (a
Non-Resident Dissenter) and consequently is paid the fair value
of the Non-Resident Dissenters Eagle Common Shares by the Resulting Issuer will
be considered to have disposed of its Eagle Common Shares for proceeds of
disposition equal to the amount paid to such Non-Resident Dissenter less an
amount in respect of interest, if any, awarded by a court, and, if such shares
constitute taxable Canadian property to such Non-Resident Holder, will be
subject to tax under the Tax Act on any gain realized as a result, unless the
gain is exempt from Canadian tax by virtue of an applicable income tax treaty or
convention. See discussion above under the heading NonResidents of Canada
Disposition of Resulting Issuer Common Shares for a general
discussion of taxable Canadian property.
32
Eligibility for Investment
Provided the Resulting Issuer Common Shares are listed on a
designated stock exchange (which currently includes the Exchange) at the time of
issuance, they will be qualified investments under the Tax Act for trusts
governed by registered retirement savings plans (RRSP), registered
retirement income funds (RRIF), registered education savings plans,
deferred profit sharing plans, registered disability savings plans and tax free
savings accounts (TFSA).
Notwithstanding that the Resulting Issuer Common Shares may be
qualified investments, the annuitant under a RRSP or a RRIF or the holder of a
TFSA (such annuitant or holder being a Controlling Individual) will be
subject to penalty taxes in respect of the Resulting Issuer Common Shares where
the Resulting Issuer Common Shares constitute a prohibited investment (within
the meaning of the Tax Act) to such RRSP, RRIF or TFSA, as the case may be. The
Resulting Issuer Common Shares will generally be a prohibited investment if
the Controlling Individual does not deal at arms length with the Resulting
Issuer for the purposes of the Tax Act or the Controlling Individual has a
significant interest in the Resulting Issuer. Generally, a Controlling
Individual will have a significant interest in the Resulting Issuer if the
Controlling Individual and/or persons not dealing at arms length with the
Controlling Individual own, directly or indirectly, 10% or more of the issued
shares of any class of the Resulting Issuer.
Closing Date
Amerix and Eagle will determine the Closing Date based on their
determination of when all conditions to the completion of the Acquisition are
satisfied or waived by the party entitled to the benefit thereof in accordance
with the Amalgamation Agreement, including the approval of the Acquisition by
their respective shareholders, Eagle using commercially reasonable efforts to
ensure that all ANH Options and BayFront Options have been exercised or
cancelled, and receipt of Appropriate Regulatory Approvals. Notice of the actual
Closing Date will be given to Amerix Shareholders and Eagle Shareholders through
a press release when all conditions to the Acquisition have been met or waived
and each of the Amerix and Eagle Board is of the view that all elements of the
Acquisition have otherwise been completed. Management of Amerix and Eagle
currently anticipates that the Closing Date will be on or before December 31,
2014.
INFORMATION FOR UNITED STATES SHAREHOLDERS
The Amalgamation involves the distribution of Resulting Issuer
Common Shares and Resulting Issuer Warrants to Eagle Shareholders in exchange
for their Eagle Common Shares and Eagle Warrants. Eagle is a private company
incorporated and existing under the federal laws of Canada and Amerix is
existing under the provincial laws of Ontario. The Amalgamation is subject to
the disclosure requirements of a foreign jurisdiction, which are different from
those of the United States. The Resulting Issuer Common Shares and Resulting
Issuer Warrants to be issued to Eagle Shareholders in the United States pursuant
to the Amalgamation have not been registered under the U.S. Securities Act or
the securities laws of any state of the United States and are being issued in
the United States in reliance on the exemption from registration set forth in
Rule 802 thereof (Rule 802) and exemptions provided under the
securities laws of each applicable state of the United States. Rule 802 provides
an exemption from registration under the U.S. Securities Act for offers and
sales of securities issued in exchange for securities of a foreign subject
company where:
|
(a) |
each of Eagle and the Resulting Issuer are a foreign
private issuer, as defined in Rule 405 under the U.S. Securities
Act; |
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(b) |
Eagle Shareholders in the United States hold no more than
ten percent (10%) of the securities that are the subject of the
Amalgamation; |
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(c) |
shareholders in the United States of the Resulting Issuer
hold no more than ten percent (10%) of the securities that are the subject
of the Amalgamation; |
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(d) |
Eagle Shareholders in the United States participate in
the Amalgamation on terms at least as favourable as those offered to any
other Holder of the subject securities; |
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(e) |
an informational document in connection with the
Amalgamation is published or disseminated to Eagle Shareholders in the
United States, complying with the disclosure requirements set forth in
Rule 802, on a comparable basis to that provided to Holders of the subject
securities in the foreign subject companys home jurisdiction;
and |
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(f) |
the informational document, including any amendments
thereto, is furnished to the SEC on Form CB together with a Form F-X to
appoint an agent for service of process in the United
States. |
33
This Circular will be filed with the SEC on Form CB.
The Resulting Issuer Common Shares and Resulting Issuer
Warrants will not be listed for trading on any United States stock exchange and
the solicitation of proxies for the Eagle Meeting and the Amerix Meeting is not
subject to the requirements of Section 14(a) of the U.S. Exchange Act.
Accordingly, the solicitations and transactions contemplated in this Circular
are made in the United States for securities of a foreign issuer in accordance
with foreign corporate and securities laws, and this Circular has been prepared
solely in accordance with disclosure requirements applicable in such foreign
jurisdiction. Eagle Shareholders in the United States should be aware that such
requirements are different from those of the United States applicable to
registration statements under the U.S. Securities Act.
Eagle Shareholders in the United States who furnish a duly
executed Letter of Transmittal and establish to the satisfaction of the
Resulting Issuer that the exchange of Eagle Common Shares and Eagle Warrants, as
the case may be, for Resulting Issuer Common Shares and Resulting Issuer
Warrants, as the case may be, will be exempt from registration under the U.S.
Securities Act, will be allowed to exchange their Eagle Common Shares and Eagle
Warrants for Resulting Issuer Common Shares and Resulting Issuer Warrants.
Specifically, information concerning the operations of Eagle
and Amerix contained herein has been prepared in accordance with Canadian
disclosure standards, which are not comparable in all respects to United States
disclosure standards. The unaudited pro forma financial statements and the
unaudited and audited historical financial statements of Eagle and Amerix
included in this Circular have been presented in Canadian dollars. The financial
statements of Eagle and Amerix were prepared in accordance with IFRS. The
financial statements included in this Circular are subject to Canadian auditing
and auditor independence standards, which differ from United States GAAP and
auditing and auditor independence standards in certain material respects, and
thus may not be comparable to financial statements of United States companies.
Likewise, information concerning assets and operations of Eagle and Amerix
contained herein has been prepared in accordance with Canadian standards and is
not comparable in all respects to similar information for United States
companies.
Eagle Shareholders should be aware that the Amalgamation and
ownership of Resulting Issuer Common Shares and Resulting Issuer Warrants may
have material tax consequences in the United States, including, without
limitation, the possibility that the Amalgamation is a taxable transaction, in
whole or in part, for United States federal income tax purposes. Tax
considerations applicable to Eagle Shareholders subject to United States federal
income tax have not been included in this Circular. Eagle Shareholders should
consult their own tax advisors to determine the particular tax consequences to
them of the Amalgamation.
Enforcement by Eagle Shareholders of civil liabilities under
United States federal securities laws may be affected adversely by the fact that
both Eagle and Amerix are organized under the laws of a jurisdiction outside the
United States, that some or all of their officers and directors are residents of
countries other than the United States, that the experts named in this Circular
are residents of countries other than the United States, and that all or a
substantial portion of the assets of Eagle, Amerix, and such persons are located
outside of the United States. As a result, it may be difficult or impossible for
Eagle Shareholders to effect service of process within the United States upon
the Resulting Issuer, its officers, directors and trustee or the experts named
herein, or to realize, against them, upon judgments of courts of the United
States predicated upon civil liabilities under the federal securities laws of
the United States or blue sky laws of any state within the United States. In
addition, Eagle Shareholders should not assume that the courts of Canada: (a)
would enforce judgments of United States courts obtained in actions against such
persons predicated upon civil liabilities under the federal securities laws of
the United States or blue sky laws of any state within the United States; or
(b) would enforce, in original actions, liabilities against such persons
predicated upon civil liabilities under the federal securities laws of the
United States or blue sky laws of any state within the United States.
The Resulting Issuer Common Shares and Resulting Issuer
Warrants issued to Eagle Shareholders will be restricted securities under Rule
144(a)(3) under the U.S. Securities Act. Consequently, any resale of the
Resulting Issuer Common Shares and Resulting Issuer Warrants are subject to the
registration requirement of the U.S. Securities Act unless they are resold under
an exemption or exclusion from the U.S. Securities Act. Subject to certain
limitations, Holders of Resulting Issuer Common Shares and Resulting Issuer
Warrants may resell their Resulting Issuer Common Shares and Resulting Issuer
Warrants outside the United States without registration under the U.S.
Securities Act pursuant to Regulation S. Additionally, the U.S. Securities Act
imposes restrictions on Resulting Issuer Common Shares and Resulting Issuer
Warrants held by affiliates of the Resulting Issuer after the Amalgamation or
who have been affiliates of the Resulting Issuer within 90 days prior to the
Amalgamation. Persons who may be deemed to be affiliates of an issuer include
individuals or entities that control, are controlled by, or are under common
control with, the issuer, and generally include executive officers and directors
of the issuer as well as principal shareholders of the issuer. Such affiliates
(and former affiliates) may also resell Resulting Issuer Common Shares and
Resulting Issuer Warrants pursuant to Rule 144 under the U.S. Securities Act, if
available. However, unless certain conditions are satisfied, Rule 144 is not
available for the resale of securities of issuers that have ever had (i) no or
nominal operations; and (ii) no or nominal assets other than cash and cash
equivalents.
34
Additionally, no broker, dealer, salesperson or other person
has been authorized to give any information or make any representation other
than those contained in this Circular and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Resulting Issuer, Eagle or Amerix.
THE RESULTING ISSUER COMMON SHARES AND RESULTING ISSUER
WARRANTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OF
THE UNITED STATES, NOR HAS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE UNITED STATES PASSED
ON THE ADEQUACY OR ACCURACY OF THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENCE.
Notice Regarding Resource Information
The determination of resources involves the preparation of
estimates that have an inherent degree of associated uncertainty. The estimation
and classification of resources requires the application of professional
judgment combined with geological and engineering knowledge to assess whether or
not specific resource classification criteria have been satisfied. Knowledge of
concepts including uncertainty and risk, probability, statistics and
deterministic and probabilistic estimation methods is required to properly use
and apply resource definitions.
Disclosure in this Circular has been prepared in accordance
with the requirements of the securities laws in effect in Canada, which differ
from the requirements of United States securities laws. The terms mineral
reserve, proven mineral reserve and probable mineral reserve are Canadian
mining terms as defined in accordance with Canadian National Instrument 43-101
Standards of Disclosure for Mineral Projects (NI 43-101) and the
Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) CIM
Definition Standards on Mineral Resources and Mineral Reserves, adopted by the
CIM Council, as amended. These definitions differ from the definitions in
Industry Guide 7 (Industry Guide 7) under the U.S. Securities Act.
Under Industry Guide 7 standards, a final or bankable feasibility study is
required to report reserves, the three-year historical average price is used in
any reserve or cash flow analysis to designate reserves and the primary
environmental analysis or report must be filed with the appropriate governmental
authority.
In addition, the terms mineral resource, measured mineral
resource, indicated mineral resource and inferred mineral resource are
defined in and required to be disclosed by NI 43-101; however, these terms are
not defined terms under Industry Guide 7 and are normally not permitted to be
used in reports and registration statements filed with the SEC. Eagle
Shareholders are cautioned not to assume that any part or all of mineral
deposits in these categories will ever be converted into reserves. Inferred
mineral resources have a great amount of uncertainty as to their existence, and
great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all or any part of an inferred mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Eagle Shareholders are cautioned not to assume
that all or any part of an inferred mineral resource exists or is economically
or legally mineable. Disclosure of contained ounces in a resource is permitted
disclosure under Canadian regulations; however, the SEC normally only permits
issuers to report mineralization that does not constitute reserves by SEC
standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this Circular containing descriptions of
any mineral deposits may not be comparable to similar information made public by
U.S. companies subject to the reporting and disclosure requirements under the
United States federal securities laws and the rules and regulations thereunder.
35
GENERAL INFORMATION CONCERNING THE AMERIX MEETING
SOLICITATION OF PROXIES
This Circular is furnished in connection with the
solicitation by management of the Company of proxies to be used at the special
meeting of the Amerix Shareholders (the Amerix Meeting) to be held at the
offices of Wildeboer Dellelce LLP, Wildeboer Dellelce Place, 365 Bay Street,
Suite 800, Toronto, Ontario at 10:00 a.m. (Toronto time) on December 19, 2014,
or at any adjournment or postponement thereof, for the purposes set forth in the
enclosed notice of special meeting of Shareholders (the Amerix Notice of
Meeting).
Proxies will be solicited primarily by mail but may also be
solicited personally, by telephone, by facsimile or by other means by directors,
officers or employees of the Company at nominal cost. The costs of solicitation
will be borne by the Company.
Pursuant to National Instrument 54-101
Communication with Beneficial Owners of Securities of a Reporting Issuer
(NI 54-101), arrangements have been made with clearing
agencies, brokerage houses and other financial intermediaries to forward proxy
solicitation material to beneficial owners of Amerix Common Shares. The Company
will provide, without cost to such persons, upon request to the Secretary of the
Company, additional copies of the foregoing documents required for this purpose.
APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES
The persons named in the enclosed form of proxy are
representatives of management of the Company and are directors and/or officers
of the Company. All Shareholders have the right to appoint a person or
corporation (who need not be an Amerix Shareholder), other than the persons
designated in the accompanying form of proxy, to represent the Amerix
Shareholder at the Amerix Meeting. Such right may be exercised by inserting the
name of such person or corporation in the blank space provided in the form of
proxy or by completing another proper form of proxy. An Amerix Shareholder
wishing to be represented by proxy at the Amerix Meeting or any
adjournment or postponement thereof must deposit his, her or its executed form
of proxy with the Companys transfer agent and registrar, Equity Financial Trust
Company, 200 University Avenue, Suite 300, Toronto, Ontario, M5H 4H1 (Attention:
Proxy Department), on or before 10:00 a.m. (Toronto time) on December
17, 2014, or at least 48 hours, excluding Saturdays, Sundays and holidays,
before any adjournment or postponement of the Amerix Meeting at which the
proxy is to be used. After such time, the Chair of the Amerix Meeting
may, in his or her discretion, accept or reject a form of proxy delivered to him
or her, but is under no obligation to accept or reject any particular late form
of proxy. A proxy should be executed by the Amerix Shareholder or his or her
attorney duly authorized in writing or, if the Amerix Shareholder is a
corporation, by a duly authorized officer or attorney.
In addition to any other manner permitted by law, a proxy may
be revoked, before it is exercised, by an instrument in writing executed in the
same manner as a proxy and deposited to the attention of the Secretary of the
Company at the head office of the Company at any time up to 5:00 p.m. (Toronto
time) on the last business day before the day of the Amerix Meeting or
any adjournment thereof at which the proxy is to be used or with the Chair of
the Amerix Meeting on the day of the Amerix Meeting and thereupon
the proxy is revoked. The document used to revoke a proxy must be in writing and
completed and signed by the Shareholder or his or her attorney authorized in
writing or, if the Amerix Shareholder is a corporation, under its corporate seal
or by a duly authorized officer or attorney.
A registered Amerix Shareholder attending the Amerix
Meeting has the right to vote in person and, if the Amerix Shareholder does
so, his, her or its proxy is nullified with respect to the matters such Amerix
Shareholder votes upon and any subsequent matters thereafter to be voted upon at
the Amerix Meeting.
Under normal conditions, confidentiality of voting is
maintained by virtue of the fact that the Companys transfer agent tabulates
proxies and votes. However, such confidentiality may be lost as to any proxy or
ballot if a question arises as to its validity or revocation or any other like
matter. Loss of confidentiality may also occur if the Amerix Board decides that
disclosure is in the interests of the Company or the Amerix Shareholders.
EXERCISE OF DISCRETION BY PROXYHOLDERS
The Amerix Common Shares represented by proxies will be voted
in accordance with the instructions of the Amerix Shareholder on any ballot that
may be called for and, if an Amerix Shareholder specifies a choice with respect
to any matter to be acted upon at the Amerix Meeting, the Amerix Common
Shares represented by proxy shall be voted accordingly.
36
If a specification is not made with respect to any matter, the
proxy will confer discretionary authority and will be voted:
|
(a) |
FOR the Disposition Resolution; and |
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(b) |
FOR the Acquisition Resolution. |
Each of these matters is described in greater detail in
Particulars of Matters to be Acted On at the Amerix Meeting.
The enclosed form of proxy also confers discretionary
authority upon the persons named therein to vote with respect to any amendments
or variations to the matters identified in the Amerix Notice of Meeting and with
respect to any other matters which may properly come before the Amerix Meeting
in such manner as such person, in his or her judgment, may determine. At the
date of this Circular, management of the Company knows of no such amendments,
variations or other matters to come before the Amerix Meeting.
NOTICE AND ACCESS
The Company has elected not to send proxy-related materials to
registered Holders or Beneficial Holders (as hereinafter defined) of the Amerix
Common Shares using the notice-and-access delivery procedures defined under NI
54-101 and National Instrument 51-102 Continuous Disclosure
Obligations.
ADVICE TO BENEFICIAL SHAREHOLDERS
The information set forth in this section is of significant
importance to many Amerix Shareholders as a substantial number of Amerix
Shareholders do not hold their Amerix Common Shares in their own name and
are considered non-registered beneficial shareholders. Amerix
Shareholders who do not hold Amerix Common Shares in their own name
(Beneficial Holders) should note that only proxies deposited by
shareholders whose names appear on the records of the Company as the registered
Holders of Amerix Common Shares can be recognized and acted upon at the
Amerix Meeting. If Amerix Common Shares are listed in an account
statement provided to a shareholder by a broker then, in almost all cases, those
Amerix Common Shares will not be registered in the shareholders name on the
records of the Company. Amerix Common Shares beneficially owned by Beneficial
Holders are typically registered either: (i) in the name of an intermediary (an
Intermediary) (including, among others, banks, trust companies,
securities dealers, brokers and trustees or administrators of self-administered
RRSPs, RRIFs, RESPs, TFSAs and similar plans) that the Beneficial Holder deals
with in respect of the Amerix Common Shares; or (ii) in the name of a clearing
agency (such as the Canadian Depository for Securities Limited) of which the
Intermediary is a participant. In accordance with the requirements of the
Canadian Securities Administrators, the Company will have distributed copies of
the meeting materials including the Amerix Notice of Meeting, the form of
proxy and this Circular (collectively, the Amerix Meeting Materials) to
the clearing agencies and Beneficial Holders, or Intermediaries for onward
distribution to Beneficial Holders, as applicable. If you are a Beneficial
Holder, your Intermediary will be the entity legally entitled to vote your
Amerix Common Shares at the Amerix Meeting. Amerix Common Shares held by
an Intermediary can only be voted upon the instructions of the Beneficial
Holder. Without specific instructions, Intermediaries are prohibited from voting
Amerix Common Shares.
Applicable regulatory policy requires Intermediaries to seek
voting instructions from Beneficial Holders in advance of the Amerix
Meeting. Often, the form of proxy supplied to a Beneficial Holder by its
Intermediary is identical to the form of proxy provided to registered Amerix
Shareholders; however, its purpose is limited to instructing the registered
Amerix Shareholder how to vote on behalf of the Beneficial Holder. The majority
of Intermediaries now delegate responsibility for obtaining instructions from
clients to Broadridge Financial Solutions, Inc. (Broadridge).
Broadridge typically mails a scannable voting instruction form in lieu of the
form of proxy. The Beneficial Holder is requested to complete and return the
voting instruction form to Broadridge by mail or facsimile. Alternatively, the
Beneficial Holder may call a toll-free telephone number or access the Internet
to provide instructions regarding the voting of Amerix Common Shares held by the
Beneficial Holder. Broadridge then tabulates the results of all instructions
received and provides appropriate instructions respecting the voting of Amerix
Common Shares to be represented at the Amerix Meeting. A Beneficial
Holder receiving a voting instruction form cannot use that voting instruction
form to vote Amerix Common Shares directly at the Amerix Meeting, as the
voting instruction form must be returned as directed by Broadridge well in
advance of the Amerix Meeting in order to have such Amerix Common Shares
voted.
Beneficial Holders should ensure that instructions respecting
the voting of their Amerix Common Shares are communicated in a timely manner and
in accordance with the instructions provided by their Intermediary or
Broadridge, as applicable. Every Intermediary has its own mailing procedures and
provides its own return instructions to clients, which should be carefully
followed by Beneficial Holders in order to ensure that their Amerix Common
Shares are voted at the Amerix Meeting.
37
Although a Beneficial Holder may not be recognized directly at
the Amerix Meeting for the purpose of voting Amerix Common Shares
registered in the name of their Intermediary, a Beneficial Holder may attend the
Amerix Meeting as proxyholder for the Intermediary and vote the Amerix
Common Shares in that capacity. Beneficial Holders who wish to attend the
Amerix Meeting and indirectly vote their Amerix Common Shares as a
proxyholder should enter their own names in the blank space on the form of proxy
or voting instruction form provided to them by their Intermediary and/or
Broadridge, as applicable, and return the same in accordance with the
instructions provided by their Intermediary and/or Broadridge, as applicable,
well in advance of the Amerix Meeting.
The purpose of the above-noted procedures is to permit
Beneficial Holders to direct the voting of the Amerix Common Shares which they
beneficially own. Beneficial Holders should carefully follow the instructions
and procedures of their Intermediary or Broadridge, as applicable, including
those regarding when and where the form of proxy or voting instruction form is
to be delivered.
NOTICE TO BENEFICIAL
HOLDERS
Beneficial Holders who have not objected to their Intermediary
disclosing certain ownership information about themselves to the Company are
referred to as NOBOs. Beneficial Holders who have objected to their
Intermediary disclosing the ownership information about themselves to the
Company are referred to as OBOs. In accordance with the requirements of NI
54-101, the Company is sending the Amerix Meeting Materials directly to
the NOBOs and, indirectly, through Intermediaries, to the OBOs. These
securityholder materials are being sent to both registered and non-registered
owners of the securities. If you are a Beneficial Holder, and the Company or its
agent has sent these materials directly to you, your name and address and
information about your holdings of securities have been obtained in accordance
with applicable securities regulatory requirements from the Intermediary holding
on your behalf. By choosing to send these materials to you directly, the Company
(and not the Intermediary holding on your behalf) has assumed responsibility
for: (i) delivering these materials to you; and (ii) executing your proper
voting instructions. Please return your voting instructions as specified in the
request for voting instructions. The Company has determined not to pay the fees
and costs of Intermediaries for their services in delivering the Amerix
Meeting Materials to OBOs in accordance with NI 54-101.
All references to Amerix Shareholders in this Circular and the
accompanying instrument of proxy and Amerix Notice of Meeting are to
registered Amerix Shareholders unless specifically stated otherwise.
INTEREST OF CERTAIN
PERSONS OR COMPANIES IN
MATTERS TO BE ACTED
UPON
No person who has been a director or an executive officer of
the Company at any time since the beginning of its last completed financial
year, or any Associate or Affiliate of any such director or executive officer,
has any material interest, direct or indirect, by way of beneficial ownership of
securities or otherwise, in any matter to be acted upon at the Amerix
Meeting, except as disclosed in this Circular.
INTEREST OF INFORMED
PERSONS IN MATERIAL
TRANSACTIONS
Other than as set forth in this Circular, no informed person of
Amerix and no Associate or Affiliate of any such informed person has had any
material interest, direct or indirect, in any transaction since the commencement
of the Companys most recently completed financial year or in any proposed
transaction (including the Proposed Disposition and the Acquisition) that, in
either case, has materially affected or would materially affect Amerix or any of
its subsidiaries.
AMERIX RECORD DATE
Persons registered on the records of the Company at the close
of business on November 17, 2014 (the Amerix Record Date) are entitled
to vote at the Amerix Meeting. The failure of any Amerix Shareholder to
receive a copy of the Amerix Notice of Meeting does not deprive the
Amerix Shareholder of the right to vote at the Amerix Meeting. Only
Holders of Amerix Common Shares as of the Amerix Record Date are entitled to
vote such Amerix Common Shares at the Amerix Meeting.
QUORUM
Two Amerix Shareholders, present in person or represented by
proxy, holding or representing more than five percent (5%) of the outstanding
Amerix Common Shares will constitute a quorum at the Amerix Meeting or
any adjournment thereof. The Companys list of Amerix Shareholders as of the
Amerix Record Date has been used to deliver to Amerix Shareholders the Amerix
Meeting Materials as well as to determine who is eligible to vote at the
Amerix Meeting.
38
VOTING SECURITIES AND
PRINCIPAL HOLDERS OF
VOTING SECURITIES
The Company is authorized to issue an unlimited number of
Amerix Common Shares, an unlimited number of first preference shares, issuable
in series (the Amerix First Preference Shares), and an unlimited number
of second preference shares, issuable in series (the Amerix Second
Preference Shares). Each Amerix Common Share entitles the Holder of record
thereof to one vote per Amerix Common Share at all meetings of the shareholders
of the Company. As at the date hereof, there are 82,454,934 Amerix Common Shares
outstanding and no Amerix First Preference Shares or Amerix Second Preference
Shares outstanding.
To the knowledge of the directors and executive officers of the
Company, no person or corporation beneficially owns, or controls or directs,
directly or indirectly, voting securities of the Company carrying 10% or more of
the voting rights attached to any class of outstanding voting securities of the
Company.
PARTICULARS OF MATTERS TO BE ACTED ON AT THE AMERIX MEETING
THE PROPOSED DISPOSITION
Proposed Disposition
Amerix intends to pursue a sale of its indirect 100% interest
in MVPR, which holds the Amerix Mineral Interests. MVPR is 90% owned by
Brazourcay Ltd. and 10% owned by S.A. Ventures II Limited. Amerix directly holds
100% of the issued and outstanding securities of Brazourcay Ltd. which in turn
owns 100% of the issued and outstanding securities of S.A. Ventures II Limited.
See Information Concerning Amerix Corporate Structure.
Completion of the Proposed Disposition is subject to a number
of conditions, including Amerix finding a suitable purchaser and entering into a
definitive agreement in respect of the Proposed Disposition, the approval of the
Amerix Shareholders as well as the final approval of the Exchange, if requested
at the time of any disposition.
At the Amerix Meeting, Amerix Shareholders will be asked
to consider and, if deemed advisable, to pass, with or without variation, an
ordinary resolution (the Disposition Resolution) set out below
approving and authorizing the Proposed Disposition.
Amerix Mineral Interests
The Limão Project
The Limão Project is situated along the NW-SE Tocantinzinho
Trend located in the Tapajós gold district, Pará State, in Central Brazil. It is
comprised of two exploration concessions held by MVPR.
The Limão Project was acquired subject to the terms of an
option agreement with Matapi, signed on July 12, 2007, with subsequent final
amendments as at April 29, 2011. The Company has completed all of its
obligations under the option agreement. Matapi retains a 2.0% NSR in respect of
the Limão Project and will receive an additional 127,750 Amerix Common Shares if
a technical report is prepared in compliance with NI 43-101 which confirms the
existence of at least 1,000,000 ounces of gold at the Limão Project. The Company
has the option to buy out the underlying 2.0% NSR for approximately $479,000.
Significant additional drilling would be necessary to advance
the Limão Project to a point where a resource estimate can be determined. The
Company does not presently have sufficient financial resources to complete, by
itself, the exploration required to develop the Limão Project to an advanced
stage.
The Ouro Roxo NSR
The Ouro Roxo NSR is a 2.5% NSR interest on the Ouro Roxo
concessions held by the Company as per its October 29, 2009 agreement with a
Brazilian consortium that holds the Ouro Roxo mining licenses. As a result of a
pre-existing agreement between Matapi and Amerix, the southern Ouro Roxo
concessions are subject to a 2.0% underlying NSR payable to Matapi. Amerix has
the right to buy out this underlying 2.0% NSR.
As of the date hereof, the Company has not received any royalty
income from the Brazilian Consortium due to delays in the Brazilian Consortium
achieving commercial production. The Companys ability to maintain its interest
in the Ouro Roxo NSR is subject to the Company making all required payments to
Matapi of its underlying 2.0% NSR. If the Company is unable to make such
payments the Company may lose all of its interest in the Ouro Roxo NSR.
Additionally, should an independent study confirm that the Ouro Roxo property contains
a mineable reserve (in the probable category or better) of at least 2,000,000
ounces of gold, the Company will be required to issue 322,083 Amerix Common
Shares to Matapi.
39
Background to the Proposed Disposition
Over the last few years, the Company has endeavoured to find
sources of funding in order to enable it continue its exploration activities on
its mineral properties. However, despite some limited successes in completing
private placements of securities and in finding certain option and joint venture
partners, in November, 2013, as a result of the then-prevailing capital market
conditions, the Amerix Board determined that adequate funding to continue the
operations of the Company may not be available, either at all or on terms
acceptable to the Company. Consequently, the Amerix Board began considering
various strategic alternatives for the Company, potentially including a sale of
the Amerix Mineral Interests. Please see the press release of the Company dated
November 25, 2013 in this regard.
Following the date of the November press release, several
interested parties entered into confidentiality agreements and conducted
property visits and preliminary due diligence in regard to the Amerix Mineral
Interests. At least five different prospective parties either visited the
properties and/or entered into confidential discussions with the Company
regarding possible transactions. None of these discussions have resulted in any
formal agreements, letters of intent, memoranda of understandings or similar
documents being executed, and each of these parties ultimately either notified
the Company they would not proceed with the discussions or otherwise did not
continue discussions with the Company.
Reasons for the Proposed Disposition
In the course of the Companys evaluation of the Amerix Mineral
Interests, the Amerix Board consulted with the Companys management and advisors
and considered a number of factors which provided compelling business reasons
for the Proposed Disposition. A primary reason in such regard is that in the
current state of capital markets, the Company is unable to raise the required
capital to further develop the Limão Project.
The Company has limited cash resources. The Company proposes to
pursue and develop other resource and mining opportunities in the ordinary
course of its business; namely, the Acquisition.
In the event that the Acquisition is not approved or will not
be completed for any reason, the Company intends to proceed with the Proposed
Disposition. If the Proposed Disposition is completed and the Acquisition does
not close, the Company will have no operating assets and it is anticipated that
the Amerix Common Shares will be suspended by the Exchange. Following that
suspension, it is anticipated that the Amerix Common Shares will be delisted
from the Exchange unless the Company transfers its listing to the NEX or
completes a subsequent transaction to meet the Exchanges continued listing
requirements. The NEX is a separate board maintained by the Exchange for the
listing of companies which do not meet the minimum Exchange tier maintenance
requirements. At this time, the Amerix Board has not made any definitive
business decisions regarding its business following the completion of the
Proposed Disposition in the event that the Acquisition is not completed, but
will be exploring all available options in the interest of all Amerix
Shareholders at the appropriate time. If the Company acquires new assets or
business that meet the Exchange minimum listing requirements while the Amerix
Common Shares are traded on the NEX, it may be eligible to apply to be re-listed
on the Exchange.
Use of Proceeds
The Company does not expect to receive any material proceeds
from the Proposed Disposition. Substantially all proceeds will be in the form of
the buyer assuming the liabilities of MVPR. Any proceeds that do accrue to
Amerix from the Proposed Disposition will be used for general working capital
purposes and to continue to pursue and develop other resource and mining
opportunities in the ordinary course of its business.
Shareholder and Exchange Approval
The Proposed Disposition is a sale of more than 50% of the
Companys assets, calculated without giving effect to the Acquisition, and
therefore constitutes a Reviewable Disposition as defined in Policy 5.3
Acquisitions and Dispositions of Non-Cash Assets of the Exchange and, as
such, the Proposed Disposition is subject to (i) approval of the Amerix
Shareholders at the Amerix Meeting; and (ii) regulatory approval by the
Exchange.
The Proposed Disposition is expected to be an Arms Length
Transaction as that term is defined in the policies of the Exchange.
40
Valuation of Mineral Interests
The Purchase Price for the Mineral Interests will be
established by negotiation between the Company and the purchaser, operating at
arms length to each other.
Resolution Approving the Disposition
Completion of the Proposed Disposition is subject to a number
of conditions, including the approval of the Amerix Shareholders. In this
regard, management of the Company will place the following ordinary resolution
(the Disposition Resolution) before the Amerix Shareholders for
consideration at the Amerix Meeting:
BE IT RESOLVED THAT:
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The proposed disposition (the Proposed
Disposition) by two of the Companys wholly-owned subsidiaries,
Brazourcay Ltd. and S.A. Ventures II Limited (collectively, the
Subsidiaries) of certain indirect mineral interests of the
Company, whether by share or asset sale, held by Mineração Vila Porto Rico
Ltda., an indirect subsidiary of the Company held jointly by the
Subsidiaries, comprised of: |
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the Companys gold property located in the Tapajós gold
district, Pará State, Brazil; and |
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a 2.5% net smelter royalty interest in the southern Ouro
Roxo properties, |
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all pursuant to a definitive agreement of purchase and
sale (the Agreement) to be entered into among the Company, the
Subsidiaries, and a purchaser, be and is hereby approved; |
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any one or more directors or officers of the Company is
hereby authorized and directed, for and on behalf and in the name of the
Company, to execute and deliver, under corporate seal of the Company or
otherwise, all such agreements, forms, waivers, notices, certificates,
confirmations and other documents and instruments and to do or cause to be
done all such other acts and things as in the opinion of such director or
officer may be necessary, desirable or useful for the purpose of giving
effect to these resolutions, the Agreement and the completion of the
transactions contemplated in the Agreement in accordance with the terms
thereof, including seeking the conditional and final approvals of the TSX
Venture Exchange of the Proposed Disposition and the filing of all
required documents under applicable stock exchange rules and corporate and
securities laws; and |
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notwithstanding that this resolution has been passed, the
directors of the Company are hereby authorized and empowered without
further notice to or approval of the securityholders of the Company not to
proceed with the Proposed Disposition or to revoke this resolution at any
time prior to the closing of the Proposed Disposition becoming
effective. |
In order to be adopted, the Disposition Resolution must be
passed by the affirmative vote of a majority of votes cast by Amerix
Shareholders at the Amerix Meeting.
Board Recommendation
THE AMERIX BOARD HAS UNANIMOUSLY APPROVED THE PROPOSED
DISPOSITION AND UNANIMOUSLY RECOMMENDS THAT AMERIX SHAREHOLDERS VOTE
FOR THE DISPOSITION RESOLUTION AT THE AMERIX MEETING.
Unless an Amerix Shareholder directs that his, her or its
Amerix Common Shares be voted against the Disposition Resolution, the management
nominees named in the enclosed form of proxy will vote FOR
the Disposition Resolution.
THE ACQUISITION
Amerix has entered into the Amalgamation Agreement pursuant to
which, among other things, Amerix intends to issue Resulting Issuer Common
Shares to Eagle Shareholders upon completion of the Amalgamation of Eagle and
Amerix Subco. Eagle will become a wholly-owned subsidiary of the Resulting
Issuer, which will then carry on the graphite mining business currently carried
on by Eagle.
For a full description of the Amalgamation and the
transactions contemplated thereby, see Particulars of Matters to be
Acted on at the Eagle Meeting The Amalgamation.
41
Under the policies of the Exchange, the Acquisition is a
Reverse Takeover. Accordingly, the Acquisition cannot be completed unless it has
been approved by the Amerix Shareholders. In this regard, management of the
Company will place the following ordinary resolution (the Acquisition
Resolution) before the Amerix Shareholders for consideration at the
Amerix Meeting.
BE IT RESOLVED THAT:
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the agreement dated as of November 5, 2014 by and among
Amerix Precious Metals Corporation (the Company), 9073329 Canada
Inc. (Amerix Subco) and Eagle Graphite Corporation
(Eagle), as amended, restated, supplemented and superseded from
time to time (the Amalgamation Agreement) and all of the
transactions contemplated thereby, including the including the
amalgamation of Amerix Subco and Eagle, be and are hereby ratified,
confirmed and approved; |
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the Board of Directors of the Company is hereby
authorized to approve any amendment, restatement, supplement and
superseding agreement to the terms and conditions of the Amalgamation
Agreement as the Board of Directors of the Company in its sole discretion
considers necessary or desirable; |
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any one or more directors or officers of the Company is
hereby authorized and directed, for and on behalf and in the name of the
Company, to execute and deliver, under corporate seal of the Company or
otherwise, all such agreements, forms, waivers, notices, certificates,
confirmations and other documents and instruments and to do or cause to be
done all such other acts and things as in the opinion of such director or
officer may be necessary, desirable or useful for the purpose of giving
effect to these resolutions, the Amalgamation Agreement and the completion
of the transactions contemplated in the Amalgamation Agreement in
accordance with the terms thereof, including: |
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all actions required to be taken by or on behalf of the
Company, and all the necessary filings and obtaining the necessary
approvals, consents and acceptances of appropriate regulatory authorities;
and |
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the signing of the certificates, consents and other
documents or declarations required under the Amalgamation Agreement or
otherwise to be entered into by the Company; and |
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notwithstanding that this resolution has been passed, the
directors of the Company are hereby authorized and empowered without
further notice to or approval of the securityholders of the Company: (i)
to amend the Amalgamation Agreement; (ii) not to proceed with the
Amalgamation Agreement at any time; and (iii) to revoke this resolution at
any time prior to the closing of the transactions contemplated in the
Amalgamation Agreement. |
A full copy of the Amalgamation Agreement will be available at
the Amerix Meeting and is available under the Companys SEDAR profile at
www.sedar.com. Amerix Shareholders may obtain a copy of the Amalgamation
Agreement in advance of the Amerix Meeting upon request to the Company to
the attention of Dan Hamilton, Chief Financial Officer, by mail or courier to 40
University Avenue, Suite 606, Toronto, Ontario, M5J 1TI or by email to
dan.hamilton@amerixcorp.com or by facsimile to 416-479-4371.
In order to be adopted, the Acquisition Resolution must be
passed by the affirmative vote of a majority of votes cast by Amerix
Shareholders at the Amerix Meeting.
Board Recommendation
THE AMERIX BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE
ACQUISITION AND UNANIMOUSLY RECOMMENDS THAT AMERIX SHAREHOLDERS VOTE
FOR THE ACQUISITION RESOLUTION AT THE AMERIX MEETING.
Unless an Amerix Shareholder directs that his, her or its
Amerix Common Shares be voted against the Acquisition Resolution, the
management nominees named in the enclosed form of proxy will vote
FOR the Acquisition Resolution.
42
GENERAL INFORMATION CONCERNING THE EAGLE MEETING
SOLICITATION OF PROXIES
This Circular is furnished in connection with the
solicitation by management of Eagle of proxies to be used at the special meeting
of the Eagle Shareholders (the Eagle Meeting) to be held at the offices of
Cassels Brock & Blackwell LLP, 2100 Scotia Plaza, 40 King Street West,
Toronto, Ontario at 10:00 a.m. (Toronto time) on December 19, 2014, or at any
adjournment or postponement thereof, for the purposes set forth in the enclosed
notice of special meeting of Shareholders (the Eagle Notice of
Meeting).
Proxies will be solicited primarily by mail but may also be
solicited personally, by telephone, by facsimile or by other means by directors,
officers or employees of Eagle at nominal cost. The costs of solicitation will
be borne by Eagle.
DEPOSIT OF PROXIES
Eagle Shareholders who do not expect to attend the Eagle
Meeting in person are requested to complete, sign, date and return their duly
completed proxy to Eagle c/o its legal counsel, Cassels Brock & Blackwell
LLP, 2100 Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3C2,
Attention: Chad Accursi.
An undated but executed proxy will be deemed to be dated the
date of this Circular. Completed proxies returned either by mail or by fax must
be received before the time of the Eagle Meeting, or, if the Eagle Meeting is
adjourned, preceding the time of any adjournment of the Eagle Meeting.
EXERCISE OF VOTE
BY PROXIES AND
DISCRETIONARY AUTHORITY
The Eagle Common Shares represented by properly executed
proxies given in favour of the persons designated in the printed portion of the
accompanying form of proxy at the Eagle Meeting will be voted for, against or
withheld from voting in accordance with the instructions contained therein, so
long as such instructions are certain, on any ballot that may be called for.
In the absence of any instructions to the contrary, the Eagle Shares
represented by proxies received by management will be voted FOR the Amalgamation
and the Stock Split.
The form of proxy accompanying this Circular confers
discretionary authority upon the nominees named therein with respect to
amendments or variations to the matters identified in the Notice of Meeting and
with respect to other matters which may properly come before the Eagle Meeting.
Management of Eagle knows of no matters that should come before the Eagle
Meeting, other than those referred to in the Eagle Notice of Meeting. However,
if any other matters that are not now known to management of Eagle should
properly come before the Eagle Meeting, the Eagle Shares represented by proxies
given in favour of management nominees will be voted on such matters in
accordance with the best judgment of the nominee.
REVOCATION OF PROXIES
An Eagle Shareholder may revoke a proxy by: (a) completing and
signing a proxy bearing a later date and depositing it with Eagle at its
registered office in advance of the Eagle Meeting as set forth above under the
heading Deposit of Proxies; or (b) in any other manner permitted by
law.
INTEREST OF CERTAIN
PERSONS OR COMPANIES IN
MATTERS TO BE ACTED
UPON
No person who has been a director or an executive officer of
Eagle at any time since the beginning of its last completed financial year, or
any Associate or Affiliate of any such director or executive officer, has any
material interest, direct or indirect, by way of beneficial ownership of
securities or otherwise, in any matter to be acted upon at the Eagle
Meeting, except as disclosed in this Circular.
INTEREST OF INFORMED
PERSONS IN MATERIAL
TRANSACTIONS
Other than as set forth in this Circular, no informed person of
Eagle and no Associate or Affiliate of any such informed person has had any
material interest, direct or indirect, in any transaction since the commencement
of Eagles most recently completed financial year or in any proposed transaction
(including the Amalgamation and the Stock Split) that, in either case, has
materially affected or would materially affect Eagle.
EAGLE RECORD DATE
Persons registered on the records of Eagle at the close of
business on November 17, 2014 (the Eagle Record Date) are entitled to
vote at the Eagle Meeting. The failure of any Eagle Shareholder to
receive a copy of the Eagle Notice of Meeting does not deprive the Eagle Shareholder of the right to
vote at the Eagle Meeting. Only Holders of Eagle Common Shares as
of the Eagle Record Date are entitled to vote such Eagle Common
Shares at the Eagle Meeting.
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QUORUM
Two (2) Eagle Shareholders, present in person or
represented by proxy, holding or representing more than twenty percent (20%) of
the outstanding Eagle Common Shares will constitute a quorum at the
Eagle Meeting or any adjournment thereof. The Companys list of Eagle
Shareholders as of the Eagle Record Date has been used to deliver to
Eagle Shareholders the Eagle Meeting Materials as well as to
determine who is eligible to vote at the Eagle Meeting.
VOTING SECURITIES AND
PRINCIPAL HOLDERS OF
VOTING SECURITIES
Eagle is authorized to issue an unlimited number of Eagle
Common Shares. Each Eagle Common Share entitles the Holder of record thereof to
one vote per Eagle Common Share at all meetings of the shareholders of Eagle. As
at the date hereof, there are 11,009,940 Eagle Common Shares outstanding.
Latitude, a corporation incorporated under the Business
Corporations Act (British Columbia), currently holds approximately 91% of
the outstanding shares of Eagle. Latitude is in turn controlled by Jamie Deith
(as to approximately 63%), the President of Eagle and a resident in the Province
of British Columbia and Sinan Akdeniz (as to approximately 35%), a resident in
the Province of Ontario.
PARTICULARS OF MATTERS TO BE ACTED ON AT THE EAGLE MEETING
STOCK SPLIT
Eagle Shareholders will be asked at the Eagle Meeting to
consider, and if thought advisable, to approve a special resolution amending
Eagles articles of incorporation to divide the issued and outstanding Eagle
Common Shares on a basis of one (1) old share for up to twenty (20) new shares
(the Stock Split). However, it is currently anticipated that the Stock
Split, if approved, will be on a twenty-for-one basis.
The Eagle Board believes that the Stock Split is necessary to
complete the Acquisition. If the Stock Split Resolution is approved, the Eagle
Board may, in its discretion, subdivide the Eagle Common Shares on such a basis
as it sees fit, up to a twenty-for-one basis, or decide not to implement the
Stock Split and therefore not file any amendment to Eagles articles to effect
such Stock Split. The Stock Split may be implemented, in the Eagle Boards sole
discretion, at any time prior to Eagles next annual general meeting of Eagle
Shareholders. It is anticipated that the Stock Split will be effected
immediately prior to completion of the Amalgamation. See Particulars of
Matters to be Acted on at the Eagle Meeting The Amalgamation.
The Stock Split will not change the rights of Holders of Eagle
Common Shares. Each Eagle Common Share outstanding after the Stock Split will be
entitled to one vote and will be fully paid and non-assessable. Under existing
Canadian income tax law and taking into account all published proposals and
amendments, the proposed Stock Split will not result in taxable income or in any
gain or loss to the Eagle Shareholders. In computing any gain or loss on the
disposition of the Eagle Common Shares, Eagle Shareholders will be required to
reduce the adjusted cost base of each Eagle Common Share to an amount equal to
one-twentieth (or such other basis as the board of directors of Eagle
determines) of the adjusted cost base of each Eagle Common Share currently held.
Resolution Approving the Stock Split
Completion of the Stock Split is subject to a number of
conditions, including the approval of the Eagle Shareholders. In this regard,
management of Eagle will place the following special resolution (the Stock
Split Resolution) before the Eagle Shareholders for consideration at the
Eagle Meeting:
BE IT RESOLVED THAT:
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pursuant to Section 173 of the Canada Business
Corporations Act (the CBCA), the articles of Eagle Graphite
Corporation (Eagle) be amended to divide the issued and
outstanding common shares of Eagle (the Shares) on a basis of one
(1) old share for up to twenty (20) new shares (the Stock Split)
which will result in up to nineteen additional Shares being issued for
each one Share outstanding; |
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the board of directors of Eagle, in its sole discretion,
is authorized to implement the Stock Split; |
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notwithstanding that this special resolution and the
Stock Split have been approved by the shareholders of Eagle, the board of
directors of Eagle is hereby authorized to revoke this resolution at any
time prior to the Stock Split becoming effective without further approval
of the shareholders of Eagle and to determine not to proceed with the
Stock Split; |
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the board of directors of Eagle is hereby authorized to
determine the ratio for the Stock Split within the range of up to twenty
(20) new Eagle Common Shares for every one (1) old Eagle Common
Share; |
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any officer or director of Eagle is hereby authorized and
directed for and on behalf of Eagle to execute, under the seal of Eagle or
otherwise, and to deliver the articles of amendment to give effect to the
Stock Split, and such other documents as are necessary or desirable to the
Director under the CBCA for filing; and |
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any one or more officers or directors of Eagle are hereby
authorized and directed to execute and deliver for and in the name of and
on behalf of Eagle, whether under corporate seal or not, all such other
certificates, instruments, agreements, documents, authorizations,
directions and notices and to take such further actions, as, in such
persons opinion, may be necessary or appropriate to carry out the
purposes and intent of this special resolution, such determination to be
conclusively evidenced by the execution and delivery of such document,
agreement, instrument direction or notice or the doing of any such act or
thing. |
In order to be adopted, the Stock Split Resolution must be
passed by the affirmative vote of not less than 662/3% of votes cast by Eagle
Shareholders at the Eagle Meeting.
Board Recommendation
THE EAGLE BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE
STOCK SPLIT AND UNANIMOUSLY RECOMMENDS THAT EAGLE SHAREHOLDERS VOTE
FOR THE STOCK SPLIT RESOLUTION AT THE EAGLE MEETING.
Unless an Eagle Shareholder directs that his, her or its
Eagle Common Shares be voted against the Stock Split Resolution, the management
nominees named in the enclosed form of proxy will vote FOR
the Stock Split Resolution.
THE AMALGAMATION
Eagle has entered into the Amalgamation Agreement pursuant to
which, among other things, Amerix intends to issue Resulting Issuer Common
Shares to Eagle Shareholders upon completion of the Amalgamation of Eagle and
Amerix Subco. Eagle will become a wholly-owned subsidiary of the Resulting
Issuer, which will then carry on the graphite mining business currently carried
on by Eagle.
For a full description of the Acquisition and the
transactions contemplated thereby, see Particulars of Matters to be
Acted on at the Amerix Meeting The
Acquisition.
The Amalgamation cannot be completed unless it has been
approved by the Eagle Shareholders. In this regard, management of Eagle will
place the following special resolution (the Amalgamation Resolution)
before the Eagle Shareholders for consideration at the Eagle Meeting.
BE IT RESOLVED THAT:
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the agreement dated as of November 5, 2014 by and among
Amerix Precious Metals Corporation (Amerix), 9073329 Canada Inc.
(Amerix Subco) and Eagle Graphite Corporation (Eagle),
as amended, restated, supplemented and superseded from time to time (the
Amalgamation Agreement) and all of the transactions contemplated
thereby, including the amalgamation of Amerix Subco and Eagle, and the
exchange of securities of Eagle for securities of Amerix be and are hereby
ratified, confirmed and approved; |
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the board of directors of Eagle is hereby authorized to
approve any amendment, restatement, supplement and superseding agreement
to the terms and conditions of the Amalgamation Agreement as the board of
directors of Eagle in its sole discretion considers necessary or
desirable; |
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notwithstanding that this special resolution and the
Amalgamation have been approved by the shareholders of Eagle, the board of
directors of Eagle is, subject to the terms of the Amalgamation Agreement,
hereby authorized to: (i) amend the Amalgamation Agreement; and (ii)
revoke this resolution at any time prior to the Amalgamation becoming effective without further
approval of the shareholders of Eagle and to determine not to proceed with
the Amalgamation; |
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any officer or director of Eagle is hereby authorized and
directed for and on behalf of Eagle to execute, under the seal of Eagle or
otherwise, and to deliver the Amalgamation Agreement, articles of
amalgamation, and such other documents as are necessary or desirable to
the Director under the Canada Business Corporations Act in
accordance with the Amalgamation Agreement for filing; and |
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any one or more officers or directors of Eagle are hereby
authorized and directed to execute and deliver for and in the name of and
on behalf of Eagle, whether under corporate seal or not, all such other
certificates, instruments, agreements, documents, authorizations,
directions and notices and to take such further actions, as, in such
persons opinion, may be necessary or appropriate to carry out the
purposes and intent of this special resolution, such determination to be
conclusively evidenced by the execution and delivery of such document,
agreement, instrument direction or notice or the doing of any such act or
thing. |
A full copy of the Amalgamation Agreement will be available at
the Eagle Meeting and is available under Amerixs SEDAR profile at
www.sedar.com. Eagle Shareholders may obtain a copy of the Amalgamation
Agreement in advance of the Eagle Meeting upon request to Eagle to the
attention of Jamie Deith by mail or courier to 6420 Eagles Drive, Courtenay,
British Columbia, V9J 1V4 or by email to jdeith@eaglegraphite.com.
In order to be adopted, the Amalgamation Resolution must be
passed by the affirmative vote of not less than 66 2/3% of votes cast by Eagle
Shareholders at the Eagle Meeting.
Board Recommendation
THE EAGLE BOARD HAS UNANIMOUSLY APPROVED THE TERMS OF THE
AMALGAMATION AND UNANIMOUSLY RECOMMENDS THAT EAGLE SHAREHOLDERS VOTE
FOR THE AMALGAMATION RESOLUTION AT THE EAGLE MEETING.
Unless an Eagle Shareholder directs that his, her or its
Eagle Common Shares be voted against the Amalgamation Resolution, the
management nominees named in the enclosed form of proxy will vote
FOR the Amalgamation Resolution.
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INFORMATION CONCERNING AMERIX
CORPORATE STRUCTURE
Name and Incorporation
The Company was originally incorporated under the Company
Act of British Columbia as New Bullet Group Inc. and completed its
continuance in the Province of Ontario effective May 31, 2004, pursuant to which
it changed its name to Amerix Precious Metals Corporation. The Company has not
earned any income. The registered office of the Company is located at 40
University Avenue, Suite 710, Toronto, Ontario, M5J 1T1, Canada. The head office
of the Company is located at 40 University Avenue, Suite 606, Toronto, Ontario,
M5J 1T1, Canada.
Intercorporate Relationships
Figure 1.1 below sets out the corporate structure of Amerix.
Figure 1.1 AMERIX CORPORATE STRUCTURE CHART
Notes:
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It is proposed that a sale of MVPR will be pursued upon
receiving approval of the Proposed Disposition by the Amerix Shareholders
at the Amerix Meeting. See Particulars of Matters to be Acted on at
the Amerix Meeting Proposed Disposition. |
GENERAL DEVELOPMENT OF
THE BUSINESS
Amerix is a junior resource company involved in the
acquisition, exploration and development of mineral properties. The Company does
not generate operating revenues.
The Company presently has interests in the Amerix Mineral
Interests, held indirectly through MVPR, being exploration licenses to the Limão
Project and the Ouro Roxo NSR.
On May 20, 2011, the Company filed a NI 43-101 technical report
for the Limão Project. The report was prepared by Mr. Clinton Davis, P. Geo.,
who is a qualified person under the definition of NI 43-101. The Limão Project
is at an early stage of exploration, with no estimate of resources. A copy of
this report is available for review under the Companys SEDAR profile at
www.sedar.com.
On June 9, 2011, the exploration title rights for the Limão
Project were published in the Brazilian Official Gazette, Unions Official
Journal.
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On May 14, 2012 Amerix entered into an agreement whereby the
Company optioned exploration properties (two property groups) immediately to the
west of the Limão Project. The terms of this agreement allow for staged payments
to the local vendors consisting of BR$1,000,000 in cash and 650,000 Amerix
Common Shares over four years followed by success payments of BR$500,000 for
positive feasibility studies at either of the properties. In the event of a
production decision at either of the properties, a payment of BR$1,000,000 will
be payable upon reaching commercial production. In addition, a 1.0% net gold
sales royalty will be payable to the vendors. The Company completed its due
diligence on the optioned exploration properties and made an option payment of
BR$100,000 to the local vendors on October 30, 2012. The Companys next option
payment, comprised of BR$100,000 and 100,000 Amerix Common Shares, was due in
April 2013. This payment is conditional upon transfer of title to the
exploration properties to Amerix. Due to delays relating to the proposed new
mining code, the DNPM has temporarily suspended the granting and transfer of
titles and as a result the vendors have been unable to transfer the property
titles to MVPR. The payments due in April 2013 have been deferred until title to
the properties has been transferred.
In September 2013 the Company filed its report with the
Departamento Naçional da Prudução Mineral (the DNPM) for a three
year extension of the Limão Project concession claims and is awaiting
acknowledgment of the DNPM of the renewal and the publication of the extension
in the Official Gazette.
On November 25, 2013 the Company announced that the Amerix
Board had commenced a review of strategic alternatives for the Company with the
objective of enhancing shareholder value. As part of the strategic review
process, the Company examined a number of alternatives including, but not
limited to, joint ventures, strategic partnerships, mergers, acquisitions, and
the sale of the Company or other corporate transactions to enhance shareholder
value. Amerix entered into discussions and executed confidentiality agreements
with a number of interested parties, but has not yet entered into a definitive
agreement with respect to the Proposed Disposition. See Particulars of
Matters to be Acted on at the Amerix Meeting Proposed Disposition.
The Consolidation
On January 31, 2014, Amerix held the January Meeting during
which the Amerix Shareholders approved, among other things, by special
resolution, the Consolidation of Amerix Common Shares on the basis of one (1)
post-Consolidation Amerix Common Share for up to every twenty (20)
pre-Consolidation Amerix Common Shares, which is anticipated to occur
immediately prior to the Closing. As at the Record Date, Amerix had 82,454,934
Amerix Common Shares issued and outstanding. Following the completion of the
proposed Consolidation, the number of Amerix Common Shares issued and
outstanding shall be approximately 4,122,746. No fractional Amerix Common Shares
will be issued upon the Consolidation. All fractions of post-Consolidation
Amerix Common Shares will be rounded down to the next lowest whole number.
A letter of transmittal is being provided to the Amerix
Shareholders with the Amerix Meeting Materials to be used for the purpose of
surrendering their certificates representing the currently outstanding Amerix
Common Shares to the Companys registrar and transfer agent in exchange for new
share certificates representing whole post-Consolidation Amerix Common Shares.
After the Consolidation, current issued share certificates representing
pre-Consolidation Amerix Common Shares will (i) not constitute good delivery for
the purposes of trades of post-Consolidation Amerix Common Shares; and (ii) be
deemed for all purposes to represent the number of post-Consolidation Amerix
Common Shares to which the shareholder is entitled as a result of the
Consolidation. No delivery of a new certificate to an Amerix Shareholder will be
made until the shareholder has surrendered his, her or its current issued
certificates.
Name Change
On January 31, 2014, Amerix held the January Meeting during
which the Amerix Shareholders approved, among other things, by special
resolution, the change of the Companys name to any name as the Amerix Board may
determine. It is anticipated, in the event the Acquisition is completed, that
the name of Amerix will be changed to Eagle Graphite Corporation, or such
other name as agreed upon by Amerix and Eagle and which is permitted by
applicable law and acceptable to the Exchange.
Financing
On November 5, 2014, Amerix completed the Amerix Private
Placement, pursuant to which Amerix issued 10,930,000 Amerix Subscription
Receipts at a price of $0.10 per Amerix Subscription Receipt for gross proceeds
of $1,093,000, which proceeds have been placed in escrow pending satisfaction of
the Amerix Escrow Release Conditions. Upon satisfaction of the Amerix Escrow
Release Conditions prior to the Amerix Escrow Release Deadline and immediately
following the Closing, the Amerix Subscription Receipts will automatically be
exercised, without payment of any additional consideration and with no further
action on the part of the Holders thereof, for one Resulting Issuer Common
Share, which will qualify as a flow-through share within the meaning of the
Tax Act.
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If the Amerix Escrow Release Conditions are not satisfied prior
to the Amerix Escrow Release Deadline, the escrowed funds plus accrued interest,
if any, will be returned to the Amerix Purchasers in accordance with the terms
of the Amerix Private Placement. To the extent that the escrowed funds plus
accrued interest, if any, are not sufficient to repay the purchase price for all
Amerix Subscription Receipts, Amerix has agreed to satisfy any shortfall.
As consideration for the services of the Agent in connection
with the Amerix Private Placement, Amerix agreed to pay the Agent a commission
equal to 7% of the gross proceeds from the sale of the Amerix Subscription
Receipts ($76,510), which shall be released to the Agent upon satisfaction of
the Amerix Escrow Release Conditions. As additional consideration for the
services of the Agent, the Agent was granted 765,100 Amerix Broker Warrants.
Each Amerix Broker Warrant entitles the Agent to purchase one Resulting Issuer
Common Share at a price of $0.10 per Resulting Issuer Common Share until
November 5, 2016.
SELECTED FINANCIAL
INFORMATION AND MANAGEMENTS
DISCUSSION AND ANALYSIS
Selected Financial Information for Amerix
The following table presents selected financial information for
Amerix as at and for the years ended July 31, 2014, 2013 and 2012. This table
should be read in conjunction with the audited financial statements of Amerix
for the years ended July 31, 2014, 2013 and 2012 and the respective notes
thereto attached at Exhibit B hereto and available on SEDAR at
www.sedar.com, and with the MD&A for Amerix for the year ended July
31, 2014 (the Amerix MD&A) attached hereto at Exhibit B, available
on SEDAR at www.sedar.com, and summarized in the section entitled
Information Concerning Amerix Managements Discussion and Analysis
below in this Circular. This table contains financial information derived from
financial statements that have been prepared in accordance with IFRS.
|
Year ended July 31, 2014 |
Year Ended July 31, 2013 |
Year Ended July 31, 2012 |
Total Assets |
$11,534 |
$406,554 |
$792,390 |
Total Liabilities |
$528,326 |
$257,396 |
$467,246 |
Total Expenses |
$665,950 |
$2,178,365 |
$2,966,047 |
Total Revenues |
Nil |
Nil |
Nil |
Income or (Loss) from Operations |
$(665,950) |
$(2,178,365) |
$(2,966,047) |
Net Income or (Loss) |
$(665,950) |
$(2,175,624) |
$(2,947,862) |
Managements Discussion and Analysis
The following summary managements discussion and analysis is
based upon, and should be read in conjunction with, the more detailed Amerix
MD&A attached hereto at Exhibit B and available on SEDAR at www.sedar.com.
Results of Operations for the year ended July 31, 2014
The Company incurred operating expenses of $665,950 for the
twelve months ended July 31, 2014, compared to $2,178,365 for the prior year
period. Exploration and evaluation expenditures amounted to $376,163 (2013 -
$1,586,176) as the Company scaled back on its exploration activities during the
year ended July 31, 2014 compared to the prior year period, which included costs
related to the Phase 2 drill program on the Limão Project and an option payment
of BR$100,000 on the optioned concessions adjacent to the Limão Project.
Management fees of $56,000 (2013 - $284,167) were lower during the period as
management reduced fees effective June 2013. Professional fees of $112,547 (2013
- $131,369) were lower in the year ended July 31, 2014 due to a reduction in the
overall level of business activity compared to the prior year activity. General
and administrative costs of $34,793 (2013 - $57,355) were lower than the prior
year period due to reduced activity and general cost cutting measures.
Shareholder relations and filing fees of $26,763 (2013 - $54,375) were lower in
the year ended July 31, 2014 as the prior year period included costs associated
with updating the website for corporate videos and social media accounts, as
well as general cost cutting measures. Rent expense of $35,428 (2013 - $39,000)
was lower as the Company terminated its office lease agreement effective
November 30, 2013, and entered into a lower cost office lease arrangement in
December 2013. Travel and promotion of $8,678 (2013 - $28,054) was lower as
there was no travel to Brazil during the year ended July 31, 2014, compared to
the prior year period which had additional travel related to the drill program.
Foreign exchange loss of $15,578 (2013 gain $7,881) was a result of the
Canadian dollar exchange rate fluctuating against the US dollar and the
Brazilian Real during the period.
49
Results of Operations for the year ended July 31, 2013
The Company incurred operating expenses of $2,178,365 for the
twelve months ended July 31, 2013, compared to $2,966,047 for the prior year
period. Exploration and evaluation expenditures on the Limão Project amounted to
$1,586,176 (2012 - $2,257,145) as the Company completed its Phase 1 and Phase 2
drill programs and made an option payment of BR$ 100,000 on the optioned
concessions adjacent to the Limão Project. Management fees of $284,167 (2012 -
$270,000) were higher in the year ended July 31, 2013 as an increase in fees
paid to an officer earlier in the year was mainly offset by a general reduction
in management fees, effective June 2013. General and administrative costs of
$57,355 (2012 - $48,359) were higher during the current period mainly due to
higher insurance costs, and costs associated with the Company bringing the
accounting and financial reporting services in-house. Shareholder relations and
filing fees of $54,375 (2012 - $61,724) were lower due to reduced corporate
activity. Travel and promotion of $28,054 (2012 - $55,142) was lower than the
prior year period, predominately due to less travel as a result of reduced
exploration and evaluation activities at the Limão Project. Foreign exchange
gain of $7,881 (2012 loss of $21,389) was due to the general strengthening of
the Canadian dollar relative to the Brazilian Real during the period.
Stock-based compensation was $5,750 for the twelve months ended July 31, 2013
(2012 - $83,300) as 50,000 Amerix Stock Options were issued during the period
(2012 - 850,000 Amerix Stock Options). All other cash and non-cash expenses were
comparable with those incurred in the prior financial period.
Liquidity
As at July 31, 2014, the Company had cash of $7,789, total
current assets of $11,534 and total current liabilities of $528,326, resulting
in a working capital deficit of $516,792 (July 31, 2013 working capital
balance of $149,158). Included in current liabilities is $465,827 relating to
MVPR. During the twelve months ended July 31, 2014 the Companys average monthly
cash burn rate, excluding exploration expenditures and foreign exchange, was
approximately $23,000. The Company expects its monthly burn rate to continue to
decrease going forward due to ongoing cost cutting measures. The Company has
also deferred further exploration work on the Limão project.
The Company believes its ability to manage its working capital
position for the next twelve months and continue as a going concern is dependent
upon closing of the business combination with Eagle. Should the proposed
business combination not be completed this will cause serious doubt as to the
Companys ability to continue as a going concern.
Transactions with Related Parties
Related parties include members of the Amerix Board, officers,
and enterprises which are controlled by these individuals as well as certain
persons performing similar functions. Related party transactions conducted in
the normal course of operations are measured at the exchange value (the amount
established and agreed to by the related parties).
For the three and twelve months ended July 31, 2014, the
Company had the following related party transactions:
Related
party |
Three Months ended July 31, |
Twelve Months ended July 31, |
2014 |
|
2013 |
2014 |
|
2013 |
Single Jack Research and
Exploration(1) |
$ - |
|
$7,500 |
$12,500 |
|
$30,000 |
Steve Brunelle(2) |
$ - |
|
$36,667 |
$31,000 |
|
$174,167 |
Dan Hamilton(3) |
$ - |
|
$12,500 |
$12,500 |
|
$80,000 |
Ad Hoc Consultores(4) |
$22,500 |
|
$22,500 |
$90,000 |
|
$90,000 |
Notes:
(1) |
Single Jack Research and Exploration (Single
Jack) is a private company controlled by Mr. Jeffrey Reeder. Payments
made to Single Jack are on account of Mr. Reeders services as Executive
Chairman of Amerix. |
|
|
(2) |
Mr. Steve Brunelle is the President and CEO of Amerix.
Payments made to Mr. Brunelle are on account of his services as President
and CEO of Amerix. |
|
|
(3) |
Mr. Hamilton is the Chief Financial Officer of the
Company. Payments made to Mr. Hamilton are on account of his services as
Chief Financial Officer of Amerix. |
50
(4) |
Ad Hoc Consultores (Ad Hoc) is a private company
in Brazil controlled by Mr. Luciano Borges. Mr. Borges is a director of
the Company and the President and General Manager of the Companys
Brazilian subsidiary, MVPR. Payments made to Ad Hoc are on account of Mr.
Borges services as President and General Manager of MVPR and are in $US.
As at July 31, 2014 accounts payable included $131,302 payable to Mr.
Borges and Ad Hoc. |
Directors, key management and other related parties were not
awarded any share options under the employee share option plan during the
twelve-month periods ended July 31, 2014 and 2013.
DESCRIPTION OF THE
SECURITIES
The authorized capital of the Company consists of an unlimited
number of Amerix Common Shares, an unlimited number of Amerix First Preference
Shares and an unlimited number of Amerix Second Preference Shares. As at the
date hereof, 82,454,934 Amerix Common Shares are issued and outstanding as fully
paid and non-assessable shares in the capital of the Company and no Amerix First
Preference Shares or Amerix Second Preference Shares are issued and outstanding,
nor will any Amerix First Preference Shares or Amerix Second Preference Shares
be issued in connection with the Acquisition.
Common Shares
The Holders of the Amerix Common Shares are entitled to receive
notice of all meetings of shareholders and to attend and vote on the basis of
one vote in respect of each Amerix Common Share held in connection with each
matter to be acted upon at a meeting of the shareholders. Holders of Amerix
Common Shares are entitled to receive dividends if, as and when declared by the
Amerix Board. In the event of a liquidation, dissolution or winding-up of Amerix
or other distribution of the assets of Amerix, the Holders of the Amerix Common
Shares will be entitled to receive, on a pro rata basis, all of the assets
remaining after Amerix has paid out its liabilities, subject to the prior rights
of Holders of the Amerix First Preference Shares and the Amerix Second
Preference Shares.
The Amerix Common Shares are listed on the Exchange under the
symbol APM. Trading of the Amerix Common Shares was halted on July 7,
2014 pending the announcement of the Acquisition and remains halted. The last
trading price of the Amerix Common Shares on the Exchange prior to the trading
halt was $0.005 per Amerix Common Share.
Amerix First Preference Shares
The Amerix First Preference Shares are issuable in series.
Subject to the Companys Articles of Continuance and the filing of articles of
amendment in accordance with the OBCA, the Amerix Board is authorized, without
the approval of shareholders, at any time and from time to time to fix, before
issuance, the number, designation, rights, privileges, restrictions and
conditions attached to each series of Amerix First Preference Shares including,
without limiting the generality of the foregoing: dividend rights (including
whether such dividends be cumulative, partly cumulative or non-cumulative), if
any; terms of redemption or repurchase, if any; voting rights, if any; and
conversion rights, if any. The Amerix First Preference Shares would rank prior
to the Common Shares and the Amerix Second Preference Shares with respect to
dividends, the distribution of assets and the return of capital on liquidation,
dissolution or winding-up of the Company. Except with respect to the sale of all
or substantially all of the Companys assets or undertaking and other matters as
to which the Holders of Amerix First Preference Shares are entitled to vote
under the OBCA or unless the directors determine otherwise, Holders of Amerix
First Preference Shares will not be entitled to vote at meetings of
shareholders.
Amerix Second Preference Shares
The Amerix Second Preference Shares are issuable in series.
Subject to the Companys Articles of Continuance and the filing of articles of
amendment in accordance with the OBCA, the Amerix Board is authorized, without
the approval of shareholders, at any time and from time to time to fix, before
issuance, the number, designation, rights, privileges, restrictions and
conditions attached to each series of Amerix Second Preference Shares including,
without limiting the generality of the foregoing: dividend rights (including
whether such dividends be cumulative, partly cumulative or non-cumulative), if
any; terms of redemption or repurchase, if any; voting rights, if any; and
conversion rights, if any. The Amerix Second Preference Shares would rank prior
to the Common Shares with respect to dividends, the distribution of assets and
the return of capital on liquidation, dissolution or winding-up of the Company.
Except with respect to the sale of all or substantially all of the Companys
assets or undertaking and other matters as to which the Holders of Amerix Second
Preference Shares are entitled to vote under the OBCA or unless the directors
determine otherwise, Holders of Amerix Second Preference Shares will not be
entitled to vote at meetings of shareholders.
Amerix Broker Warrants
On November 5, 2014, in connection with the Amerix Private
Placement, Amerix issued 765,100 broker warrants to acquire Amerix Common Shares
to the Agent. Each Amerix Broker Warrant entitles the Agent to purchase one
Resulting Issuer Common Share at a price of $0.10 per Resulting Issuer Common
Share until November 5, 2016.
51
Amerix Subscription Receipts
On November 5, 2014, Amerix completed the Amerix Private
Placement, pursuant to which Amerix issued 10,930,000 Amerix Subscription
Receipts at a price of $0.10 per Amerix Subscription Receipt for gross proceeds
of $1,093,000, which proceeds have been placed in escrow pending satisfaction of
the Amerix Escrow Release Conditions. Upon satisfaction of the Amerix Escrow
Release Conditions prior to the Amerix Escrow Release Deadline and immediately
following the Closing, the Amerix Subscription Receipts will automatically be
exercised, without payment of any additional consideration and with no further
action on the part of the Holders thereof, for one Resulting Issuer Common
Share, which will qualify as a flow-through share within the meaning of the
Tax Act.
If the Amerix Escrow Release Conditions are not satisfied prior
to the Amerix Escrow Release Deadline, the escrowed funds plus accrued interest,
if any, will be returned to the Amerix Purchasers in accordance with the terms
of the Amerix Private Placement. To the extent that the escrowed funds plus
accrued interest, if any, are not sufficient to repay the purchase price for all
Amerix Subscription Receipts, Amerix has agreed to satisfy any shortfall.
AMERIX STOCK OPTION
PLAN
A stock option plan for the Company was approved by the Amerix
Board on September 30, 2004 and ratified by the Amerix Shareholders on November
8, 2004, and most recently re-approved by the Amerix Shareholders at the January
Meeting (the Amerix Stock Option Plan). A summary of the Amerix Stock
Option Plan follows and is qualified in its entirety by the complete text of the
Amerix Stock Option Plan.
The Amerix Stock Option Plan is administered by a committee of
the Amerix Board designated by the Amerix Board or, failing a committee being so
designated, by the Amerix Board itself. The Amerix Stock Option Plan provides
for the reservation for issuance of a rolling maximum of 10% of the issued and
outstanding Amerix Common Shares immediately prior to the time of the Amerix
Stock Option grant. Accordingly, any increase in the issued and outstanding
Amerix Common Shares results in a corresponding increase in the available number
of Amerix Common Shares issuable under the Amerix Stock Option Plan and any
exercises of Amerix Stock Options will make new grants available under the
Amerix Stock Option Plan.
The Amerix Stock Option Plan provides for the grant of
non-transferable Amerix Stock Options for the purchase of Amerix Common Shares
to eligible persons (as defined in the Amerix Stock Option Plan). Subject to
the provisions of the Amerix Stock Option Plan, the Amerix Board (or the
committee designated thereby, as applicable) has the authority to select those
persons to whom Amerix Stock Options will be granted, the number of Amerix
Common Shares subject to Amerix Stock Options which may be granted and the price
at which Amerix Common Shares may be purchased pursuant to the exercise of
Amerix Stock Options. The exercise price of any Amerix Stock Option may not be
less than the closing price of the Amerix Common Shares on the principal stock
exchange on which the Amerix Common Shares are listed on the last trading day
immediately preceding the date of grant of the Amerix Stock Option, less the
maximum discount, if any, permitted by applicable regulatory authorities. Each
Amerix Stock Option, unless earlier terminated pursuant to the provisions of the
Amerix Stock Option Plan, will expire on a date to be determined by the Amerix
Board (or the committee designated thereby, as applicable) at the time the
Amerix Stock Option is granted, which date cannot be later than five (5) years
after the date the Amerix Stock Option is granted. Amerix Stock Options granted
under the Amerix Stock Option Plan will vest in accordance with a vesting
schedule, if any, determined by the Amerix Board (or the committee designated
thereby, as applicable) in their sole discretion at the time of grant, subject
to applicable regulatory requirements. Amerix Stock Options granted under the
Amerix Stock Option Plan to a consultant performing Investor Relations
Activities (within the meaning of the applicable Exchange Policies) for the
Company must vest in stages over twelve (12) months with no more than
one-quarter of such Amerix Stock Options vesting in any three (3) month period.
The maximum number of Amerix Common Shares which may be issued
to any one person pursuant to the Amerix Stock Option Plan within any one (1)
year period shall not exceed 5% of the total number of Amerix Common Shares then
outstanding, and the aggregate number of Amerix Common Shares available for
Amerix Stock Options granted under the Amerix Stock Option Plan to any one
consultant of the Company, or to all employees of the Company performing
Investor Relations Activities (within the meaning of the applicable Exchange
Policies) for the Company on an aggregate basis, may not, in any twelve (12)
month period, exceed two per cent (2%) of the number of Amerix Common Shares
then outstanding.
If a take-over bid (within the meaning of the Securities Act
(Ontario)) is made for the Amerix Common Shares, then, subject to any
applicable regulatory requirements, the Amerix Board may permit all Amerix Stock
Options then outstanding which have restrictions on their exercise to become
immediately exercisable, notwithstanding any vesting schedule applicable to any
option, in order to permit Amerix Common Shares issuable under such Amerix Stock
Options to be tendered to such bid.
52
The following table sets forth certain information regarding
the Amerix Options granted to directors, officers and consultants under the
Amerix Stock Option Plan that are outstanding as of the date hereof:
Position |
Number of Amerix Common
Shares Under Amerix Stock Options Granted
|
Exercise Price
($) |
Expiration Date |
Directors |
500,000 350,000 100,000 |
0.30 0.22 0.11 |
March 7, 2015 July 19, 2016 January
17, 2017 |
Executive Officers(1) |
500,000 1,000,000 450,000 150,000
|
0.30 0.375 0.22 0.11 |
March 7, 2015 January 25, 2016 July
19, 2016 January 17, 2017 |
Employees/ Consultants |
208,332 200,000 25,000 50,000 |
0.30 0.22 0.11 0.12 |
March 7, 2015 July 19, 2016 January
17, 2017 October 1, 2017 |
Notes:
|
(1) |
Executive officers include Jeffrey Reeder, Steve
Brunelle, and Daniel Hamilton. |
PRIOR SALES
In the twelve month period preceding the date of this Circular,
other than the 10,930,000 Amerix Subscription Receipts sold at $0.10 per Amerix
Subscription Receipt on November 5, 2014 pursuant to the Amerix Private
Placement, no securities of Amerix have been issued.
Stock Exchange Price
The Amerix Common Shares are listed on the Exchange under the
symbol APM. Trading of the Amerix Common Shares was halted on July 7,
2014 pending the announcement of the Acquisition and remains halted. The last
trading price of the Amerix Common Shares on the Exchange prior to the trading
halt was $0.005 per Amerix Common Share.
The following table sets forth the high and low closing prices
and volumes of the trading of the Amerix Common Shares on the Exchange for the
periods indicated:
Period |
High |
Low |
Total Trading Volume for
the
Period |
Q4 2012 |
$0.135 |
$0.08 |
3,045,677 |
Q1 2013 |
$0.095 |
$0.025 |
7,585,792 |
Q2 2013 |
$0.04 |
$0.015 |
4,356,751 |
Q3 2013 |
$0.02 |
$0.01 |
8,742,063 |
Q4 2013 |
$0.02 |
$0.005 |
7,929,927 |
Q1 2014 |
$0.01 |
$0.005 |
1,045,214 |
Q2 2014 |
$0.005 |
$0.005 |
3,453,487 |
July 2014(1) |
$0.005 |
$0.005 |
200,000 |
August 2014(1) |
N/A |
N/A |
N/A |
September 2014(1) |
N/A |
N/A |
N/A |
October 2014(1) |
N/A |
N/A |
N/A |
November 1-25, 2014(1) |
N/A |
N/A |
N/A |
Notes:
|
(1) |
On July 7, 2014, trading of the Amerix Common Shares was
halted pending an announcement regarding the Acquisition, and trading of
the Amerix Common Shares remain halted as of the date of this
Circular. |
53
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In accordance with the requirements of Form 51-102F6
Statement of Executive Compensation and applicable Exchange Policies, the
Company is required to include a statement of executive compensation in this
Circular, which contains information about the compensation paid to, or earned
by, the Companys Named Executive Officers or NEOs. In this Circular, an NEO
of the Company means: (a) the Companys Chief Executive Officer; (b) the
Companys Chief Financial Officer; (c) the Companys other three most highly
compensated executive officers of the Company regardless of the amount of their
total compensation as at the end of the financial year ended July 31, 2013; and
(d) each individual who would be a NEO but for the fact that the individual was
neither an executive officer of the Company or any of its subsidiaries, nor
serving in a similar capacity, at the end of the financial year ended July 31,
2013. For the financial year ended July 31, 2013, the Company had three NEOs,
namely: (a) Steven Brunelle, President and Chief Executive Officer; (b) Jeffrey
Reeder, Executive Chairman and (c) Daniel Hamilton, Chief Financial Officer.
The Company is a mineral exploration company engaged in the
business of acquiring, developing and exploring gold properties in Brazil. The
Companys objective is to acquire, explore and develop gold properties that have
the potential to host mineral deposits. The Company has, as of yet, no
significant revenues from operations and operates to conserve financial
resources to ensure that funds are available to complete scheduled programs. As
a result, the Amerix Board has to consider not only the financial situation of
the Company at the time of the determination of executive compensation, but also
the estimated financial situation of the Company in the mid- and long-term. An
important element of executive compensation is that of Amerix Stock Options,
which do not require cash disbursements by the Company.
Nominating and Compensation Committee
The Company relies on its Nominating and Compensation
Committee, currently comprised of Messrs. Robert Crombie, and Jeffrey J. Reeder,
to determine the compensation of its NEOs through discussion without any formal
objectives, criteria or analysis. The Company considers Mr. Crombie to be an
independent director in accordance with NI 58-101. The Company considers the
public company board membership and management experience of the members of the
Nominating and Compensation Committee provides the members with the appropriate
experience and skills relevant to the responsibilities and ability to make
decisions on the suitability of Companys compensation policies and practices.
The Nominating and Compensation Committee is responsible for
determining all forms of compensation, including long-term incentives in the
form of Amerix Stock Options, to be granted to the Companys executive officers
(including the NEOs) and to the Amerix Board, and for reviewing any
recommendations that may be made by the Chief Executive Officer or any director
from time to time respecting compensation for senior officers of the Company, to
ensure such arrangements reflect the responsibilities and risks associated with
each position. When determining the compensation of its officers, the Nominating
and Compensation Committee considers: (a) recruiting and retaining executives
critical to the success of the Company and the enhancement of shareholder value;
(b) providing fair and competitive compensation; (c) balancing the interests of
management and the Amerix Shareholders; and (d) rewarding performance, both on
an individual basis and with respect to operations in general. Named Executive
Officers base compensation depends on the scope of their experience,
responsibilities, leadership skills, performance, length of service, general
industry trends, practices and competitiveness and the Companys existing
financial resources. The Nominating and Compensation Committee relies on its
knowledge and experience to set appropriate levels of compensation for senior
officers. The Nominating and Compensation Committee has not established any
quantifiable criteria with respect to base salaries payable or the amount of
equity compensation granted to Named Executive Officers and did not benchmark
against a peer group of companies.
Compensation Objectives and Principles
The primary goals of the Companys executive compensation
program are to: (a) attract, motivate and retain high-caliber individuals; (b)
align the interests of the NEOs with those of the Amerix Shareholders; (c)
establish an objective connection between NEO compensation and the Companys
financial and business performance; and (d) incentivize the NEOs to continuously
improve operations and execute on corporate strategy. The NEO compensation
program is, therefore, designed to reward the NEOs for increasing shareholder
value, achieving corporate performance that meets pre-defined objective criteria
and improving operations and executing on corporate strategy.
The Companys policy with respect to the compensation of NEOs
is to establish annual goals with respect to corporate development and the
individual areas of responsibility of each NEO and then to review total
compensation with respect to the achievement of these goals. In addition, the Company
recognizes the importance of ensuring that overall compensation for NEOs is not
only internally equitable, but also competitive within the market segment.
Specifically, the Nominating and Compensation Committees review and evaluation
will include measurement of, among others, the following areas: (a) the
achievement of corporate objectives, such as financings, partnerships and other
business development, in particular having regard to budgetary constraints and
other challenges facing the Company; (b) the Companys financial condition; and
(c) the Companys share price and market capitalization.
54
The NEO compensation program consists of two principal
components: (i) base salary; and (ii) long-term incentives. Each component has a
different function, as described in greater detail below, but each element works
together to reward the NEOs appropriately for personal and corporate
performance.
(1)
Base Salary
Base salaries are an element in attracting and retaining the
Companys senior executives (including the NEOs) and rewarding them for
corporate and individual performance. Base salaries are established by taking
into account individual performance and experience, level of responsibility and
competitive pay practices. Base salaries are reviewed annually and adjusted, if
appropriate, to reflect performance and market changes. Any increase to the base
salary of the executive officers must be approved by the Amerix Board and is
based on the recommendation of the Nominating and Compensation Committee. In
addition, discretionary bonuses may be provided upon approval of the Amerix
Board.
(2)
Long-Term Incentives
The Companys long-term incentive compensation for senior
executives (including the NEOs) is provided through grants of Amerix Stock
Options under the Amerix Stock Option Plan. Participation in the Amerix Stock
Option Plan is considered to be a critical component of compensation that
incents the NEOs to create long-term shareholder value, as the value of the
Amerix Stock Options is directly dependent on the market valuation of the
Company. The Amerix Stock Option Plan also serves to assist the Company in
retaining senior executives as the Amerix Stock Options granted under the Amerix
Stock Option Plan typically vest over time.
The Amerix Stock Option Plan is administered by the Nominating
and Compensation Committee. The Nominating and Compensation Committee considers
previous grants of Amerix Stock Options and the overall number of Amerix Stock
Options that are outstanding relative to the number of outstanding Amerix Common
Shares in determining whether to make any new grants of options and the size and
terms of any such grants, as well as the level of effort, time, responsibility,
ability, experience and level of commitment of the NEO in determining the level
of incentive stock option compensation.
See Information Concerning Amerix Executive Compensation
Incentive Plan Awards Value Vested or Earned During the Year and
Information Concerning Amerix Executive Compensation Director
Compensation below, as well as Information Concerning Amerix Amerix
Stock Option Plan above.
Summary Compensation Table
The following table sets forth the compensation earned in the
financial years ended July 31, 2014, July 31, 2013, and July 31, 2012 by each
NEO.
Name and
Principal Position |
Year
|
Salary ($)
(1) |
Share-based
awards ($) |
Option-
based awards ($) (2) |
Non-equity incentive plan
compensation ($)
|
Pension
value ($) |
All other
compensation
($) |
Total
compensation
($) |
Annual incentive
plans |
Long-term incentive
plans |
Steven Brunelle, President and Chief
Executive Officer |
2014 2013 2012 |
31,000 174,167 150,000 |
Nil Nil Nil |
Nil Nil 5,200 |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
31,000 174,167 155,200 |
Daniel Hamilton, Chief Financial
Officer |
2014 2013 2012 |
12,500 80,000 90,000 |
Nil Nil Nil |
Nil Nil 5,200 |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil] |
Nil Nil Nil |
12,500 80,000 95,200 |
55
Name and
Principal
Position |
Year |
Salary($)
(1) |
Share-based
awards ($) |
Option-
based awards ($) (2) |
Non-equity incentive plan
compensation ($)
|
Pension
value ($) |
All other
compensation ($) |
Total
compensation ($) |
Annual incentive
plans |
Long-term incentive
plans |
Jeffrey Reeder, Executive Chairman
|
2014 2013 2012 |
12,500 30,000 30,000 |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
12,500 30,000 30,000 |
Notes:
|
(1) |
Amounts in this column represent consulting fees paid to
each NEO. |
|
(2) |
The fair value of the award on the grant date was
determined in accordance with Section 3870 of the CICA Handbook
(accounting fair value). |
Narrative Discussion
Refer to the Compensation Discussion and Analysis and
Information Concerning Amerix Amerix Stock Option Plan sections above
for a description of all plan-based awards for executive officers (including
NEOs) and their significant terms.
Outstanding Share-Based Awards and Option-Based Awards
The table below provides information regarding incentive plan
awards for Named Executive Officers outstanding as the end of the financial year
ended July 31, 2014.
Name |
Option-based Awards |
Number of Securities
underlying unexercised options |
Option exercise price
($) |
Option expiration date
|
Value of unexercised
in-the-
money options (1) ($) |
Steven Brunelle, President and Chief Executive
Officer |
150,000 1,000,000 50,000 |
0.22 0.375 0.11 |
July 19, 2016 January 25, 2016
January 17, 2017 |
Nil Nil Nil |
Daniel Hamilton, Chief Financial Officer
|
150,000 500,000 50,000 |
0.22 0.30 0.11 |
July 19, 2016 March 7, 2015 January
17, 2017 |
Nil Nil Nil |
Jeffrey Reeder, Executive Chairman |
150,000 50,000 |
$0.22 $0.11 |
July 19, 2016 January 17, 2017 |
Nil Nil |
Notes:
|
(1) |
In-the-money options are those where the market value
of the underlying securities as at the most recent fiscal year end exceeds
the option exercise price. Trading of the Amerix Common Shares was halted
on July 7, 2014 pending the announcement of the Acquisition and remains
halted. The last trading price of the Amerix Common Shares on the Exchange
prior to the trading halt was $0.005 per Amerix Common
Share. |
Incentive Plan Awards Value Vested or Earned During the
Year
The following table provides information regarding the value
vested or earned of incentive plan awards for the financial year ended July 31,
2014 for each NEO.
Name |
Option-based
awards Value vested during the year ($) (1)
|
Share-based
awards Value vested during the year ($) |
Non-equity
incentive plan compensation Value earned during
the year |
Steven Brunelle, President and Chief Executive Officer
|
Nil |
N/A |
Nil |
56
Name |
Option-based awards Value
vested during the year ($) (1) |
Share-based awards Value
vested during the year ($) |
Non-equity incentive plan
compensation Value earned during the year
|
Daniel Hamilton, Chief Financial Officer |
Nil |
N/A |
Nil |
Jeffrey Reeder, Executive Chairman |
Nil |
N/A |
Nil |
Notes:
|
(1) |
Intended to represent the aggregate dollar value that
would have been realized if Amerix Stock Options had been exercised on the
vesting date, based on the difference, if any, between the market price of
the Amerix Common Shares on the Exchange on the vesting date and the
exercise price of the Amerix Stock Options. As the market price of the
Amerix Common Shares was equal to or less than the exercise price of the
Amerix Stock Options on the vesting date, no value would have been
realized if exercised on the vesting date. |
Termination and Change of Control Benefits
The Company has no contracts, agreements, plans or arrangements
that provide for payments to an NEO at, following or in connection with any
termination (whether voluntary, involuntary or constructive), resignation,
retirement, change in control of the Company or a change in the NEOs
responsibilities.
Director Compensation
The Company does not provide cash remuneration to its directors
for attendance and participation in meetings of the Amerix Board or for any
other purpose in their capacity as a director. Each director of the Company is
eligible to participate in the Amerix Stock Option Plan, the purpose of which is
to assist the Company in compensating, attracting, retaining and motivating the
Amerix Board and to closely align the personal interests of such persons to that
of the Amerix Shareholders. Amerix Stock Option grants for the directors are
approved by the Amerix Board, based on the recommendation of the Nominating and
Compensation Committee. The number of Amerix Stock Options granted is based on
competitive and market conditions, including based on a comparison of option
grants to directors of other corporations of a comparable size and market
capitalization. When determining whether and how many new Amerix Stock Option
grants will be made, the Amerix Board takes into account the amount and terms of
any outstanding Amerix Stock Options. The Company does not require its directors
to own a specific number of Amerix Common Shares.
The following table provides information with respect to the
compensation paid to each director who is not also a Named Executive Officer for
the financial year ended July 31, 2014.(1)
Name |
Fees Earned
($)
|
Share- based awards
($) |
Option-based
awards ($) |
All other compensation
($) |
Total compensation
($) |
Luciano Borges |
Nil |
N/A |
Nil |
US$90,000(2) |
US$90,000 |
Robert Crombie |
Nil |
N/A |
Nil |
Nil |
Nil |
Daniel Noone(3) |
Nil |
N/A |
Nil |
Nil |
Nil |
William Whitehead(4) |
Nil |
N/A |
Nil |
Nil |
Nil |
Notes:
|
(1) |
The relevant disclosure with respect to Mr. Brunelle and
Mr. Reeder is provided above, under Summary Compensation Table
and Incentive Plan Awards. |
|
(2) |
Other compensation earned by Mr. Borges represents fees
earned by him in the fiscal year ended July 31, 2014 in his capacity as
President of MVPR. The compensation was paid by MVPR. |
|
(3) |
Mr. Noone resigned from the Amerix Board effective
February 7, 2014. |
|
(4) |
Mr. Whitehead resigned from the Amerix Board effective
May 12, 2014. |
Outstanding Share-Based Awards and Option-Based Awards
The following table provides information regarding incentive
plan awards to each director who is not also a Named Executive Officer
outstanding as of the financial year ended July 31, 2014.(1)
57
Name |
Option-based Awards |
Number of Securities
underlying unexercised options |
Option exercise price
($) |
Option expiration date
|
Value of unexercised
in-the-money options (1)
($) |
Luciano Borges |
500,000 150,000 50,000 |
$0.30 $0.22 $0.11 |
March 7, 2015 July 19, 2016 January
17, 2017 |
Nil Nil Nil |
Robert Crombie |
50,000 200,000 |
$0.11 $0.22 |
January 17, 2017 July 19, 2016 |
Nil Nil |
Notes:
|
(1) |
The relevant disclosure with respect to Mr. Brunelle and
Mr. Reeder is provided above, under Summary Compensation Table
and Incentive Plan Awards. |
|
(2) |
In-the-money options are those where the market value
of the underlying securities as at the most recent fiscal year end exceeds
the option exercise price. Trading of the Amerix Common Shares was halted
on July 7, 2014 pending the announcement of the Acquisition and remains
halted. The last trading price of the Amerix Common Shares on the Exchange
prior to the trading halt was $0.005 per Amerix Common
Share. |
Values Vested or Earned During the Year Ended July 31, 2014
The following table provides information regarding the value
vested or earned of incentive plan awards to each director who is not also a
Named Executive Officer for the financial year ended July 31, 2014.(1)
Name |
Option-based awards Value
vested during the year ($) (2) |
Share-based awards Value
vested during the year ($) |
Non-equity incentive plan
compensation Value earned during the year
|
Luciano Borges |
Nil |
N/A |
Nil |
Robert Crombie |
Nil |
N/A |
Nil |
Daniel Noone(3) |
Nil |
N/A |
Nil |
William Whitehead(4) |
Nil |
N/A |
Nil |
Notes:
|
(1) |
The relevant disclosure with respect to Mr. Brunelle and
Mr. Reeder is provided above, under Summary Compensation Table
and Incentive Plan Awards. |
|
(2) |
Intended to represent the aggregate dollar value that
would have been realized if Amerix Stock Options had been exercised on the
vesting date, based on the difference, if any, between the market price of
the Amerix Common Shares on the Exchange on the vesting date and the
exercise price of the Amerix Stock Options. As the market price of the
Amerix Common Shares was equal to or less than the exercise price of the
Amerix Stock Options on the vesting date, no value would have been
realized if exercised on the vesting date. |
|
(3) |
Mr. Noone resigned from the Amerix Board on February 7,
2014. |
|
(4) |
Mr. Whitehead resigned from the Amerix Board on May 12,
2014. |
Narrative Discussion
Refer to the commentary under the heading Director
Compensation and Information Concerning Amerix Amerix Stock Option
Plan for a description of all plan-based awards for directors of the
Company and their significant terms.
NON-ARMS LENGTH PARTY TRANSACTIONS
No director or officer of the Company, principal shareholder of
the Company or any Associate or Affiliate of the foregoing has any material
interest, direct or indirect, in any transaction completed in the 24 month
period prior to the date of this Circular or in any proposed transaction, other
than as disclosed below:
Other than as disclosed herein, there are no Non-Arms
Length Party transactions to which Amerix is or was a party to in respect of any
acquisition of assets or services, or any provision of assets or services during
the 24 month period preceding the date of this Circular.
58
ARMS LENGTH TRANSACTION
The proposed Acquisition is an Arms Length Transaction.
LEGAL PROCEEDINGS
There are no legal proceedings material to Amerix to which
Amerix is a party or of which any of its property is the subject matter, and
there are no such proceedings known to Amerix to be contemplated.
AUDITOR, TRANSFER AGENTS AND REGISTRARS
The auditor of Amerix is MNP LLP, Chartered Accountants, 701
Evans Avenue, 8th Floor, Toronto, Ontario, M9C 1A3.
The registrar and transfer agent of the Amerix Common Shares is
Equity Financial Trust Company, 200 University Avenue, Suite 300, Toronto,
Ontario, M5H 4H1.
MATERIAL CONTRACTS
Amerix has not entered into any material contracts outside of
the ordinary course of business prior to the date hereof, other than:
|
(a) |
the Amalgamation Agreement; |
|
|
|
|
(b) |
the Amerix Private Placement Agency Agreement; |
|
|
|
|
(c) |
the Amerix Private Placement Subscription Receipt
Agreement; and |
|
|
|
|
(d) |
the Warrant Indenture. |
Details regarding the above material contracts are disclosed
elsewhere in this Circular. Copies of such material contracts may be inspected
during normal business hours without charge, until the date of the Amerix
Meeting and for a period of 30 days thereafter at the head office of the
Resulting Issuer.
RISK FACTORS
AN INVESTMENT IN SECURITIES OF AMERIX AND, FOLLOWING THE
COMPLETION OF THE ACQUISITION, THE RESULTING ISSUER, IS HIGHLY SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK, AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
For a comprehensive discussion of the risk factors relating to
Eagle and the Resulting Issuer, see also Information Concerning Eagle Risk
Factors and Information Concerning the Resulting Issuer Risk
Factors, respectively.
Resource Exploration and Development is a Speculative
Business
Resource exploration and development is a speculative business
and involves a high degree of risk, including, among other things, unprofitable
efforts resulting not only from the failure to discover mineral deposits but
from finding mineral deposits which, though present, are insufficient in size to
return a profit from production. The marketability of natural resources that may
be acquired or discovered by the Company will be affected by numerous factors
beyond the control of the Company. These factors include market fluctuations,
the proximity and capacity of natural resource markets, government regulations,
including regulations relating to prices, taxes, royalties, land use, importing
and exporting of minerals and environmental protection. The exact effect of
these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving an adequate return on invested
capital. The vast majority of exploration projects do not result in the
discovery of commercially mineable deposits of ore. Substantial
expenditures are required to establish ore reserves through drilling and
metallurgical and other testing techniques, determine metal content and
metallurgical recovery processes to extract metal from the ore, and construct,
renovate or expand mining and processing facilities. No assurance can be given
that any level of recovery of ore reserves will be realized or that any
identified mineral deposit, even if it is established to contain an estimated
resource, will ever qualify as a commercial mineable ore body which can be
legally and economically exploited. The great majority of exploration projects
do not result in the discovery of commercially mineable deposits of ore.
59
All of the resource properties in which the Company has an
interest or the right to acquire an interest are in the exploration stage and
without a known body of commercial ore. Development of any resource property
held or acquired by the Company will only follow obtaining satisfactory exploration results.
Exploration for and the development of natural resources involve a high degree
of risk and few properties which are explored are ultimately developed into
producing properties. There is no assurance that the Companys exploration
activities will result in any discovery of commercial ore. Substantial
expenditures are required to establish reserves through drilling, to develop
processes to extract reserves and to develop the extraction and processing
facilities and infrastructure at any site chosen for extraction. Although
substantial benefits may be derived from the discovery of a major deposit, no
assurance can be given that resources will be discovered in sufficient
quantities to justify commercial operations or that the funds required for
development can be obtained on a timely basis. Few properties that are explored
are ultimately developed into producing mines
Fluctuation of Metal Prices
Even if commercial quantities of mineral deposits are
discovered by the Company, there is no guarantee that a profitable market will
exist for the sale of the metals produced. Factors beyond the control of the
Company may affect the marketability of any substances discovered. The prices of
various metals have experienced significant movement over short periods of time,
and are affected by numerous factors beyond the control of the Company,
including international economic and political trends, expectations of
inflation, currency exchange fluctuations, interest rates and global or regional
consumption patterns, speculative activities and increased production due to
improved mining and production methods. The supply of and demand for metals are
affected by various factors, including political events, economic conditions and
production costs in major producing regions. There can be no assurance that the
price of any commodities will be such that any of the properties in which the
Company has, or has the right to acquire, an interest may be mined at a
profit.
Limited Operating History and Lack of Cash Flow
The Company has a limited business history. The Company has no
history of earnings or cash flow from its present operations. The only present
source of funds available to the Company is through the sale of equity or debt
securities or borrowing. Even if the results of exploration are encouraging, the
Company may not have sufficient funds to conduct further exploration that may be
necessary to determine whether or not a commercially mineable deposit exists on
any property it has or it acquires and the Company may not realize a return on
its investment. While the Company may generate additional working capital
through equity offerings, borrowing, sale or the joint venture development of
its properties and/or a combination thereof, there is no assurance that any such
funds will be available. Failure to obtain such additional capital, if needed,
would have a material adverse effect on the Company. The Company has neither
declared nor paid dividends during the past five years and does not anticipate
doing so in the foreseeable future.
Limited Business of the Company
Other than the Companys interest in the Amerix Mineral
Interests, the Company has no material non-cash assets. There is no assurance
the Company will be able to finance the acquisition of properties or the
exploration or development thereof.
Recent Market Events and Conditions
In recent years the U.S. credit markets experienced serious
disruption due to a deterioration in residential property values, defaults and
delinquencies in the residential mortgage market (particularly, sub-prime and
non-prime mortgages) and a decline in the credit quality of mortgage backed
securities. These problems have led to a slow-down in residential housing market
transactions, declining housing prices, delinquencies in non-mortgage consumer
credit and a general decline in consumer confidence.
These conditions caused a loss of confidence in the broader
U.S. and global credit and financial markets and resulting in the collapse of,
and government intervention in, major banks, financial institutions and insurers
and creating a climate of greater volatility, less liquidity, widening of credit
spreads, a lack of price transparency, increased credit losses and tighter
credit conditions.
Notwithstanding various actions by the U.S. and foreign
governments, concerns about the general condition of the capital markets,
financial instruments, banks, investment banks, insurers and other financial
institutions caused the broader credit markets to further deteriorate and stock
markets to decline substantially. In addition, general economic indicators have
deteriorated, including declining consumer sentiment, increased unemployment and
declining economic growth and uncertainty about corporate earnings.
While these conditions appear to have improved, unprecedented
disruptions in the credit and financial markets have had a significant material
adverse impact on a number of financial institutions and have limited access to
capital and credit for many companies.
60
These disruptions could, among other things, make it more
difficult for the Company to obtain, or increase its cost of obtaining, capital
and financing for its operations. The Companys access to additional capital may
not be available on terms acceptable to it or at all.
General Economic Conditions
The recent unprecedented events in global financial markets
have had a profound impact on the global economy. Many industries are impacted
by these market conditions. Some of the key impacts of the current financial
market turmoil include contraction in credit markets resulting in a widening of
credit risk, devaluations and high volatility in global equity, commodity,
foreign exchange markets, and a lack of market liquidity. A continued or
worsened slowdown in the financial markets or other economic conditions,
including but not limited to, consumer spending, employment rates, business
conditions, inflation, fuel and energy costs, consumer debt levels, lack of
available credit, the state of the financial markets, interest rates, and tax
rates may adversely affect the Companys growth and profitability. Specifically:
|
(a) |
the global credit/liquidity crisis could impact the cost
and availability of financing and the Companys overall
liquidity; |
|
|
|
|
(b) |
the volatility of industrial metal prices may impact the
Companys potential future revenues, profits and cash flow; |
|
|
|
|
(c) |
volatile energy prices, commodity and consumables prices
and currency exchange rates impact potential production costs;
and |
|
|
|
|
(d) |
the devaluation and volatility of global stock markets
impacts the valuation of the Amerix Common Shares, which may impact the
Companys ability to raise funds through the issuance of equity
securities. |
These factors could have a material adverse effect on the
Companys financial condition and results of operations.
Share Price Volatility
During the past year, worldwide securities markets,
particularly those in the United States and Canada, have experienced a high
level of price and volume volatility, and the market price of securities of many
companies, particularly those considered exploration or development stage
companies, have experienced unprecedented declines in price which have not
necessarily been related to the operating performance, underlying asset values
or prospects of such companies. Most significantly, the share prices of junior
natural resource companies have experienced an unprecedented decline in value
and there has been a significant decline in the number of buyers willing to
purchase such securities. In addition, significantly higher redemptions by
holders of mutual funds has forced many such funds to sell such securities at
any price. As a consequence, despite the Companys past success in securing
equity financing, market forces may render it difficult or impossible for the
Company to secure places to purchase new share issues at a price which will not
lead to severe dilution to existing Amerix Shareholders, or at all.
Therefore, there can be no assurance that significant
fluctuations in the price of the Amerix Common Shares will not occur, or that
such fluctuations will not materially adversely impact on the Companys ability
to raise equity funding without significant dilution to the existing Amerix
Shareholders, or at all.
Financing Risks
The Company has limited financial resources, has no source of
operating cash flow and does not presently have sufficient financial resources
to complete, by itself, the exploration required to develop the properties in
which it has an interest to an advanced stage. The Company has no assurance that
additional funding will be available to it for further exploration and
development of its projects or to fulfill its obligations under any applicable
agreements. Although the Company has been successful in the past in obtaining
financing through the sale of equity securities, there can be no assurance that
it will be able to obtain adequate financing in the future or that the terms of
such financing will be favorable. Failure to obtain such additional financing
could result in delay or indefinite postponement of further exploration and
development of its projects with the possible loss of such properties.
Insufficient Financial Resources
The Company does not presently have sufficient financial
resources to undertake by itself the acquisition, exploration and development of
all of its planned acquisition, exploration and development programs. Future
property acquisitions and the development of the properties in which it has an
interest will therefore depend upon the Companys ability to obtain financing through the joint venturing of projects, private
placement financing, public financing, short or long term borrowings or other
means. There is no assurance that the Company will be successful in obtaining
the required financing. Failure to raise the required funds could result in the
Company losing, or being required to dispose of, the Amerix Mineral
Interests.
61
Dilution to the existing Amerix Shareholders
The Company will require additional equity financing to be
raised in the future. The Company may issue securities at less than favorable
terms to raise sufficient capital to fund its business plan. Any transaction
involving the issuance of equity securities or securities convertible into
Amerix Common Shares would result in dilution, possibly substantial, to present
and prospective holders of Amerix Common Shares.
Increased costs
Management anticipates that costs at the Amerix Mineral
Interests will frequently be subject to variation from one year to the next due
to a number of factors, such as the results of ongoing exploration activities
(positive or negative), changes in the nature of mineralization encountered, and
revisions to exploration programs, if any, in response to the foregoing. In
addition, exploration program costs are affected by the price of commodities
such as fuel, rubber and electricity and the availability (or otherwise) of
consultants and drilling contractors. Increases in the prices of such
commodities or a scarcity of consultants or drilling contractors could render
the costs of exploration programs to increase significantly over those budgeted.
A material increase in costs for any significant exploration programs could have
a significant effect on the Companys operating funds and ability to continue
its planned exploration programs.
Mining Industry is Intensely Competitive
The Companys business of the acquisition, exploration and
development of mineral properties is intensely competitive. The Company may be
at a competitive disadvantage in acquiring additional mining properties because
it must compete with other individuals and companies, many of which have greater
financial resources, operational experience and technical capabilities than the
Company. Increased competition could adversely affect the Companys ability to
attract necessary capital funding or acquire suitable producing properties or
prospects for mineral exploration in the future.
Permits and Licenses
The operations of the Company will require licenses and permits
from various governmental authorities. There can be no assurance that the
Company will be able to obtain all necessary licenses and permits that may be
required to carry out exploration, development and mining operations at its
projects, on reasonable terms, without delay or at all. Delays or a failure to
obtain such licenses and permits, or a failure to comply with the terms of any
such licenses and permits that the Company does obtain could have a material
adverse effect on the Company.
Government Regulation
Any exploration, development, or mining operations carried on
by the Company will be subject to government legislation, policies and controls
relating to prospecting, development, production, environmental protection,
mining taxes and labour standards. In addition, the profitability of any mining
prospect is affected by the market for precious and/or base metals which is
influenced by many factors including changing production costs, the supply and
demand for metals, the rate of inflation, the inventory of metal producing
corporations, the political environment and changes in international investment
patterns.
Environmental Restrictions
The activities of the Company are subject to environmental
regulations promulgated by government agencies in different countries from time
to time. Environmental legislation generally provides for restrictions and
prohibitions on spills, releases or emissions into the air, discharges into
water, management of waste, management of hazardous substances, protection of
natural resources, antiquities and endangered species and reclamation of lands
disturbed by mining operations. Certain types of operations require the
submission and approval of environmental impact assessments. Environmental
legislation is evolving in a manner which means stricter standards, and
enforcement. Fines and penalties for noncompliance are more stringent.
Environmental assessments of proposed projects carry a heightened degree of
responsibility for companies and directors, officers and employees. The cost of
compliance with changes in governmental regulations has a potential to reduce
the profitability of operations.
62
Political Risk
Mineral exploration and mining activities may be affected in
varying degrees by changes in government regulations such as tax laws, business
laws, environmental laws and mining laws, affecting the Companys business in
countries where the properties in which it has an interest are located. Any
changes in regulations or shifts in political conditions are beyond the control
of the Company and may adversely affect its business, or if significant enough,
may make it impossible to continue to operate in a given country. Operations may
be affected in varying degrees by government regulations with respect to
restrictions on production, price controls, foreign exchange restrictions,
export controls, income taxes, expropriation of property, environmental
legislation and mine safety.
Dependence Upon Others and Key Personnel
The success of the Companys operations will depend upon
numerous factors, many of which are beyond the Companys control, including (i)
the ability to design and carry out appropriate exploration programs on the
properties in which it has an interest; (ii) the ability to produce minerals
from any mineral deposits that may be located; (iii) the ability to attract and
retain additional key personnel in exploration, marketing, mine development and
finance; and (iv) the ability and the operating resources to develop and
maintain the Amerix Mineral Interests. These and other factors will require the
use of outside suppliers as well as the talents and efforts of the Company and
its consultants and employees. There can be no assurance of success with any or
all of these factors on which the Companys operations will depend, or that the
Company will be successful in finding and retaining the necessary employees,
personnel and/or consultants in order to be able to successfully carry out such
activities.
Surface Rights and Access
Although the Company acquires the rights to some or all of the
minerals in the ground subject to the tenures that it acquires, or has a right
to acquire, in most cases it does not thereby acquire any rights to, or
ownership of, the surface to the areas covered by its mineral tenures. In such
cases, applicable mining laws usually provide for rights of access to the
surface for the purpose of carrying on mining activities, however, the
enforcement of such rights through the applicable courts can be costly and time
consuming. In areas where there are no existing surface rights holders, this
does not usually cause a problem, as there are no impediments to surface
access.
However, in areas where there are local populations or land
owners, it is necessary, as a practical matter, to negotiate surface access.
There can be no guarantee that, despite having the right at law to access the
surface and carry on exploration and mining activities, the Company will be able
to negotiate a satisfactory agreement with any such existing
landowners/occupiers for such access, and therefore it may be unable to carry
out mining activities. In addition, in circumstances where such access is
denied, or no agreement can be reached, the Company may need to rely on the
assistance of local officials or the courts in such jurisdiction. The Company
has not, to date, experienced any problems in gaining access to any of its
properties.
Title Matters
Although the Company has taken steps to verify the title to the
mineral properties in which it has or has a right to acquire an interest in
accordance with industry standards for the current stage of exploration of such
properties, these procedures do not guarantee title (whether of the Company or
of any underlying vendor(s) from whom the Company may be acquiring its
interest). Title to mineral properties may be subject to unregistered prior
agreements or transfers, and may also be affected by undetected defects or the
rights of indigenous peoples.
Exploration and Mining Risks
Fires, power outages, labour disruptions, flooding, explosions,
cave-ins, landslides and the inability to obtain suitable or adequate machinery,
equipment or labour are other risks involved in the operation of mines and the
conduct of exploration programs. Substantial expenditures are required to
establish reserves through drilling, to develop metallurgical processes, 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. The economics of developing mineral properties is affected by many
factors including the cost of operations, variations of the grade of ore mined,
fluctuations in the price of gold or other minerals produced, costs of
processing equipment and other factors such as government regulations, including
regulations relating to royalties, allowable production, importing and exporting
of minerals and environmental protection. In addition, the grade of
mineralization ultimately mined may differ from that indicated by drilling
results and such differences could be material. Short term factors, such as the
need for orderly development of ore bodies or the processing of new or different
grades, may have an adverse effect on mining operations and on the results of operations. There can be no assurance that
minerals recovered in small scale laboratory tests will be duplicated in large
scale tests under on-site conditions or in production scale operations. Material
changes in geological resources, grades, stripping ratios or recovery rates may
affect the economic viability of projects.
63
Regulatory Requirements
The activities of the Company are subject to extensive
regulations governing various matters, including environmental protection,
management and use of toxic substances and explosives, management of natural
resources, exploration, development of mines, production and post-closure
reclamation, exports, price controls, taxation, regulations concerning business
dealings with indigenous peoples, labour standards on occupational health and
safety, including mine safety, and historic and cultural preservation. Failure
to comply with applicable laws and regulations may result in civil or criminal
fines or penalties, enforcement actions thereunder, including orders issued by
regulatory or judicial authorities causing operations to cease or be curtailed,
and may include corrective measures requiring capital expenditures, installation
of additional equipment, or remedial actions, any of which could result in the
Company incurring significant expenditures. The Company may also be required to
compensate those suffering loss or damage by reason of a breach of such laws,
regulations or permitting requirements. It is also possible that future laws and
regulations, or more stringent enforcement of current laws and regulations by
governmental authorities, could cause additional expense, capital expenditures,
restrictions on or suspension of the Companys operations and delays in the
exploration and development of the properties in which it has an interest.
Limited Experience with Development-Stage Mining
Operations
The Company has very limited experience in placing mineral
resource properties into production, and its ability to do so will be dependent
upon using the services of appropriately experienced personnel or entering into
agreements with other major resource companies that can provide such expertise.
There can be no assurance that the Company will have available to it the
necessary expertise when and if it places its resource properties into
production.
Uncertainty of Resource Estimates/Reserves
Unless otherwise indicated, mineralization figures presented in
the Companys filings with securities regulatory authorities, press releases and
other public statements that may be made from time to time are based upon
estimates made by Company personnel and independent geologists. These estimates
are imprecise and depend upon geological interpretation and statistical
inferences drawn from drilling and sampling analysis, which may prove to be
unreliable. There can be no assurance that:
|
(a) |
these estimates will be accurate; |
|
|
|
|
(b) |
reserves, resource or other mineralization figures will
be accurate; or |
|
|
|
|
(c) |
this mineralization could be mined or processed
profitably. |
Because the Company has not commenced commercial production at
any of the properties in which it has an interest, and has not defined or
delineated any proven or probable reserves on any of the properties in which it
has an interest, mineralization estimates for the properties may require
adjustments or downward revisions based upon further exploration or development
work or actual production experience. In addition, the grade of ore ultimately
mined may differ from that indicated by drilling results. There can be no
assurance that minerals recovered in small-scale tests will be duplicated in
large-scale tests under on-site conditions or in production scale. The resource
estimates contained in the Companys filings with securities regulatory
authorities, press releases and other public statements that may be made from
time to time have been determined and valued based on assumed future prices,
cut-off grades and operating costs that may prove to be inaccurate.
Extended declines in market prices for graphite may render
portions of the Companys mineralization uneconomic and result in reduced
reported mineralization. Any material reductions in estimates of mineralization,
or of the Companys ability to extract this mineralization, could have a
material adverse effect on the Companys results of operations or financial
condition.
The Company has not established the presence of any proven
or probable reserves in respect of any of the Amerix Mineral Interests. There
can be no assurance that subsequent testing or future studies will establish any
proven or probable reserves in respect of any of the Amerix Mineral Interests.
The failure to establish proven or probable reserves could restrict the
Companys ability to successfully implement its strategies for long-term
growth.
64
No Assurance of Profitability
The Company has no history of earnings and, due to the nature
of its business there can be no assurance that the Company will ever be
profitable. The Company has not paid 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 from the sale of the Amerix Common
Shares or, possibly, from the sale or optioning of a portion of the Amerix
Mineral Interests. 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 mineable deposit
exists. While the Company may generate additional working capital through
further equity offerings or through the sale or possible syndication of the
Amerix Mineral Interests, there can be no assurance that any such funds will be
available on favorable terms, or at all. At present, it is impossible to
determine what amounts of additional funds, if any, may be required. Failure to
raise such additional capital could put the continued viability of the Company
at risk.
Uninsured or Uninsurable Risks
Exploration, development and mining operations involve various
hazards, including environmental hazards, industrial accidents, metallurgical
and other processing problems, unusual or unexpected rock formations, structural
cave-ins or slides, flooding, fires, metal losses and periodic interruptions due
to inclement or hazardous weather conditions. These risks could result in damage
to or destruction of mineral properties, facilities or other property, personal
injury, environmental damage, delays in operations, increased cost of
operations, monetary losses and possible legal liability. The Company may not be
able to obtain insurance to cover these risks at economically feasible premiums
or at all. The payment of such insurance premiums and of such liabilities would
reduce the funds available for exploration and production activities.
Additionally, the nature of the risks associated with the Companys business are
such that liabilities might exceed insurance policy limits, the liabilities and
hazards might not be insurable, or the Company may elect not to insure itself
against such liabilities due to high premium costs or other reasons, in which
event the Company could incur significant costs that could have a material
adverse effect upon its financial condition.
Conflict of Interests
Certain of the directors and officers of the Company may, from
time to time, become directors or officers of, or have significant shareholdings
in, other mineral resource companies and, to the extent that such other
companies may participate in ventures in which the Company may participate or
may wish to participate, the directors and officers of the Company may have a
conflict of interest in negotiating and concluding terms respecting the extent
of such participation. Such other companies may also compete with the Company
for the acquisition of mineral property rights.
In the event that any such conflict of interest arises, a
director or officer who has such a conflict will disclose the conflict to a
meeting of the Amerix Board and, if the conflict involves a director, the
director will abstain from voting for or against the approval of such
participation or such terms. In appropriate cases, the Company will establish a
special committee of independent directors to review a matter in which several
directors, or management, may have a conflict. From time to time, several
companies may participate in the acquisition, exploration and development of
natural resource properties thereby allowing their participation in larger
programs, permitting involvement in a greater number of programs and reducing
financial exposure in respect of any one program.
It may also occur that a particular company will assign all or
a portion of its interest in a particular program to another of these companies
due to the financial position of the company making the assignment. The
directors and officers of the Company are required to act honestly and in good
faith, with a view to the best interests of the Company.
In determining whether or not the Company will participate in a
particular program and the interest therein to be acquired by it, the directors
will primarily consider the potential benefits to the Company, the degree of
risk to which the Company may be exposed and its financial position at that
time.
ADDITIONAL INFORMATION
Additional information relating to the Company is available on
SEDAR at www.sedar.com. Copies of the Companys audited financial
statements and corresponding managements discussion and analysis for the
financial years ended July 31, 2014, 2013 and 2012 and the respective notes
thereto are attached as Exhibit B hereto and are available on SEDAR, or Amerix
Shareholders may request that copies be sent to them upon written request to the
Company at 40 University Avenue, Suite 606, Toronto, Ontario, M5J 1T1,
Canada. Financial information is provided in the Companys comparative annual
financial statements and managements discussion and analysis for its most
recently completed financial year.
65
INFORMATION CONCERNING EAGLE
CORPORATE STRUCTURE
Name and Incorporation
Eagle Graphite Corporation is a private company incorporated
under the CBCA. Eagle was originally incorporated as Eagleshore Financial
Corporation on December 29, 2004 and changed its name to Eagle Graphite
Corporation on August 28, 2006. On July 22, 2007 Eagle reorganized its capital
structure from having classes of preferred shares to authorizing on unlimited
number of Eagle Common Shares. Eagles head office is located at 6420 Eagles
Drive, Courtenay, British Columbia, V9J 1V4 and its registered office is located
at 2100 Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3C2.
Intercorporate Relationships
Eagle has no subsidiaries.
GENERAL DEVELOPMENT OF THE BUSINESS
Eagle acquired the Black Crystal Property in 2006 and has been
conducting exploration and development activities since acquiring the property.
The Technical Report on the Black Crystal Property was prepared on November 24,
2014; see Information Concerning Eagle The Black Crystal
Property below for details on the Black Crystal Property. Eagle completed
two private placements of Eagle Common Shares in July and December of 2011, and
in May, June, and October 2014 Eagle issued the Eagle Notes which are
anticipated to be converted into Eagle Common Shares and Eagle Warrants prior to
the completion of the Amalgamation. See Information Concerning Eagle
Description of the Securities for further details on the Eagle
Notes.
The Eagle Private Placement
On November 5, 2014, Eagle completed the first tranche of the
Eagle Private Placement, pursuant to which Eagle issued 15,050,000 Eagle
Subscription Receipts at a price of $0.10 per Eagle Subscription Receipt for
gross proceeds of $1,505,000, which proceeds have been placed in escrow pending
satisfaction of the Eagle Escrow Release Conditions. Upon satisfaction of the
Eagle Escrow Release Conditions prior to the Eagle Escrow Release Deadline and
immediately prior to the Closing, the Eagle Subscription Receipts will
automatically be exercised, without payment of any additional consideration and
with no further action on the part of the holders thereof, for one Eagle Unit.
Each Eagle Unit will be comprised of one (1) Eagle Common Share and one-half of
one (1/2) Eagle Warrant. Eagle may complete one or more additional tranches of
the Eagle Private Placement.
If the Eagle Escrow Release Conditions are not satisfied prior
to the Eagle Escrow Release Deadline, the escrowed funds plus accrued interest,
if any, will be returned to the Eagle Purchasers in accordance with the terms of
the Eagle Private Placement. To the extent that the escrowed funds plus accrued
interest, if any, are not sufficient to repay the purchase price for all Eagle
Subscription Receipts, Eagle has agreed to satisfy any shortfall.
As consideration for the services of the Agent in connection
with the Eagle Private Placement, Eagle agreed to pay the Agent a commission
equal to 7% of the gross proceeds from the sale of the Eagle Subscription
Receipts ($105,350), which shall be released to the Agent upon satisfaction of
the Eagle Escrow Release Conditions. As additional consideration for the
services of the Agent, the Agent was granted 1,053,500 Eagle Broker Warrants.
Each Eagle Broker Warrant entitles the Agent to purchase one Eagle Common Share
at a price of $0.10 per Eagle Unit until November 5, 2016.
Description of the Business
Eagle expects to distribute graphite and by-products mined from
the Black Crystal Project by truck to refractories companies and golf courses,
respectively. Eagle does not have any material revenue and over the next 12
months Eagle anticipates exploring and developing the Black Crystal Property as
set out under the heading Information Concerning the Resulting Issuer
Available Funds and Principal Purposes under the Sources and
Use of Proceeds tables. As further set out in the summary of the
Technical Report below under the heading The Black Crystal Property Eagle
anticipates using quarrying and flotation methods to produce graphite.
Production of graphite will be done by Eagle using its leased property and plant
pursuant to the terms of its nine legacy mineral claims and two mining leases.
The two mineral leases expire on June 25, 2032, with an option to renew for an
additional 30 years. The nine mineral claims expire between December 28, 2014
and November 11, 2020. Eagle anticipates renewing the mineral claims in the
ordinary course prior to or upon expiry of the respective mineral claim. The
annual payment terms to maintain the mineral leases and mineral claims are
subject to a payment schedule which begins at a cost of $5 per hectare and
increases up to $20 per hectare. Eagles existing mineral leases and mineral
claims total approximately 3,400 hectares, therefore the anticipated maximum
annual cost of for Eagles current mineral claims and mineral leases is
approximately $70,000. Eagles mineral claims and mining leases are in good
standing as of the date of this Circular.
66
Eagles management and employees have specialized skills and
knowledge particular to the graphite mining business which are suitable for
Eagles current business purposes and are comparable to other graphite companies
at the same stage as Eagle. Eagle uses chemical reagents, such as pine oil, and
bulk bags that are readily available and can be purchased from a number of
wholesalers at standard market rates. Eagles business expenses marginally
increase in the winter due to inclement weather in the Slocan Valley, British
Columbia. Over the course of the past fiscal year Eagle had seven employees on
average.
Upon completion of the development of the Black Crystal
Project, Eagles anticipates selling graphite globally and selling by-products
within a 200 kilometer range from the Black Crystal Project. Eagle anticipates
that graphite purchasers may become increasingly sensitive to the potential lack
of North American graphite supply and the historic reliance on Chinese graphite
producers.
The graphite industry is competitive with a number of companies
such as Imerys S.A., Qingdao Hensen Graphite Co., Ltd., Nacional de Grafite
Ltda. supplying the graphite market. Eagle believes that while graphite pricing
is competitive, Eagle has certain product quality advantages over a number of
its competitors. There is the potential for new competition in the industry over
the long-term from companies such as Northern Graphite Corporation, Mason
Graphite Inc. and Focus Graphite Inc. Eagle undertook a capital reorganization
in July 2011 as discussed above under Corporate Structure Name and
Incorporation.
ANH Off-Take Agreement
In September, 2010, ANH and Eagle entered into a supply
agreement (the Original Supply Agreement), effective until December 31,
2013, under which Eagle would supply certain quantities of graphite to ANH at
agreed-upon prices.
In March, 2012, ANH and Eagle entered a prepayment agreement
under which ANH would advance US$1,552,000 (as subsequently advanced and
converted into approximately $1,522,000 in Canadian funds, the Prepayment
Amount) as prepayment for a certain quantity of graphite to be delivered
during 2012 in accordance with the Original Supply Agreement. As security for
the Prepayment Amount, Eagle granted a security interest over all of its present
and after-acquired property to ANH pursuant to a general security interest (the
GSA).
Effective January 1, 2014, Eagle and ANH entered an agreement
(as amended, the ANH Off-Take Agreement), in substitution and
replacement of the Original Supply Agreement. On May 30, 2014, Eagle and ANH
entered an amending agreement to the ANH Off-Take Agreement under which ANH
agreed to amend the terms of Eagles production commitments under the ANH
Off-Take Agreement.
ANH and Eagle have subsequently entered into a letter of intent
(the ANH LOI), effective November 20, 2014, under which the
parties expressed their intent to negotiate an expansion of the ANH Off-Take
Agreement, including a commitment to increased production commitments from
Eagle, an extension of the term of the ANH Off-Take Agreement, and certain
adjustments to the pricing formulae by February 15, 2015, or such other date as
may be mutually agreed upon by the parties. In consideration for entering into
the ANH LOI and the ANH Security Assignment Agreement, ANH consented to the
issuance of the Eagle Notes and to the proposed Amalgamation on the terms set
forth in the Amalgamation Agreement.
THE BLACK CRYSTAL PROPERTY
Eagles primary material asset is its interest in the Black
Crystal Property. The following summary relating to the Black Crystal Property
is based upon the Technical Report. All disclosure of a technical nature in this
Circular relating to the Black Crystal Property is derived from the Technical
Report. Such information has been included in this Circular with the consent of
and prior review by T.H. Carpenter and A. Koffyberg, the co-authors of the
Technical Report, and in many cases is a direct extract of the disclosures
contained in the Technical Report. This summary is qualified in its entirety by
reference to the complete text of the Technical Report which is available for
review on SEDAR under Amerixs profile.
For ease of reference, the numbering and headings of the
figures and tables contained in this section of the Circular correspond to the
numbering and headings of such figures and tables contained in the Technical
Report.
67
Property Description and Location
The Black Crystal Property is located in the Slocan Valley of
the West Kootenay region of southeastern British Columbia, north of Castlegar,
northwest of the village of Passmore, and west of the village of Slocan, BC. The
Black Crystal Property lies within the Slocan Mining Division of British
Columbia and comprises 3,400 hectares (ha). The Black Crystal Property
is owned 100% by Eagle. The Black Crystal Property comprises 9 legacy mineral
claims and 2 mining leases.
The Black Crystal Property comprises two main, but separate,
blocks of mineral tenures:
|
(a) |
the Quarry Block, hosting the main Black Crystal Graphite
Deposit; and |
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(b) |
the Plant Block, on which the Plant is located, but which
also hosts graphite mineralization similar to the Quarry
Block. |
The Deposit is located at the headwaters of Hoder Creek within
the Selkirk Mountains. It lies approximately 51 kilometres (km) north
of Castlegar, 28 km northwest of the village of Passmore, and 21 km west of the
village of Slocan, BC.
The Plant facilities are located at the mouth of Koch Creek
adjacent to an access road. They are 19 km directly south of the Deposit, and
about 30 km by road from the Deposit.
A property location map is below:
68
A property plan map is below:
Royalties
Pursuant to a Production Agreement between Eagle and Latitude,
dated July 20, 2011, Eagle was obligated to pay certain royalties to Latitude.
This original agreement was superseded by a revised royalty agreement between
Latitude and Eagle dated June 17, 2014 (the Latitude Royalty
Agreement). As of the date of this Circular, the Latitude Royalty Agreement
has been terminated.
A new royalty agreement between Eagle and certain individuals
was entered into on May 22, 2014, whereby Eagle is obligated to pay the holders
certain royalties as follows:
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(a) |
a royalty in the amount of 0.25% of the NSR from the net
proceeds of the sale of minerals mined from the Black Crystal Property;
and |
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(b) |
a royalty in the amount of 0.25% of the NSR from the net
proceeds of the sale of by-products mined from the Black Crystal Property
other than minerals (including but not limited to gravel, sand,
aggregates, specialized graphites, concrete, bricks and soil
conditioners. |
Access, Climate, Local Resources, Infrastructure and
Physiography
Access
Access to the Black Crystal Property is from Castlegar or
Nelson on Highway 3A to the junction with Highway 6 at Slocan. At this point, it
is 25 km northwest on paved Highway 6 to the village of Passmore. Turning west
on Passmore road, 4 km of pavement lead to the Little Slocan FSR and a further
10 km, on a gravel road, leads to the Plant facilities. The Quarry is a further
30 km northwest of the Plant facilities, 12 km north-north-east along the Little
Slocan FSR and 18 km northwest along the Hoder Creek FSR. Interfor Forest
Products maintains the Hoder Creek FSR to the 10 km mark and the FSR from km 10
to the Quarry area is maintained by Eagle.
The Hoder Creek FSR road serves as one of the principle access
to Valhalla Provincial Park to the north of the Black Crystal Property, as well
as for other branch roads of ongoing logging operations. The road is only
passable from late spring to late fall due to snow cover. Entry and closure
dates are determined by the weather conditions; however, year-round access is
possible if Eagle utilizes bulldozer and grader equipment to plow the snow.
Climate
The Black Crystal Property is within the wet interior
bioclimatic zone and receives the highest amount of annual precipitation east of
the Coast Mountains, largely due to the westerly prevailing winds and high
mountain elevations immediately to the west. Winter usually extends from
November into early April, and snow falls with substantial accumulations. The
Quarry Block of the Black Crystal Property faces to the west and is typically
free of snow from early May to mid-November. The length of the Quarry operating season depends on snow
conditions, whereas the Plant Block can be operated year-round. The Quarry
operations could be maintained through the winter with the use of snow removal
equipment.
69
The city of Nelson, located to the southeast, has an average
annual temperature range of -15°C to +35°C.
Local Resources
Nelson, about 80 km to the southeast by road, is the largest
city in the area, with a population of 10,500. Castlegar, about 80 km south by
road, has a population of about 9,000, and has regularly scheduled air service
with daily flights to Vancouver and Calgary. These centres serve a district
population of about 60,000. The city of Nelson and the communities in the Slocan
Valley have a long mining history and are able to supply a skilled labour force.
There is freight rail access through both communities,
primarily servicing smelter facilities at the city of Trail.
There is extensive hydroelectric development between the
communities, and the Plant site is adjacent to and directly served by a 63
kilovolt (kv) hydro transmission corridor. The present electrical
supply for the plant is 13.5 kv power line from a substation in Passmore. This
capacity can be upgraded to 63 kv from the main 63 kv hydro line that passes
within 400 metres (m) of the Plant.
Drilled wells on the Plant facility site provide for a source
of water. In addition, a water license is in place to draw water from nearly
Koch Creek if necessary.
Infrastructure
The Plant facilities currently in place include the following
buildings:
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(a) |
a processing plant; |
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(b) |
core shack / laboratory / core storage; |
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(c) |
offices / first aid; |
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(d) |
fabrication shop; and |
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(e) |
storage building holding finished graphite
product. |
On site is also an area for stockpiling graphitic feedstock and
an area for by-product storage (middlings). Two settling ponds are located
adjacent to the Plant, one of which is used to store process water for recycling
through the Plant.
Physiography
The Black Crystal Property is located in the Valhalla Range of
the southern Selkirk Mountains. Elevations on the Quarry Block range from 1,370
to 2,400 m asl at the ridge tops; road access is developed to about the 1,775 m
level. The Plant lies at an elevation of 700 m asl.
A variety of tree species of typical montane mixed
deciduous/conifer forest covers the Black Crystal Property, including pine,
larch, fir, spruce, alder, birch and cottonwood. Substantial portions have been
logged as recently as 2011, providing significantly improved exploration access
and outcrop exposure on the Quarry Block.
History
Reconnaissance geology was conducted by G.M. Dawson in 1888 and
1889 in the Arrow Lakes and Kootenay Lake area. He was followed by R.G.
McConnell of the Geological Survey of Canada (GSC) in 1894 and R.W.
Brock, also of the GSC, between 1897 and 1900.
Mining in the Slocan Valley began in the early 1890s with the
discovery of silver, lead and zinc in the Silverton area, a spillover from the
exploration and mining activity being carried out in the Nelson area. The
initial and subsequent discoveries led to the development of Sandon, Silverton,
New Denver and Slocan City. However, it was not until 1960s that the presence of
graphite, as large high quality flakes, was first reported in regional mapping
by Little (1960), and by Reesor (1965) in the latters regional investigation of
the evolution and plutonism of the Valhalla Complex.
70
The first claims staked for graphite were placed by Steve
Paszty of Castlegar in the early 1970s. These claims lapsed and were re-staked
by Mr. Paszty in 1992. The claims were optioned in 1993 to Mr. Paul Schiller and
further claims were staked to consolidate the land package.
In 1993, initial investigations and a surface sampling program
were conducted on behalf of Black Crystal Inc. (Black Crystal) (Howard,
1993). This work included limited mapping of surficial geology and the
collection of a 440 kilogram (kg) bulk sample of unconsolidated regolith
material that was subjected to flotation testing.
In March 1994, IMP Mineral Park Mining Corp (IMP)
entered into an option agreement with Black Crystal to earn up to a 50%
interest. A six-hole reverse circulation drill program was conducted along with
geological mapping, and limited metallurgical testing (Howard 1995). Drilling
confirmed the presence of graphite over a 300 m by 600 m area that was open in
three directions. Reverse circulation was noted as being an unsuitable drilling
method for graphite as drilling fluids and oils used in the drilling process
caused graphite loss due to flotation. Further work was recommended including
core drilling and construction of a beneficiation plant.
In 1995, construction began on a plant, presently on a mining
lease, on the north bank of Koch Creek.
In 1995, 13 NQ core drill holes totalling 577 m, with depths of
holes between 30 and 92 m, were completed. 3,000 tonnes (t) of a
permitted 10,000 t bulk sample (excavated from the same area as the 1993 bulk
sample) were extracted and hauled to the plant for beneficiation.
In October, 1996, IMP acquired a 100% interest. In 1997,
trenching and 22 core drill holes totalling 914 m were completed (Addie,
1998). The core was logged, split, and sampled, but only four samples were
analysed, and Mr. Addies report was not completed with respect to conclusions
and recommendations.
In 1998, the property was mentioned for the first time by the
BC Geological Survey Branch (Simandl and Kenan, 1998), wherein it was suggested
that depending on market conditions, large deposits containing high proportions
of coarse flakes, which can be easily liberated, may be economic at grades as
low as 4%.
In 1998, an inferred resource of 88 million tonnes of graphitic
material was calculated by Snell, in his report entitled Geological Evaluation
and Exploration Recommendation for the Black Crystal Graphite Deposit, dated
January 18, 1999. This historic calculation was based on the presence of
graphite within two distinct roughly parallel mineralized horizons. These
horizons were not well exposed in 1998 but the main mineralized horizon was
determined by Snell to have a true strike length of about 1,200 m and a down dip
measurement of approximately 1,100 m. The second, smaller horizon was a
sub-parallel band that, owing to poor exposure, was only traced over 100 m.
Snells report detailed a series of sections for the mineralized horizon. The
true thickness of the graphitic zone was determined to average 76 m with a dip
of 35 degrees to the southeast. His work estimated a tonnage only, using the
above parameters, and did not estimate any potential grade for the graphitic
zone.
This work pre-dates NI 43-101, is not NI 43-101-compliant,
is noted for historical purposes only and should not be relied upon.
In 1998 two composite bulk samples were subjected to flotation
tests. One bulk sample was derived from a handheld auger drilling program,
conducted within a 30 by 30 m grid. In total, 90 holes (675 m) were drilled, and
the soil-type material removed was combined into one large sample of about 100
kg. A second bulk sample of unknown size was excavated from a site along the
main access road immediately above Hoder Creek valley.
Metallurgical testing focusing on the upper regolith zone was
undertaken in early 2000. Claims were surveyed and land and mineral tenures were
secured. Baseline environmental studies were initiated, and project mine
planning for the upper regolith zone was developed.
In 2000, new investors assumed control of IMP, renaming it
Crystal Graphite Corporation (CGC), and embarked on an aggressive
exploration campaign, as well as a variety of studies into the impact of a
mining operation and processing facility on the general area. Construction work
was resumed on the plant facilities. During the fall of 2000 CGC drilled 22 NQ
core drill holes, for a total of 1,181 m, to confirm the results from earlier
drilling, and to further the known limits of the deposit. CGC also extracted the
remaining 7,000 t from the previously permitted 10,000-t bulk sample. This
material was collected from the regolith material. CGC also excavated and
sampled 27 vertical trenches to further define the extent of the regolithic
material, which had been noted to develop where the calc-silicate host rocks
weathers in-situ. The trenches were dug at right angles on the uphill bank of
the access roads, and excavated down to bedrock wherever possible.
71
Channel samples were also taken of graphitic mineralized rock
in the pit area. Petrographic work was done on samples of varying lithologies
derived from the drill program in an attempt to better determine the exact
lithological nuances of the rocks encountered.
A pole-dipole induced polarization (IP) survey was
conducted over 9,325 m of cut line, but did not produce any significant
geophysical anomalies.
Core drilling and trenching work were also carried out in the
vicinity of the Plant to investigate graphitic rocks underlying the Plant and
environs (Lewis, 2001). In total, 233 m of core were drilled in five holes where
graphite in calc-silicate hosts similar to those at the Quarry site had been
identified in subcrop.
Also in 2000, a project status report (MDS Mining Consultants,
2000) was written, and in accordance with the criteria of the Australian AusIMM
JORC code, the deposit was classified as an exploration project. The 1997 core
was re-logged, previously split core samples were sent for analysis, and the
information thus obtained was summarized (Augsten, 2000). Additional work was
recommended to increase confidence towards a measured resource and to advance
the project.
In 2001, CGC continued with an extensive exploration program of
geological mapping, core drilling, trenching and a combined trenching and bulk
sampling program. Physical work included road building (and reclamation) and
surveying (Lewis, 2002).
The drilling program consisted of 42 NQ core drill holes,
totalling 1,895 m. A program of slit trenching was done concurrently to evaluate
the graphite grade of both the locally graphitic glacio-fluvial till and the
in-situ weathered calc-silicate regolith material. In total, 149 trenches were
excavated and 325 samples were collected. Later in the season, a further 17
trenches were excavated adjacent to trenches excavated earlier in 2001, and 43
samples taken, as part of a quality control / quality assurance (QC/QA)
field duplicate verification program. At this time, a program of linear
trenching (1,855 m) excavated trenches along the access roads, in order to
determine the vertical extent of the regolith material, and resulting in an
additional 157 trench samples. Sample width in all trenches typically ranged
from 0.5 to 2.0 m. Most samples consisted of weathered regolithic calc-silicate
material, but some samples also contained mineralized graphitic till.
About 10,000 t of friable calc-silicate mineralized material
was extracted from the linear trenches to provide a further bulk sample for
processing. Additionally, a further approximately 3,000 t were excavated from
the area of the 2000-t bulk sample.
In March of 2001, a project update was
provided by MDS (2001a). Historical drill hole compilation, petrographic
studies, a sub-report on aspects of the geology of the property and other
mineral tenures, and geochemical characterization of all encountered rock types
were completed. These documents provided the foundation for resource estimation,
geo-statistical analysis, grade and attribute modelling, Quarry design, and
leachate modelling prior to mine permitting.
In November 2001, MDS issued an interim Mineral Resource
Assessment report (MDS, 2001b).
In 2002 AMEC Americas Ltd (AMEC) completed a Resource
estimate on the Black Crystal Property based on the interpretation provided by
the MDS resource assessment (AMEC, 2002).
Also in 2002, CGC received a Mining Permit approving the work
system and reclamation program for the Quarry mining lease, as required in the
British Columbia Mines Act and Regulations. Permit M-211 allowed the extraction
of 75,000 t of material annually, which was subsequently upgraded to 250,000 t
per year in 2003.
Between 2003 and 2004 CGC developed a small scale production
capability and in 2004 reported to have produced approximately 20 t of fuel-cell
grade graphite.
In January, 2006 CGC was placed in receivership and Eagle
purchased all of the assets including mineral claims, mining leases and Plant
facilities.
Historical mine production and processing by Eagle has been as
follows:
Calendar
Year |
Plant Feed Excavated
(tonnes) |
Graphite Concentrate
Produced
(tonnes) |
2006 |
5000 |
0 |
2007 |
500 |
0 |
2008 |
1000 |
0 |
2009 |
0 |
40 |
2013 |
0 |
80 |
72
Nunn (personal communication) reports that the plant has
historically operated at a throughput rate reaching 20 tonnes of feed per hour,
a rate roughly equivalent to an annual output of 4,000 tonnes of high carbon
natural flake graphite.
Geology and Mineralization
Geology
As reported in Lewis (2002), the Black Crystal Property is
wholly situated within the Omineca Crystalline Belt. This belt, along with the
Foreland Thrust Belt to the east, the Intermontane Belt immediately to the west,
the Coast and Insular belts further outboard, make up the five distinct
morpho-geological provinces, which comprise the Canadian Cordillera.
The Omineca Crystalline Belt is best typified as being an area
of extensive tectonic uplift underlain by metamorphosed miogeoclinal rocks,
along with local rocks which were formed in island arc settings, and
subsequently accreted to the margin of the ancestral North American Craton
during the Jurassic era. The Black Crystal Property itself is located within the
Valhalla Complex, which is a structural or domal culmination of high-grade
metamorphic (upper amphibolite grade) rocks. Foliation and outwardly dipping
layering define this 30 by 90 km gneiss complex, which is located at the eastern
exposed edge of the Shuswap Metamorphic Complex. Generally the lithologies
contained within the Valhalla Complex are divided into three sheet-like layers
of variably deformed paragneiss and mid-Cretaceous to Eocene igneous rocks.
Apparently, exhumation along Eocene normal faults has resulted in a tectonic
denudation which has given rise to the domal shape of the Valhalla Complex (Carr
et al., 1987). The Valkyrie ductile extensional shear zone (which arches over
the complex) bounds the complex on all but the eastern margin, where the complex
terminates against the easterly dipping Slocan-Champion Lake ductile-brittle
normal fault. There are three subculminations within the Complex, the Property
being located on the west-central flank of the northernmost of these the
Valhalla Dome. The other two subculminations, the Passmore Dome, and the
Southern Valhalla Complex, are lithologically, and structurally distinct from
the Valhalla Dome.
Lithologically the Valhalla assemblage on the west flank of the
Valhalla Dome consists of an approximately 1.5 km thick, heterogeneous package
of upper amphibolite-facies pelitic schist, marble, calc-silicate gneiss,
psammitic gneiss metaconglomerate, amphibolite gneiss, and ultramafic schist.
The base of the section comprises a sequence of conglomerate,
calc-silicate gneiss, and marble interlayered with 50 to 100 m thick units of
aluminum-poor semi-pelitic schist. The sequence becomes more carbonate rich
moving up in the metamorphic section, with thick marbles and calc-silicate
gneisses interlayered with quartzites and sillimanite bearing pelitic schists.
It also contains amphibolite gneiss and ultramafic schist, which do not occur in
the structurally lower sections. The upper portion of the exposed sequence
contains 30 m thick marble and quartzite layers. Metasedimentary rocks in the
core of the Valhalla Dome generally consist of psammite, semi-pelitic and
pelitic schist, quartzite, marble, calc-silicate and amphibolite gneiss.
Structure
Structurally, the graphite-bearing zone in the area of the
Quarry presents a near surface, 5- to 50-m thick, planar surface that strikes at
approximately 130º azimuth, and dips moderately to the southwest at
approximately 35º. The dip of the graphite-bearing Cs2 unit is therefore
sub-parallel to the slope of the terrain, resulting in the surface trace of the
Cs2 graphitic unit being exposed across much of the surface. This is a positive
factor for quarrying purposes.
The northernmost band of Cs2 mineralization may be correlative
to the southern band and if so, would indicate a cumulative displacement in the
order of 30m across a fault, or faults which have roughly eastwest trending
axes. These faults have been inferred to occur somewhere between the locations
where the two principal bands of Cs2 outcrop. The displacement appears to be
primarily dip-slip with the southern plate having moved upwards in relation to
the northern plate. Quite possibly, pre-emplacement faults were the locus for
quartz monzonite intrusion. Hence it may be the case that slight movement along
several such quartz monzonite filled fractures resulted at least in part for the
cumulative displacement noted above, as some post emplacement slippage was noted
to have occurred on the margins of these dykes locally.
Mineralization
Graphite mineralization on the Black Crystal Property is almost
ubiquitous, occurring locally in all rock types except for the intrusions.
Calc-silicate gneisses are the preferred host for the most consistently
higher-grade mineralization. The calc-silicate gneisses have been split into two
groups (Augsten 2001), Cs1 and Cs2, on the basis of mineralogy (presence or
absence of spinel), texture, colour and the concentration of graphite. Cs2
typically contains 2 to 5% flake graphite, or organic carbon, referred to as
fixed carbon (FC). Graphite also occurs as discrete disseminated grains most
typically from 0.5 mm to 1 mm in diameter. These crystals have developed with a
preferred orientation parallel to sub-parallel to foliation. Cs1 typically
contained 2 to 3% graphite. While pyrite is fairly common throughout the
section, very fine grained disseminated pyrite ± pyrrhotite is common in the
graphitic calc-silicate host rock.
73
A regolith has formed in-situ above both Cs units locally, and
there also exists a transition zone of slightly weathered Cs material, which is
less friable than the regolithic zone. Of the two calcsilicate units, the
weathering is typically more pronounced over the Cs2 unit, and while both of
these materials are graphitic bearing, the in-situ weathered Cs2 material is of
primary importance. As this material is sited immediately above the areas
proposed for hard rock quarrying, it makes a desirable initial target due to the
ease of extraction, higher grade, and the ease of beneficiation.
As mentioned above the regolithic and transition zones are by
and large the best targets on the Black Crystal Property, as overall FC
concentrations are often from 3 to 5% FC in the Cs2, and 2 to 3% FC in the Cs1
derived material. Graphite may reach concentrations of 1 to 2% FC in
glacio-fluvial till locally, although there are areas where numerous blocks of
Cs material comprise boulders or cobbles within the till, and graphite
concentrations can be in the 2 to 3% FC range.
The graphite mineralization on the Black Crystal Property is
particularly amenable to extraction by quarry methods as it is lying
sub-parallel to slope of the hillside in the Mine Lease area and offers the
benefits of a low stripping ratio.
XRD analysis by Newman Energy Research Ltd., of Christchurch,
New Zealand (Moore and Newman, 2003) has indicated that the maximum reflectance
of graphite from the Black Crystal Property is in the order of 17.8% (Romax
measured perpendicular to the C-axis of the graphite crystal), and minimum
reflectance (Romin) is 0.6%, which are values that are quite close to those
documented (18% - Romax) for true (perfect) graphite. Additionally, d-spacing (a
function of crystalline density) of 3.354 was also determined, indicating
excellent electrical characteristics, suitable for fuel cell bipolar plates.
Petrographic observations have determined that the graphite flakes are
relatively undeformed, and also quite pure, exhibiting only the odd inclusion of
syn-depositional and secondary quartz, with local trace amounts of hematite.
Exploration
A regional exploration program was carried out in 2007 by Eagle
on mineral claims held at the time near the plant lease. Prospecting and mapping
and rock sampling were done. During 2008 and 2009, the Company continued
prospecting and rock sampling in several claim areas surrounding the Plant
lease. Graphite mineralization was identified in several locations, confirming
the regional nature of the graphite mineralization (Nunn, 2010).
In 2011, EGC conducted a prospecting, trenching and diamond
drill program in the Quarry area, focussing on the ground east and upslope from
previous trenching/drilling programs. Expenditures were in excess of $100,000.
In the trenching program, regolith sampling was done on along four trenches. In
trenches I and J, one-metre chip samples from loose, unconsolidated regolith,
contained graphite mineralization running from 0.23 %C to 2.22 %C. Further
upslope, samples from trenches K and L had carbon values from 0.06 %C to 5.50
%C, with 22 of 26 samples having greater than 1% C (Munroe, 2012b). This work
also indicated the continuation of graphite mineralization about 250 m east and
upslope from previous work.
Drilling and Sampling
Drilling
The Black Crystal Property has undergone several drilling
programs since 1994, as summarized in the following table:
Year |
Drill Type |
No. of Holes |
Metres |
Company |
2011 |
core |
12 |
2,029 |
Eagle Graphite Corp. |
2001 |
core |
42 |
1,895 |
Crystal Graphite Corp. |
2000 |
core |
22 |
1,181 |
Crystal Graphite Corp. |
1997 |
core |
22 |
913 |
IMP Mining Corp. |
1995 |
core |
13 |
577 |
IMP Mining Corp. / Black Crystal
|
1994 |
RC |
6 |
250 |
IMP Mining Corp. / Black Crystal
|
In both 2000 and 2001 drill programs, drilling was contracted
to Bergeron Drilling and Exploration Ltd. of Greenwood, BC, which used a
track-mounted Longyear Super 38 core drill. Drill collar locations were surveyed
using a differentially correctable hand held GPS unit. All drill holes were
surveyed downhole using a Tropari survey instrument.
For the 2000 program, drill holes were oriented at 40° to 45°
azimuth and were usually inclined at -55° relative to horizontal, with some
sites having a second hole drilled vertically. In total, 22 NQ core holes were
drilled, with depths generally less than 80 m except for two holes. Drilling
identified two principal graphite-bearing horizons, which could be traced along
strike, and both up and down dip (Augsten, 2001).
74
For the 2001 program, 42 NQ core holes were drilled,
predominately at 35° azimuth and -57° to the horizontal. The first 2 holes were
drilled to test the down-dip extension of the mineralized horizons.
In 2011, EGC conducted a 12-hole, widely spaced NQ diamond
drill program in the Deposit area (Figure 10.1) . In total, 2,029 m were
drilled, with depths ranging from 107 to 201 m; DDH-1 reaching a depth of 309 m.
These holes were for the most part located outside the resource area and QA/QC
measures were not sufficient to allow update of the 2002 resource.
For the 2011
program, drilling was contracted to Dorado Drilling of Vernon, BC, using a Hydracore 2000. All drill holes were surveyed down hole using a Flexit Multishot
instrument. The holes were all drilled at 90° azimuth and a dip of -60°, except
for two holes that had a dip of -85° from the horizontal. In total, 12 NQ
diamond drill holes were drilled, for a total of 2,029 m. The holes were broadly
spaced, with the aim of determining structural continuity. Graphite was
encountered at depth and along structures considered to be continuous. Graphite
grades from both the regolith and underlying calc-silicate rocks were confirmed,
and consistent with previous work.
Sampling
The 2002 Resource estimate by AMEC (2002) is the most current
estimate available that is NI 43-101 compliant. It was based on data comprising
composite samples collected from core drilling and trenching. The majority of
the data was taken from the work done in 2000 and 2001; however a minority of
samples are derived from the 1997 drill program. The sample preparation
procedures presented below focus on the work done in 2000 and 2001.
Sample Preparation
For the 2000 and 2001 drill programs, drill core was
transported by company personnel to CGCs core logging facility, located within
the Plant facility, where geotechnical logging, geological logging, core
splitting and sampling were done. Geotechnical procedures included recording
core recovery, rock quality determination (RQD), joint number (Jn), joint
alteration (Ja), joint roughness (Jr) and stress reduction factor (SRF). After
geological logging, the core was sampled, split and bagged, and photographed.
The core was stored on racks located within the Plant facility.
Core was generally sampled in 2-metre intervals in the year
2000 drill program, with 1-metre intervals given for lithology changes. Sampling
for the 2001 drill program was done at 1-m samples. Core splitting was done
using diamond bladed rock saws operated by CGC personnel. Half the core was sent
for analysis; the other half was returned to the core box as a permanent record.
Linear trench sampling of the regolith was done in 2000 and
2001, and samples were incorporated into the 2002 resource estimate.
Slit trench sampling began at the contact below the B soil
horizon. Sample widths were typically 0.5 to 2.0 m and were variable depending
on local conditions.
The majority of the drill core and rock/till samples taken from
trenches were prepared at the Plant facility, where they were crushed and/or
pulverized. These samples were sent to Bondar-Clegg Laboratory (currently ALS)
in Vancouver for analysis. This laboratory is an independent lab that is ISO/IEC
17025 certified for Competence in Calibration and Testing. A portion of these
pulverized samples was analysed in-house at the laboratory set up at the Plant
facilities.
For the 2011 program, as in earlier programs, drill core was
transported by Eagle personnel to the Plant facility where geotechnical logging,
geological logging, core splitting and sampling were done. The core was stored
on racks located within the Plant facility.
Selected intervals of drill core were sampled at 2-m intervals.
It was then split using a rock saw, and quartered. Quartered core was sent to
SGS Laboratories (SGS) in Vancouver for geochemical analysis. SGS is an
independent laboratory that is ISO9001 certified in its Quality Management
Systems.
Sample Analysis
Sample preparation involved drying the samples, followed by
crushing in a jaw crusher to produce a -6 mesh product. It was then riffle-split
to produce a 200-gram (g) sample, which was pulverized in a
ring-and-puck pulverizer to produce a -150 mesh pulp. The crusher and pulverizer
were cleaned with quartz sand between samples to prevent cross contamination.
A pulp sample having a mass from 0.01 to 0.25 g was placed in a
LECO crucible, accurately weighed, followed by immersion in a dilute
hydrochloric acid leach solution to remove any inorganic carbon present in the
form of carbonate. The crucible was placed in a suction apparatus and the resulting
chloride residue inside the crucible was removed with de-ionized water. The
sample was then dried, leaving behind the leached graphite sample.
75
The crucible plus sample was placed in a LECO 200 analyser,
where it was vaporized in a high-frequency induction furnace at temperatures
approaching 1,500°C. A stream of oxygen was introduced, allowing for combustion
of the sample. The gases produced were then passed directly into a cell through
which infrared (IR) energy was transmitted, where the amount of carbon dioxide
produced from the sample combustion was measured.
The absorption at the precise wavelength for carbon dioxide is
related to the total FC content of the sample, and % FC can be determined. The
quantity of FC represents the amount of graphite in a sample.
The LECO analytical procedure is the industry standard method
for the analysis of graphite. It is an indirect method of analyses; no direct
method exists. The method assumes that the carbon-bearing minerals in the sample
occur either as graphite, a form of organic carbon, or as carbonates. Any
carbonate mineral in the sample is removed by the acid-washing procedure,
leaving behind solely organic carbon in the form of graphite, which is then
analysed. However, carbonate minerals encased within graphite grains would not
be removed by acid washing as they would not be exposed to the acid medium, and
would end up reported as graphitic carbon. Secondly, the presence of other
organic carbon such as plant matter or soil will cause erroneously higher
analytical results. Care must be taken to submit for analysis samples devoid of
plant or soil material.
For the 2000 drill program, all 2000 drill core samples were
analyzed at International Metallurgical and Environmental Inc. (IME) in
Kelowna, BC, an independent laboratory.
In 2001, laboratory facilities for both sample preparation and
analysis were installed at the Plant. Qualified personnel from IME were hired to
instruct CGC staff on how to handle, prepare and analyze samples. This protocol
was standardized to follow the same protocol used at IME.
Of the 644 drill core samples produced from the 2001 drill
program, the first 158 were analysed in-house at the CGC lab facility, using the
same protocol as followed at IME. A portion of the pulverised samples was sent
to Bondar-Clegg for duplicate analyses.
Sample Security
During the 2000, 2001 and 2011 drill programs, drill core was
transported by CGC/Eagle personnel to the Plant facility, where geotechnical
procedures and geological core sampling was carried out. Core was again stored
in racks at the Plant.
In 2011, all drill core from past drill programs was placed in
new, secure storage facilities at the Plant by Eagle for future reference.
Quality Control and Quality Assurance Program
Quality Control and Quality Assurance (QC/QA) work was
only instituted during the 2001 exploration program. In total, 17 core duplicate
samples were sent for analysis to Bondar-Clegg. The original samples had been
previously prepared and/or analysed at CGCs lab facility. A blank sand sample
from the borrow pit was also submitted to both CGCs lab and to Bondar-Clegg.
The material for the sand was taken from a site near the Plant facility.
Duplicate field samples from the slit trenches were collected
by excavating adjacent to trenches. In total, 43 samples were sent to
Bondar-Clegg and to Acme Analytical Labs (Acme) in Vancouver, BC. Acme
at the time was accredited to ISO 9001 in its Quality Management System and to
ISO/ IEC 17025 for Competence in Calibration and Testing. Poor agreement was
obtained, likely due to grade variability within short distances or sample
impoverishment.
During the linear trenching program, six samples were split and
duplicates were analysed by CGC, Acme and Bondar-Clegg. The results showed that
the CGC values were about 5% higher than the duplicate samples analysed at
Bondar-Clegg, and about 15% higher than those analysed at Acme.
At the lab, SGS carried out its own in-house procedures for
monitoring quality control, with the addition of its own laboratory blanks, pulp
duplicates and standards. SGS is accredited to standards within ISO 9001:2008
certification.
Data Verification
The 1997 drilling program was done under the supervision of G.
Addie, PEng. Re-logging and analysis were carried out in 2000 under the
supervision of B. Augsten, PGeo, and drill core was sent to IME in Kelowna, BC
for analysis.
76
For the 2000 and 2001 exploration programs, CGC hired MDS to
oversee and report on all aspects of the fieldwork. This included the 2000
drilling and trenching programs, supervised by B. Augsten, PGeo. It also
included the extensive 2001 drilling and trenching programs. AMEC reviewed the
2000 and 2001 work pertaining to AMECs 2002 resource estimate and agreed that
the results were generally acceptable, while noting QC/QA protocols. Drill logs
and analytical certificates, along with QC/QA procedures, have been reviewed by
Koffyberg.
The 2011 core drill program was carried out by R. Munroe, PGeo,
of Munroe Geological Services Ltd. Drill logs and analytical certificates have
been reviewed by Koffyberg. The lack of field inserted certified standards,
blanks and field duplicates has been noted.
Mineral Processing and Metallurgical Testing
Mineral Processing
Eagle submitted an updated Mine Plan to the BCMEM on June 5,
2014 (Nunn, 2014). The purpose of the submittal is to keep Eagles current mine
permit in good standing.
Metallurgical Testing
The first recorded metallurgical testing on material from the
Black Crystal Property is reported by Howard (1995), who indicated that the
bench tests conducted by Process Research Associates Ltd., of Vancouver, were
generally positive. Testing at this point consisted of screening, and crushing,
followed by flotation utilizing Dowfroth 250 and Varsol, and leaching in
hydrochloric acid. Howard also mentions that a considerable amount of work was
done during this time on material from the Property, at Quinto Minings
laboratory in Lumby, BC. Quinto Mining was an associate company of IMP the
predecessor to CGC.
At this facility, pine oil was utilized as a frother, and some
preliminary investigations were conducted into the proportions of graphite of
varying mesh sizes, which were recovered in the processing. Snells report
(1998) indicates that research into various aspects of optimizing grade and
recovery by flotation, as well as various other tests were conducted at the
Lumby facility, under the direction of metallurgist Dusan Milojkovic between
1994 and 1996. Snells report also indicates that a representative of Asbury
Carbons of New Jersey visited the property in 1997 and did some initial testing
of the graphite in two samples.
Snell reported that work continued into the late 1990s, and
that beside Mr. Milojkovics involvement, IME became involved in flotation
testing, and process planning.
After 2000, CGC continued metallurgical test work, utilizing
IME and substantially completed the construction of a pilot beneficiation plant
and a complete laboratory facility. The Plant has been capable of extracting
graphite since August 2001.
Mineral Resources and Mineral Reserves
Mineral Resource Estimate
In 2002, AMEC calculated a mineral resource estimate
(Resource) on the Deposit for CGC, based on the interpretation provided
by the MDS resource assessment (AMEC, 2002), (Technical Report, Black Crystal
Graphite Project, British Columbia, AMEC Americas Ltd., dated July 2, 2002).
This report was subsequently filed on SEDAR by CGC on August 7, 2002 and is
publicly available. This Resource is considered a current NI 43-101 compliant
resource for the Deposit. Coauthor Carpenter has no reason to not rely on the
accuracy of this material as it was carried out by Qualified Professionals under
the provisions of NI 43-101 regulations. Co-author Carpenter therefore considers
the AMEC Resource the current mineral resource for the Property.
AMECs estimates were made from 3D block models utilizing
commercial mine planning software (MineSight®). The Black Crystal Graphite
project exists in a single geologic block model. Cell size was 5 m east x 5 m
north x 2 m high.
The assays were composited into 2 m down-hole composites,
reflecting the predominant assay sample length. The compositing honoured the
modelling domain codes by breaking the composites on the domain code values.
AMEC reviewed the compositing process and found it to have been performed
correctly. Various coding was done for the block model in preparation for grade
interpolation. The block model was coded according to ore domain
(calc-silicate and regolith). Percent below topography was also calculated
into the model blocks.
Modelling consisted of grade interpolation by ordinary kriging
(OK). Nearest-neighbour (NN) grades were also determined for validation
purposes. The grade interpolation used an ellipsoidal search of 65 to 150 m x 65
to 150 m x 10 to 20 m in an NW-SE trending, westerly dipping ellipse. These parameters were
based on the geological interpretation and variogram analysis.
77
A two-pass strategy was used in both mineralized domains. The
number of composites used in estimating a model block grade followed a strategy
that matched composite values and model blocks sharing the same ore code or
domain. The first pass allowed composites from only one drill hole to be used
(longer search distances) and the second pass, run at the shorter search
distances, ensured that composites from at least two drill holes were used.
Estimates for the calc-silicate unit used a maximum of eight composites per
model block, with a maximum of two composites and a minimum of three permitted
per drill hole.
The graphite mineralization is found in both unconsolidated
material (regolith) and in hard rock (calc-silicate). Data analysis demonstrated
that the regolith and calc-silicate should be treated as separate domains for
the purposes of resource modelling. However, the two calc-silicate units (Cs1
and Cs2) were not distinguished from each other. The data comprised samples and
geological information from 64 drill holes, which were used for the
Calc-silicate Resource; and 176 slit trenches and 1,855 m of linear trenches,
which were used for the Regolith Resource calculation.
The mineral resource calculations for the Calc-silicate
Resources and the Regolith, as of November 24, 2014, are shown separately below:
Calc-Silicate Resource Calculation
Description |
Tonnage |
% Fixed Carbon |
Indicated |
4,763,000 |
1.21 |
Inferred |
4,591,000 |
1.24 |
Note: The Resources were calculated with a 0.7% Fixed Carbon
cut-off grade. These resource estimates, which are in accordance with 2014 CIM
classifications, are considered current in that Eagle has neither significantly
depleted the resource estimate nor carried out sufficient work to affect the
resource calculations. The bulk density values that were used are: Regolith =
1.67 and Calc-silicate = 2.80.
Regolith Resource Calculation
Description |
Tonnage |
% Fixed Carbon |
Measured |
292,000 |
1.95 |
Indicated |
356,000 |
1.71 |
Measured and Indicated |
648,000 |
1.82 |
Inferred |
516,000 |
1.69 |
Mineral Reserve Estimate
Insufficient work has been completed to upgrade the current
mineral resources on the Black Crystal Property into mineral reserves, as
defined by National Instrument 43-101. Therefore, there are no mineral reserves
on the Black Crystal Property.
Conclusions and Recommendations
Conclusions
The graphite mineralization found at the Black Crystal Property
is best categorized as a disseminated flake graphite deposit. The graphite
mineralization on the Black Crystal Property is particularly amenable to
extraction by quarry methods as it is lying sub-parallel to slope of the
hillside in the Quarry Block and offers the benefits of a low stripping ratio.
The Deposit has road access and is located in an area of
excellent infrastructure and resources. The Deposit has an NI 43-101 compliant
Resource, dated July 2, 2002, as shown above in Mineral Resources and
Reserves Mineral Resource Estimates and which co-author Carpenter of the
Technical Report believes can be relied upon.
The Black Crystal Property has a Mine Permit from the BCMEM and
a fully permitted Plant, the latter supplied with power from a hydro substation
at Passmore. The 11 km long power line follows the right-of-way of a BC Hydro
high-voltage power line that passes within 400 m of the Plant site.
In 2010 Eagle signed the Original Supply Agreement to supply
graphite material to an end-user and has supplied 120 tonnes of graphite since
that time derived from stockpiled regolith material. The Original Supply
Agreement has subsequently been amended see Information Concerning Eagle General
Development of the Business Description of the Business ANH Off-Take
Agreement for further information.
78
Recommendations
Eventual production on the Property will be carried out from a
number of benches in rotation to allow weathering processes to liberate
graphitic material from the host rocks. To facilitate placement of these
benches, the following exploration programs are recommended:
Phase One
(i) GPR Survey
It is recommended that
a ground-based ground penetrating radar survey be conducted along the
topographic contours over the Quarry area and immediately adjacent mineralized
area to the south and southeast where recent logging has exposed additional
graphitic material. This non-invasive system is expected to define with accuracy
the various stratigraphic zones to a depth of roughly 20 m and should
differentiate between overburden, regolith and transition zone and allow the
planning of extraction to maximize production.
(ii) Trenching and diamond drilling
The GPR survey alone will not allow the delineation of graphite
bearing bedrock. A series of trenches is therefore recommended to be developed
across the logged zone to expose graphitic strata and permit detailed sampling
and mapping which should provide additional data for eventual resource modeling.
A surficial model will be developed in conjunction with the ground penetrating
radar system (GPR) program across portions of the Deposit. The GPR and trench
work, once complete, will not be sufficient to allow a third dimension to
mineralization, and additional diamond drilling may be done to further delineate
near-surface graphite rich zones and structural controls at depth below the
regolith and transition zones.
Generally shallow holes are recommended during the Phase I
program. Since the mineralized zone, as determined from cross sections of
previous work, is within 50 m of surface, a program of shorter drill holes with
a maximum depth of 50 m is recommended. QC/QA procedures should be rigorously
applied for future sampling of all drill core and trench material. The use of an
independent laboratory is recommended for analyses.
Phase Two
(i) Core Drilling
Contingent on the successful completion of the Phase I program,
additional drilling (and trenching) would likely be required to provide
sufficient data for an updated resource estimate. In addition to new drilling
and trenching, re-sampling of the 2011 drill core would be necessary to conform
with industry-accepted QC/QA procedures.
SELECTED FINANCIAL INFORMATION AND MANAGEMENTS DISCUSSION
AND ANALYSIS
Selected Financial Information
Annual Information
The following table presents a summary of selected consolidated
financial information of Eagle for the years ended May 31, 2014 and 2013. The
following summary is derived from, and should be read in conjunction with, and
is qualified by reference to Eagles audited financial statements including the
notes thereto. Copies of the audited consolidated financial statements of Eagle
for the years ended May 31, 2014 and May 31, 2013, and the unaudited financial
statements of Eagle for the year ended May 31, 2012, are attached at Exhibit A
hereto.
Income Statement
Data (CDN$) |
Three-Month
Period Ended August 31,
2014(1) (unaudited) |
Year Ended
May 31, 2014(1) (audited) |
Year Ended
May 31, 2013(1) (audited) |
Year Ended
May 31, 2012(1) (unaudited)
|
Total Revenues |
Nil |
Nil |
Nil |
Nil |
79
Income Statement
Data
(CDN$) |
Three-Month Period Ended August 31,
2014(1)
(unaudited) |
Year Ended May 31, 2014(1)
(audited) |
Year Ended May 31, 2013(1)
(audited) |
Year Ended May 31, 2012(1)
(unaudited) |
Income (Loss) from Operations |
(130,540) |
(527,922) |
(2,051,753) |
(1,436,110) |
Net Income (Loss) |
(131,164) |
(533,387) |
(2,028,820) |
(1,433,398) |
Cash Dividends Declared |
Nil |
Nil |
Nil |
Nil
|
Balance Sheet Data
(CDN$)
|
Three-Month Period Ended August 31,
2014(1)
(unaudited) |
As at May 31, 2014(1)
(audited) |
As at May 31, 2013(1)
(audited) |
As at May 31, 2012(1)
(unaudited) |
Total Assets |
662,052 |
681,733 |
992,710 |
1,191,390 |
Total Liabilities |
2,252,026 |
2,140,543 |
2,125,639 |
295,499 |
Working Capital |
(2,021,850) |
(1,908,666) |
(1,654,987) |
489,101 |
Notes:
|
(1) |
Prepared in accordance with IFRS. |
Quarterly Information
The following table is a summary of selected quarterly
financial information of Eagle for the three months ended August 31, 2014 and
2013 as Eagle has not been a reporting issuer and has not prepared quarterly
statements for any other interim period. A copy of the unaudited interim
financial statements of Eagle for the three months ended August 31, 2014 and
2013 are attached at Exhibit A hereto.
Income Statement Data (CDN$)
|
For the Three Months Ended
August 31, 2014(1) (Unaudited) |
For the Three Months Ended
August 31, 2013(1) (Unaudited)
|
Total Revenues |
Nil |
Nil |
Income (Loss) from Operations |
(130,540) |
(253,378) |
Net Income (Loss) |
(131,164) |
(251,538) |
Notes:
|
(1) |
Prepared in accordance with IFRS. |
Managements Discussion and Analysis
Attached at Exhibit A hereto is Eagles management discussion
and analysis (the Eagle MD&A), which has been prepared in
relation to the following financial statements of Eagle, all of which are also
attached at Exhibit A hereto:
|
(a) |
the unaudited interim financial statements for the three
months ended August 31, 2014 and 2013; |
|
|
|
|
(b) |
the audited annual statements for the years ended May 31,
2014 and 2013; and |
80
|
(c) |
the annual financial statements for the years ended May
31, 2013 (audited) and 2012 (unaudited). |
The Eagle MD&A should be read in conjunction with the
appropriate corresponding financial statements and related notes thereto. The
Eagle MD&A was prepared in accordance with IFRS.
DESCRIPTION OF THE SECURITIES
Eagle Common Shares
The Holders of the Eagle Common Shares are entitled to receive
notice of all meetings of shareholders and to attend and vote on the basis of
one vote in respect of each Eagle Common Share held in connection with each
matter to be acted upon at a meeting of the shareholders. Holders of Eagle
Common Shares are entitled to receive dividends if, as and when declared by the
Eagle Board. In the event of a liquidation, dissolution or winding-up of Eagle
or other distribution of the assets of Eagle, the Holders of the Eagle Common
Shares will be entitled to receive, on a pro rata basis, all of the assets
remaining after Eagle has paid out its liabilities.
The Eagle Common Shares are not posted for trading on any stock
exchange.
ANH Options
Eagle has issued 100,000 options to ANH Refractories Company in
connection with the ANH Off-Take Agreement, each of which is exercisable to
acquire one Eagle Common Share at a price of USD$0.10 (on a pre-Stock Split
basis) per share on or before May 31, 2016. It is anticipated that the ANH
Options will be exercised in full prior to the Effective Time.
BayFront Options
In February 2013, Eagle issued 300,000 options to BayFront
Capital Partners, Ltd., as consideration for financial advisory and marketing
services provided to Eagle in lieu of a cash fee. Each BayFront Option is
exercisable to acquire one Eagle Common Share at a price of $0.10 per share (on
a pre-Stock Split basis) for a period ending two (2) years following completion
of a going-public transaction. It is anticipated that the BayFront Options will
be exercised prior to the Effective Time.
Eagle Subscription Receipts
On November 5, 2014, Eagle completed the first tranche of the
Eagle Private Placement, pursuant to which Eagle issued 15,050,000 Eagle
Subscription Receipts at a price of $0.10 per Eagle Subscription Receipt for
gross proceeds of $1,505,000, which proceeds have been placed in escrow pending
satisfaction of the Eagle Escrow Release Conditions. Upon satisfaction of the
Eagle Escrow Release Conditions prior to 5:00 p.m. (Toronto time) on the Eagle
Escrow Release Deadline and immediately prior to the Closing, the Eagle
Subscription Receipts will automatically be exercised, without payment of any
additional consideration and with no further action on the part of the Holders
thereof, for one Eagle Unit. Each Eagle Unit will be comprised of one (1) Eagle
Common Share and one-half of one (1/2) Eagle Warrant.
If the Eagle Escrow Release Conditions are not satisfied prior
to the Eagle Escrow Release Deadline, the escrowed funds plus accrued interest,
if any, will be returned to the Eagle Purchasers in accordance with the terms of
the Eagle Private Placement. To the extent that the escrowed funds plus accrued
interest, if any, are not sufficient to repay the purchase price for all Eagle
Subscription Receipts, Eagle has agreed to satisfy any shortfall.
Eagle Broker Warrants
As partial consideration for the services of the Agent in
connection with the Eagle Private Placement, Eagle granted to the Agent
1,053,500 Eagle Broker Warrants. Each Eagle Broker Warrant entitles the Agent to
purchase one Eagle Common Share at a price of $0.10 per Eagle Common Share until
November 5, 2016.
Eagle Notes
Eagle has issued an aggregate principal amount of $825,000 of
Eagle Notes. The Eagle Notes are unsecured convertible promissory notes
of Eagle due June 22, 2015, and each $1,000 aggregate principal amount is
automatically convertible into 9,240,000 Eagle Common Shares and 4,620,000 Eagle
Warrants immediately prior to the Effective Time. Certain of the holders of the
Eagle Notes hold a 0.25% net smelter royalty over the sale of minerals and
by-products mined from the Black Crystal Property. See Information
Concerning Eagle The Black Crystal Property Property Description and
Location Royalties above.
81
CONSOLIDATED CAPITALIZATION
The following table sets forth Eagles share capital for and as
of the end of the periods indicated. This information is derived in part from
the financial statements of Eagle, which are set forth in Exhibit A of this
Circular.
Designation of Security |
Amount Authorized or to
be Authorized |
Amount Outstanding as of
May 31, 2014 |
Amount Outstanding as of
the Date of this Circular |
Eagle Common Shares |
Unlimited |
11,009,440 |
11,009,440 |
Eagle Subscription Receipts(1) |
15,050,000 |
Nil |
15,050,000 |
Eagle Warrants(2) |
7,525,250 |
Nil |
7,525,250 |
Eagle Broker Warrants(3) |
1,053,500 |
Nil |
1,053,500 |
Eagle Notes(4) |
$825,000 |
$375,000 |
$825,000 |
ANH Options(5) |
100,000 |
100,000 |
100,000 |
BayFront Options(6) |
300,000 |
300,000 |
300,000 |
Notes:
(1) |
Each Eagle Subscription Receipt is convertible into one
Eagle Common Share and one-half of one Eagle Warrant upon the satisfaction
of the Eagle Escrow Release Conditions. |
(2) |
Each Eagle Warrant is exercisable for one Eagle Common
Share at $0.15 per Eagle Common Share until November 5, 2019. |
(3) |
Each Eagle Broker Warrant is exercisable for one Eagle
Common Share at $0.10 per Eagle Common Share until November 5,
2016. |
(4) |
Each $25,000 principal Eagle Note is convertible into
$28,000 of Eagle Units. |
(5) |
Assuming the ANH Options are exercised in full. |
(6) |
Assuming the BayFront Options are exercised in
full. |
The deficit of Eagle as at August 31, 2014 was
$6,586,933.
PRIOR SALES
In the twelve month period preceding the date of this Circular
the following securities of Eagle have been issued:
Date |
Number and
Type of Eagle
Securities |
Issue /
Exercise Price Per Security |
Nature of
Consideration Received |
May 22, 2014 |
$375,000 Eagle
Notes |
Each $25,000
principal is convertible into 280,000 Eagle Common Shares and 140,000
Eagle Warrants |
Cash |
May 30, 2014 |
100,000 ANH
Options(1) |
USD
$0.10(1) |
Consideration for amending the
ANH Off-Take Agreement |
June 22, 2014 |
$100,000 Eagle
Notes |
Each $25,000
principal is convertible into 280,000 Eagle Common Shares and 140,000
Eagle Warrants |
Cash |
October 22, 2014 |
$350,000 Eagle
Notes |
Each $25,000
principal is convertible into 280,000 Eagle Common Shares and 140,000
Eagle Warrants |
Cash |
November 5, 2014 |
15,050,000 Eagle
Subscription Receipts |
$0.10 |
Cash |
November 5, 2014 |
1,053,500 Eagle
Broker Warrants |
$0.10 |
Services(2)
|
Notes:
(1) |
These numbers are presented on a pre-Stock Split basis
see Information Concerning Eagle Description of the Securities ANH
Options. |
(2) |
Issued to the Agent as partial compensation for services
in connection with the Eagle Private
Placement. |
82
STOCK EXCHANGE PRICE
There is no public market for any securities of Eagle.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In accordance with the requirements of Form 51-102F6
Statement of Executive Compensation and applicable Exchange Policies,
Eagle is required to include a statement of executive compensation in this
Circular, which contains information about the compensation paid to, or earned
by, Eagles Named Executive Officers or NEOs. In this Circular, a NEO of
Eagle means, as applicable: (a) Eagles Chief Executive Officer; (b) Eagles
Chief Financial Officer; (c) Eagles other three most highly compensated
executive officers of Eagle regardless of the amount of their total compensation
as at the end of the financial year ended May 31, 2014; and (d) each individual
who would be a NEO but for the fact that the individual was neither an executive
officer of Eagle or any of its subsidiaries, nor serving in a similar capacity,
at the end of the financial year ended May 31, 2014. For the financial year
ended May 31, 2014, Eagle had one NEO, namely Jamie Deith, President and sole
director.
Eagle is a mineral exploration and development company engaged
in the business of acquiring, developing and exploring graphite properties and
in particular the Black Crystal Property. Eagles objective is to acquire,
explore and develop the Black Crystal Property and other graphite properties
that have the potential to host graphite deposits. Eagle has, as of yet, no
significant revenues from operations and operates to conserve financial
resources to ensure that funds are available to complete scheduled programs. As
a result, the Eagle Board has to consider not only the financial situation of
Eagle at the time of the determination of executive compensation, but also the
estimated financial situation of Eagle in the mid- and long-term.
As a private company with a lean management team and one
director, Eagle relies on Mr. Deith as President and the sole director of Eagle
to determine the compensation of its NEOs without any formal objectives,
criteria or analysis. Mr. Deith is responsible for determining all forms of
compensation for Eagle, and for ensuring such arrangements reflect the
responsibilities and risks associated with each position. When determining the
compensation of its officers, Mr. Deith considers: (a) recruiting and retaining
executives critical to the success of Eagle and the enhancement of shareholder
value; (b) providing fair and competitive compensation; (c) balancing the
interests of management and the Eagle Shareholders; and (d) rewarding
performance, both on an individual basis and with respect to operations in
general. Named Executive Officers base compensation depends on the scope of
experience, responsibilities, leadership skills, performance, length of service,
general industry trends, practices and competitiveness and Eagles existing
financial resources. Mr. Deith has not established any quantifiable criteria
with respect to base salaries payable or the amount of equity compensation
granted and did not benchmark against a peer group of companies.
Compensation Objectives and Principles
The primary goals of Eagles executive compensation program are
to: (a) attract, motivate and retain high-caliber individuals; (b) align the
interests of its NEO with those of the Eagle Shareholders; (c) establish an
objective connection between NEO compensation and Eagles financial and business
performance; and (d) incentivize its NEO to continuously improve operations and
execute on corporate strategy. The NEO compensation program is, therefore,
designed to reward the NEO for increasing shareholder value, achieving corporate
performance that meets pre-defined objective criteria and improving operations
and executing on corporate strategy.
Eagles policy with respect to NEO compensation is to establish
annual goals with respect to corporate development and the individual areas of
responsibility of the NEO and then to review total compensation with respect to
the achievement of these goals. In addition, Eagle recognizes the importance of
ensuring that overall compensation for its NEO is not only internally equitable,
but also competitive within the market segment. Specifically, Mr. Deiths review
and evaluation will include measurement of, among others, the following areas:
(a) the achievement of corporate objectives, such as financings, partnerships
and other business development, in particular having regard to budgetary
constraints and other challenges facing Eagle; (b) Eagles financial condition;
and (c) Eagles share price and market capitalization.
83
The NEO compensation program consists of two principal
components: (i) base salary; and (ii) long-term incentives. Each component has a
different function, as described in greater detail below, but each element works
together to reward the NEOs appropriately for personal and corporate
performance.
(1) Base Salary
Base salaries are an element in attracting and retaining
Eagles senior executives and rewarding them for corporate and individual
performance. Base salaries are established by taking into account individual
performance and experience, level of responsibility and competitive pay
practices. Base salaries are reviewed annually and adjusted, if appropriate, to
reflect performance and market changes. Any increase to the base salary of the
executive officers must be approved by the Eagle Board and is based on the
recommendation of the Nominating and Compensation Committee. In addition,
discretionary bonuses may be provided upon approval of the Eagle Board.
(2) Long-Term Incentives
Eagle does not have a formal long-term incentive compensation
plan for senior executives, however from time to time it considers whether
grants of stock options are justifiable. Eagle has not issued any stock options
to any executive officers. Any grants of stock options would be administered by
Mr. Deith. Mr. Deith would consider any previous grants of stock options and the
overall number of Eagle stock options that would be outstanding relative to the
number of outstanding Eagle Common Shares in determining whether to make any
grants of options and the size and terms of any such grants, as well as the
level of effort, time, responsibility, ability, experience and level of
commitment of the NEO in determining the level of incentive stock option
compensation.
See Information Concerning Eagle Executive Compensation
Incentive Plan Awards Value Vested or Earned During the Year and
Information Concerning Eagle Executive Compensation Director
Compensation.
Summary Compensation Table
The following table sets forth the compensation earned in the
financial years ended May 31, 2014, May 31, 2013, and May 31, 2012 and the
three-month period ended August 31, 2014.
Name and Principal
Position |
Period |
Salary (1)
($) |
Share- based
awards ($) |
Option-
based awards ($) |
Non-equity incentive
plan compensation ($)
|
Pension
value ($) |
All other
compensation ($) |
Total
compensation ($) |
Annual
incentive plans |
Long-term
incentive plans |
Jamie Deith, President and
Sole Director |
Three months
ended August 31, 2014 |
25,000 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
25,000 |
Year ended May
31, 2014 |
8,333 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
8,333 |
Year ended May
31, 2013 |
100,000 |
Nil |
Nil |
Nil |
Nil |
Nil |
1,694(1) |
101,694 |
Year ended May
31, 2012 |
75,000 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
75,000 |
Note:
(1) |
Represents amounts paid in respect of health
benefits. |
Narrative Discussion
Refer to the Compensation Discussion and Analysis
section above for a description of all plan-based awards for executive officers
(including the NEO) and their significant terms.
Outstanding Share-Based Awards and Option-Based Awards
The following table provides information regarding incentive
plan awards for the NEO outstanding as at the end of the three-month period
ended August 31, 2014 and the financial year ended May 31, 2014.
84
|
Option-based Awards |
Name |
Number of Securities
underlying unexercised options |
Option exercise price
($) |
Option
expiration date |
Value of unexercised
in-the-
money options ($) |
Jamie Deith, President and Sole Director |
Nil |
N/A |
N/A |
N/A |
Incentive Plan Awards Value Vested or Earned
The following table provides information regarding the value
vested or earned in respect of incentive plan awards for the NEO as at the end
of the three-month period ended August 31, 2014 and the financial year ended May
31, 2014.
Name |
Option-based
awards Value vested ($) |
Share-based
awards Value vested ($) |
Non-equity
incentive plan compensation Value earned |
Jamie Deith, President and Sole Director |
Nil |
N/A |
Nil |
Termination and Change of Control Benefits
Eagle has no contracts, agreements, plans or arrangements that
provide for payments to the NEO at, following or in connection with any
termination (whether voluntary, involuntary or constructive), resignation,
retirement, change in control of Eagle or a change in the NEOs
responsibilities.
Director Compensation
Eagle does not provide cash remuneration to its director for
attendance and participation in meetings of the Eagle Board or for any other
purpose in his capacity as a director. The sole director of Eagle is eligible to
receive stock options if so granted by Eagle, the purpose of which is to assist
Eagle in compensating, attracting, retaining and motivating the Eagle Board and
to closely align the personal interests of such persons to that of the Eagle
Shareholders. If stock options were issued, the number of stock options granted
is based on competitive and market conditions, including based on a comparison
of option grants to directors of other corporations of a comparable size and
market capitalization. When determining whether and how many new stock option
grants might be made, the Eagle Board would take into account the amount and
terms of any outstanding stock options. Eagle does not require its directors to
own a specific number of Eagle Common Shares.
Mr. Deith, the President of Eagle is the sole director of
Eagle. Please see the disclosure provided above under Information Concerning
Eagle Executive Compensation Summary Compensation Table and
Information Concerning Eagle Executive Compensation Incentive
Plan Awards Value Vested or Earned During the Year for information with
respect to the compensation Mr. Deith received as President and sole director of
Eagle for the financial year ended May 31, 2014.
Outstanding Share-Based Awards and Option-Based Awards
Mr. Deith, the President of Eagle is the sole Director of
Eagle. Please see the disclosure provided above under Information Concerning
Eagle Executive Compensation Summary Compensation Table and
Information Concerning Eagle Executive Compensation Incentive
Plan Awards Value Vested or Earned During the Year for information with
respect to the compensation Mr. Deith received as President and sole director of
Eagle for the financial year ended May 31, 2014.
NON-ARMS LENGTH PARTY TRANSACTIONS
Eagle has not acquired any assets or services or been provided
any assets or services in any transaction within the five years before the date
of this Circular, and has not been involved in any proposed transaction, where
Eagle has obtained such assets or services from any director, officer or
promoter of Eagle, a principal securityholder, or an Associate or Affiliate of
such persons.
85
LEGAL PROCEEDINGS
Eagle has not been nor is presently involved in any legal
proceedings material to it or of which any of its property is the subject matter
and no such proceedings are, to the best of Eagles knowledge, contemplated.
AUDITOR
The auditor of Eagle is Collins Barrow Toronto LLP, Collins
Barrow Place, 11 King Street West, Suite 700, Box 27, Toronto, Ontario, M5H 4C7.
MATERIAL CONTRACTS
Eagle has not entered into any material contracts outside of
the ordinary course of business prior to the date hereof, other than:
|
(a) |
the ANH Off-Take Agreement and related GSA; |
|
|
|
|
(b) |
the ANH Security Assignment Agreement; |
|
|
|
|
(c) |
the 0.25% royalty agreement with certain of the holders
of the Eagle Notes; |
|
|
|
|
(d) |
the Amalgamation Agreement; |
|
|
|
|
(e) |
the Eagle Private Placement Agency Agreement; |
|
|
|
|
(f) |
the Eagle Private Placement Subscription Receipt
Agreement; and |
|
|
|
|
(g) |
the Warrant Indenture. |
Details regarding the above material contracts are disclosed
elsewhere in this Circular. Copies of such material contracts may be inspected
during normal business hours without charge, until the date of closing of the
Amalgamation and for a period of 30 days thereafter at the head office of
Eagle.
RISK FACTORS
Eagle is subject to a number of risks due to the nature of
the business of mineral exploration and the early stage of its development,
which risks will be those of the Resulting Issuer upon completion of the
Acquisition. The following risk factors assume the completion of the Acquisition
and are provided from the perspective of the Resulting Issuer. Given the
speculative nature of the business of the Resulting Issuer, any investment in
the securities of the Resulting Issuer should only be considered by those
persons who can afford a total loss of their investment. In evaluating the
Resulting Issuer, the following risk factors, among others, should be
considered.
For a comprehensive discussion of the risk factors relating to
Amerix and the Resulting Issuer, see also Information Concerning Amerix
Risk Factors and Information Concerning the Resulting Issuer Risk
Factors, respectively.
Exploration and Development Risks
The successful exploration and development of mineral
properties is speculative. Such activities are subject to a number of
uncertainties, which even a combination of careful evaluation, experience and
knowledge may not eliminate. Most exploration projects do not result in the
discovery of commercially mineable deposits. There is no certainty that the
expenditures made by Eagle or to be made by the Resulting Issuer in the
exploration and development of the Black Crystal Property or other properties in
which it may have an interest will result in the discovery of graphite or other
mineralized materials in commercial quantities. While discovery of a mineral
deposit may result in substantial rewards, few properties that are explored are
ultimately developed into producing mines. Significant expenditures may be
required to establish reserves by drilling and to construct mining and
processing facilities at a site. No assurance can be given that minerals will be
discovered in sufficient quantities to justify commercial operations. Whether a
mineral deposit will be commercially viable depends on a number of factors,
including the particular attributes of the deposit (i.e. size, grade, access and
proximity to infrastructure), financing costs, the cyclical nature of commodity
prices and government regulations (including those relating to prices, taxes,
currency controls, royalties, land tenure, land use, importing and exporting of
mineral products and environmental protection). Although substantial benefits
may be derived from the discovery of a major deposit, it is impossible to ensure
that the current exploration programs of the Resulting Issuer will result in
profitable commercial mining operations or that funds required for development
can be obtained on a timely basis. The implementation of certain aspects of the Resulting Issuers strategy in respect of the Black
Crystal Property is subject to the completion of detailed feasibility studies.
The Resulting Issuer is not able to predict the outcome of such studies and
unfavourable results may have a material adverse effect on the Resulting
Issuers business, financial condition, results of operations and prospects.
86
Regulatory Requirements
Mining operations, development and exploration activities are
subject to extensive laws and regulations governing prospecting, development,
production, exports, taxes, labour standards, occupational health, waste
disposal, environmental protection and remediation, local communities,
protection of endangered and protected species, mine safety, toxic substances
and other matters. Changes in these regulations or in their application are
beyond the control of the Resulting Issuer and could adversely affect its
operations, business and results of operations.
Government approvals and permits are currently, and may in the
future be, required in connection with the Black Crystal Property and any other
properties the Resulting Issuer may acquire. To the extent such approvals are
required and not obtained, the Resulting Issuer may be restricted or prohibited
from proceeding with planned exploration or development activities. Failure to
comply with applicable laws, regulations and permitting requirements may result
in enforcement actions thereunder, including orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations
may be required to compensate those suffering loss or damage by reason of the
mining activities and may be liable for civil or criminal fines or penalties
imposed for violations of applicable laws or regulations. Amendments to current
laws, regulations and permitting requirements, or more stringent application of
existing laws, could have a material adverse impact on the Resulting Issuer and
cause increases in capital expenditures or production costs or require
abandonment or delays in development of properties or reductions in levels of
production at producing properties.
Reliability of Historical Information
Eagle has relied, and the Circular is based in part, upon
historical data compiled by previous parties involved with the Black Crystal
Property. To the extent that any of such historical data may be inaccurate or
incomplete, the Resulting Issuers exploration and operating plans may be
adversely affected.
Title Matters
The acquisition of title to mineral properties is a very
detailed and time-consuming process. Title to, and the area of, mineral
concessions may be disputed. Although Eagle believes it has taken reasonable
measures to ensure proper title to its properties, there is no guarantee that
title to the Black Crystal Property or any other properties that the Resulting
Issuer may acquire will not be challenged or impaired. Third parties may have
valid claims underlying portions of the Resulting Issuers interests. Further,
there can be no assurance that any pending applications for mineral rights in
which the Resulting Issuer will hold an interest (including in respect of the
Black Crystal Property and any other properties that the Resulting Issuer may
acquire) will be granted in whole or in part. If a title defect exists, it is
possible that the Resulting Issuer may lose all or part of its interest in the
Black Crystal Property or any other properties that the Resulting Issuer may
acquire or any other property subsequently acquired to which such title defect
exists. Transfer of the mining titles acquired by Eagle is subject to
verification by the mining authorities of updated compliance with applicable
terms and regulations. While Eagle believes there should be no issues preventing
registration of transfer of the acquired mining titles, there is no assurance
that the mining authorities will approve or register the transfers on a timely
basis of at all.
Licenses and Permits
The current and proposed exploration, development and operating
activities of the Resulting Issuer will require certain permits and licenses
from various governmental authorities and such operations are and will be
governed by laws and regulations governing exploration, development and
production, labour standards, occupational health, waste disposal, toxic
substances, land use, environmental protection, safety, mine permitting and
other matters. Companies engaged in exploration activities generally experience
increased costs and delays as a result of the need to comply with applicable
laws, regulations and permits. There can be no assurance that all licenses and
permits which the Resulting Issuer may require to carry out exploration,
development and operation of its projects will be obtainable on reasonable terms
or on a timely basis, or that such laws and regulations would not have an
adverse effect on any project that the Resulting Issuer may undertake.
Failure to comply with applicable laws, regulations, and
permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties
engaged in exploration operations may be required to compensate those suffering
loss or damage by reason of the exploration activities and may have civil or criminal fines or penalties
imposed for violations of applicable laws or regulations and, in particular,
environmental laws.
87
Price Fluctuations
The price of the Resulting Issuers securities, its financial
results and exploration, development and mining activities may be significantly
adversely affected by declines in the price of graphite. Demand and price are
determined by numerous factors beyond the control of the Resulting Issuer
including the demand for graphite, international exchange rates, political and
economic conditions and production costs in mining regions, production and
consumption patterns, speculative activities, increased production due to
improved mining and production methods, government regulations relating to
prices, taxes, royalties, land tenure, land use, environmental protection and
the degree to which a dominant producer uses its market strength to bring supply
into equilibrium with demand. The combined effects of any or all of these
factors on graphite prices or volumes are impossible for the Resulting Issuer to
predict. If realized graphite prices fall below the full cost of production of
any of the Resulting Issuers operations and remain at such level for any
sustained period, the Resulting Issuer will experience losses, which may be
significant, and may decide to discontinue affected operations, forcing the
Resulting Issuer to incur closure or care and maintenance costs, as the case may
be. In addition, declining graphite prices can impact operations by requiring a
reassessment of the feasibility of a particular project. Such a reassessment may
be the result of a management decision or may be required under financing
arrangements related to a particular project. Even if the project is ultimately
determined to be economically viable, the need to conduct such a reassessment
may cause substantial delays or may interrupt operations until the reassessment
can be completed.
Current Global Financial Conditions
Recent events in global financial markets have had a profound
impact on worldwide economies. Many industries have been impacted by the changes
in market conditions to varying degrees. Some of the key impacts of the current
financial market turmoil include contraction in credit markets and resulting
widening of credit risk as well as enhanced volatility in commodity, equity and
foreign exchange markets. A continued or worsened slowdown in financial markets
or other economic conditions including, without limitation, constraints in
credit or surety markets, a sustained slump in economic activity in the mining
industry in general and in Canada in particular, the availability of private and
public sector funding for mineral exploration and development projects, pressure
on margins arising from an altered competitive landscape or an increased risk of
corporate bankruptcy in the markets in which the Resulting Issuer operates, may
adversely affect the Resulting Issuer in ways that are not possible to predict
given the unprecedented nature of the current crisis.
Uninsured Risks
In the course of exploration, development and production of
mineral properties, certain risks, in particular, unexpected or unusual
geological operating conditions including rock bursts, cave-ins, fire, flooding
and earthquakes may occur. It is not always possible to fully insure 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, have a material adverse effect on the Resulting
Issuers results and cause a decline in the value of the securities of the
Resulting Issuer.
Environmental Regulations
The activities of the Resulting Issuer will be subject to
zoning and environmental regulations promulgated by government agencies from
time to time. Environmental legislation generally provides for restrictions and
prohibitions on spills, releases or emissions of various substances produced in
association with certain mining industry operations which would result in
environmental pollution. A breach of such legislation may result in imposition
of fines and penalties. In addition, certain types of operations require the
submission and approval of environmental impact assessments and of environmental
licenses. Environmental legislation is evolving in a manner which means stricter
standards, and enforcement, fines and penalties for non-compliance are more
stringent. Environmental assessments of proposed projects carry a heightened
degree of responsibility for companies and directors, officers and employees.
The cost of compliance with changes in governmental regulations has the
potential to reduce the profitability of operations. There may be unforeseen
environmental liabilities resulting from exploration and/or mining activities
and these may be costly to remedy.
Competition
The mining industry is competitive in all its phases. The
Resulting Issuer will compete with many companies and individuals that have
substantially greater financial and technical resources than the Resulting
Issuer in the search for, and the acquisition of, mineral concessions as well as
for the recruitment and retention of qualified employees. The Resulting Issuers
ability to identify and increase reserves in the future will depend not only on
its ability to explore and develop the Black Crystal Property and any other
property that the Resulting Issuer may acquire, but also on its ability to
select, acquire and develop suitable properties or prospects. In addition, the mining
industry is facing a shortage of equipment and skilled personnel and there may
be intense competition for experienced geologists, field personnel and
contractors. There is no assurance that the Resulting Issuer will be able to
compete successfully with others in acquiring such prospects, equipment or
personnel.
88
Dependence upon Key Management Personnel and Executives
The Resulting Issuer will be dependent upon the continued
support and involvement of a number of key management personnel and, in
particular, Jamie Deith, Chief Executive Officer, to manage its immediate
operations as well as the obligations of running a public company. The loss of
the services of one or more of such personnel could have a material adverse
effect on the Resulting Issuer. The Resulting Issuers ability to manage its
exploration and development activities and, hence, its success, will depend in
large part on the efforts of these individuals. The Resulting Issuer will face
intense competition for qualified personnel and there can be no assurance that
the Resulting Issuer will be able to attract and retain such personnel. The
number of persons skilled in the acquisition, exploration and development of
mining properties is limited and competition for such persons is intense.
Possible Conflicts of Interest of Directors and Officers
of the Resulting Issuer
Certain of the directors and officers of the Resulting Issuer
may also serve as directors, officers and/or advisors of and to other companies
involved in natural resource exploration and development. Consequently, there
exists the possibility for such directors and officers to be in a position of
conflict. It is anticipated that any decision made by any of such directors and
officers involving the Resulting Issuer will be made in accordance with their
duties and obligations to deal fairly and in good faith with a view to the best
interests of the Resulting Issuer and its shareholders, but there can be no
assurance in this regard. In addition, each of the directors is required to
declare their conflict of interest and refrain from voting on any matter in
which such directors may have a conflict of interest or which are governed by
the procedures set forth in the OBCA and any other applicable law.
Absence of Dividends
None of Amerix, Eagle or the Resulting Issuer expects to pay
any dividends in the foreseeable future.
Risk of Dilution
Under applicable Canadian law, shareholder approval may not be
required for the Resulting Issuer to issue additional Resulting Issuer Common
Shares. Moreover, the Resulting Issuer will have commitments that could require
the issuance of a substantial number of additional Resulting Issuer Common
Shares, in particular, pursuant to Resulting Issuer Warrants, Resulting Issuer
Broker Warrants and Resulting Issuer Stock Options. The business of the
Resulting Issuer will require substantial additional financing which will likely
involve the sale of equity capital. The Resulting Issuer can also be expected to
issue additional options, warrants and other financial instruments, which may
include debt. Future issuances of equity capital may have a substantial dilutive
effect on existing shareholders of the Resulting Issuer. It is not possible at
this time to predict the future amount of such issuances or dilution.
Price Volatility and Lack of Active Market
In recent years, the securities markets in Canada and elsewhere
have experienced a high level of price and volume volatility, and the market
prices of securities of many public companies have experienced significant
fluctuations in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. It may be
anticipated that any quoted market for the Resulting Issuers securities will be
subject to such market trends and that the value of such securities may be
affected accordingly. There is no assurance that an active market for the
Resulting Issuers securities will develop or be sustained. If an active market
does not develop, the liquidity of the investment may be limited and the market
price of such securities may decline below the offering price of the Private
Placements.
89
INFORMATION CONCERNING THE RESULTING ISSUER
CORPORATE STRUCTURE
Name and Incorporation
Following the Closing Date, the Resulting Issuer will continue
to be a corporation governed by the OBCA. It is anticipated that either on or
following the Closing Date, the Resulting Issuers articles will be amended to
change its corporate name to Eagle Graphite Corporation or such other name as
is agreed to by Eagle and Amerix and which is permitted by applicable law and
acceptable to the Exchange.
It is anticipated that the Resulting Issuer Common Shares will
be listed for trading on the Exchange under the symbol EGA.
The registered office of the Resulting Issuer will be located
at 2100 Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3C2.
Intercorporate Relationships
Figure 1.2 below sets out the proposed corporate structure of
the Resulting Issuer, assuming that the Proposed Disposition is not completed by
the Closing.
Figure 1.3 RESULTING ISSUER CORPORATE STRUCTURE
CHART
Notes:
(1) It is proposed that a sale of MVPR will be pursued upon
receiving approval of the Proposed Disposition by the Amerix Shareholders at the
Amerix Meeting. See Particulars of Matters to be Acted on at the Amerix
Meeting Proposed Disposition.
NARRATIVE DESCRIPTION OF THE BUSINESS
Stated Business Objectives and Milestones
Upon the completion of the Acquisition, the Resulting Issuer
will be a mineral resource company focused on the exploration and exploitation
of the mineral properties and assets of Eagle.
The Resulting Issuer will initially use its financial
resources, among other things: (i) to incur Canadian Exploration Expenses
(within the meaning of such term in the Tax Act) in the gross amount raised
pursuant to the Amerix Private Placement; (ii) to pay for exploration
expenditures incurred in connection with the exploration of the Black Crystal
Property, including the first phase of the recommended exploration programs set
out in the Technical Report; (iii) to pay for capital costs associated with the Black Crystal Property; (iv) to pay for expenses incurred
in connection with the Private Placements and the Acquisition; and (v) to pay
for general and administrative expenses of the Resulting Issuer over the ensuing
12 months following the completion of the Acquisition. See Information
Concerning Eagle General Development of the Business.
90
Amerix and Eagle believe that the Resulting Issuers working
capital available to fund ongoing operations upon the completion of the
Acquisition and the Private Placements will be sufficient to meet its
obligations, as currently contemplated, for a minimum of 12 months; however,
there may be circumstances where, for sound business reasons, a reallocation of
funds may be necessary.
Personnel
The key personnel for the Resulting Issuer are anticipated to
be Jamie Deith, President and Chief Executive Officer and Daniel Hamilton, Chief
Financial Officer. Additional management personnel may be added in the future
depending on the Resulting Issuers requirements.
Exploration and Development
See the Sources and Use of Proceeds tables under the
heading Available Funds and Principal Purposes below for a discussion the
contemplated exploration and development activities of the Resulting Issuer on
the Black Crystal Property and the related costs for the proposed program. The
Black Crystal Property has mineral resources and no mineral reserves. Phase one
of the proposed exploration and development program set out below is seeking
commercial quantities of graphite incremental to those mineral resources set out
in the Technical Report. See Information Concerning Eagle The Black
Crystal Property for details on the Black Crystal Property.
DESCRIPTION OF THE SECURITIES
Resulting Issuer Equity Securities
Other than the Consolidation of Amerix Common Shares, which
will occur prior to the Amalgamation, the share structure of the Resulting
Issuer will be the same as the share structure of Amerix and the rights
associated with the Resulting Issuer Common Shares, the first preference shares
of the Resulting Issuer (the Resulting Issuer First Preference
Shares) and the second preference shares of the Resulting Issuer (the
Resulting Issuer Second Preference Shares) will be the same as the
rights associated with the Amerix Common Shares, the Amerix First Preference
Shares and the Amerix Second Preference Shares, respectively. See
Information Concerning Amerix Description of the Securities.
The Resulting Issuer will be authorized to issue an unlimited
number of Resulting Issuer Common Shares, an unlimited number of Resulting
Issuer First Preference Shares and an unlimited number of Resulting Issuer
Second Preference Shares. Following the completion of the Acquisition and
assuming satisfaction of the Escrow Release Conditions and after giving effect
to the Consolidation and the Stock Split, the Resulting Issuer will have
267,541,546 Resulting Issuer Common Shares issued and outstanding (281,682,645
Resulting Issuer Common Shares on a fully-diluted basis), of which 220,198,800
Resulting Issuer Common Shares will be held by the former Eagle Shareholders;
9,240,000 Resulting Issuer Common Shares will be held by the former Eagle Note
Holders; 8,000,000 Resulting Issuer Common Shares in the aggregate will be held
by the former Holders of the ANH Options and the BayFront Options (assuming that
both the ANH Options and the BayFront Options are exercised in full prior to the
Effective Time); 4,122,746 Resulting Issuer Common Shares will be held by the
former Amerix Shareholders; and 25,980,000 Resulting Issuer Common Shares will
be held by purchasers under the Private Placements. No Resulting Issuer First
Preference Shares or Resulting Issuer Second Preference Shares will be
issued and outstanding. See Information Concerning the Resulting Issuer
Pro Forma Consolidated Capitalization Fully Diluted Share Capital.
Resulting Issuer Warrants
Following the completion of the Acquisition and assuming
satisfaction of the Escrow Release Conditions and after giving effect to the
Consolidation and the Stock Split, a total of approximately 8,290,100 Resulting
Issuer Common Shares will be reserved for issuance upon exercise of the
Resulting Issuer Warrants issued in replacement of the Amerix Broker Warrants
and Eagle Warrants.
Each Resulting Issuer Warrant issued in exchange for an Amerix
Broker Warrant will be exercisable to acquire one Resulting Issuer Common Share
until November 5, 2016 at a price of $0.10 per Resulting Issuer Common
Share.
Each Resulting Issuer Warrant issued in exchange for an Eagle
Warrant will be exercisable to acquire one Resulting Issuer Common Share for a
period of sixty (60) months following Closing at a price of $0.15 per Resulting
Issuer Common Share.
91
Resulting Issuer Broker Warrants
Following the completion of the Acquisition and assuming
satisfaction of the Escrow Release Conditions and after giving effect to the
Consolidation and the Stock Split, a total of approximately 1,053,500 Resulting
Issuer Common Shares will be reserved for issuance upon exercise of the
Resulting Issuer Broker Warrants issued in replacement of the Eagle Broker
Warrants.
Each Resulting Issuer Broker Warrant issued in exchange for an
Eagle Broker Warrants will be exercisable to acquire one Resulting Issuer Common
Share until November 5, 2014 at a price of $0.10 per share.
See Information Concerning the Resulting Issuer Pro Forma
Consolidated Capitalization Fully Diluted Share Capital.
Resulting Issuer Stock Options
Following the Acquisition, the Resulting Issuer will adopt and
administer the Amerix Stock Option Plan, which was re-approved by Amerix
Shareholders at the January Meeting. As a result of the Consolidation (but prior
to the Amalgamation), outstanding Amerix Stock Options will be adjusted in
accordance with their terms. Post-Consolidation Amerix Stock Options outstanding
immediately before the Effective Time will be unaffected by the Acquisition and
will remain an obligation of the Resulting Issuer.
Following the completion of the Acquisition and after giving
effect to the Consolidation and the Stock Split, a total of approximately
176,666 Resulting Issuer Common Shares will be reserved for issuance upon
exercise of the Resulting Issuer Stock Options.
See Information Concerning the Resulting Issuer Pro Forma
Consolidated Capitalization Fully Diluted Share Capital.
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table sets forth the capitalization of the
Resulting Issuer after giving effect to the transactions described in the
unaudited pro forma combined financial information for the Resulting
Issuer attached hereto as Exhibit C.
Designation of
Security |
Amount authorized or to be authorized |
Amount outstanding after giving effect to the
Acquisition, the Consolidation, the Stock Split and assuming
satisfaction of the Escrow Release Conditions
(1)(2)(3) |
Resulting Issuer Common Shares Resulting Issuer First
Preference Shares Resulting Issuer Second Preference Shares |
Unlimited Unlimited
Unlimited |
267,541,546 Nil Nil
|
Notes:
(1) |
The deficit of the Resulting Issuer on a consolidated
basis after giving effect to the Acquisition, the Consolidation and the
Stock Split and assuming satisfaction of the Escrow Release Conditions
will be $7,716,000. |
(2) |
Not including: Resulting Issuer Broker Warrants
exercisable to purchase an aggregate of 1,053,500 Resulting Issuer Common
Shares; Resulting Issuer Warrants exercisable to purchase an aggregate of
12,145,000 Resulting Issuer Common Shares; or the Amerix Broker Warrants
exercisable to purchase an aggregate of 765,100 Resulting Issuer Common
Shares. |
(3) |
Not including Resulting Issuer Stock Options exercisable
to purchase an aggregate of 176,666 Resulting Issuer Common
Shares. |
92
Fully Diluted Share Capital
In addition to the information set out in the capitalization
table above, the following table sets out the fully diluted share capital of the
Resulting Issuer after giving effect to the Acquisition, the Consolidation and
the Stock Split and assuming satisfaction of the Escrow Release Conditions.
|
Resulting Issuer Common Shares after
giving effect to
Acquisition, the Consolidation and the Stock
Split and assuming satisfaction of the Escrow Release
Conditions |
Resulting Issuer Common Shares held by former Amerix
Shareholders (on a post-Consolidation basis) |
4,122,746 (1.46%) |
Resulting Issuer Common Shares held by former Eagle
Shareholders |
220,198,800 (78.17%) |
Resulting Issuer Common Shares held by purchasers in the Amerix
Private Placement |
10,930,000 (3.88%) |
Resulting Issuer Common Shares held by purchasers in the
Eagle Private Placement |
15,050,000 (5.34%) |
Resulting Issuer Common Shares issued in exchange for Eagle
Common Shares issued upon conversion of the Eagle Notes |
9,240,000 (3.28%) |
Resulting Issuer Common Shares issued upon exercise of the
ANH Options and BayFront Options (1) |
8,000,000 (2.84%) (1)
|
Resulting Issuer Common Shares reserved for issuance
pursuant to Resulting Issuer Stock Options issued in replacement of Amerix
Stock Options (on a post-Consolidation basis) |
176,666 (0.06%) |
Resulting Issuer Common Shares reserved for issuance
pursuant to Resulting Issuer Broker Warrants issued in replacement of
Amerix Broker Warrants |
765,100 (0.27%) |
Resulting Issuer Common Shares reserved for issuance
pursuant to Resulting Issuer Warrants issued in replacement of Eagle
Warrants issued upon conversion of the Resulting Issuer Notes |
4,620,000 (1.64%) |
Resulting Issuer Common Shares reserved for issuance
pursuant to Resulting Issuer Warrants issued in replacement of Eagle
Warrants issued pursuant to the Eagle Private Placement |
7,525,000 (2.67%) |
Resulting Issuer Common Shares reserved for issuance
pursuant to Resulting Issuer Broker Warrants issued in replacement of
Eagle Broker Warrants |
1,053,500 (0.37%) |
Total Number of Diluted Securities |
281,681,812
(100%)(2) |
Notes:
(1) |
Assuming the exercise of all of the ANH Options and the
BayFront Options. |
(2) |
Percentages may not tally exactly due to
rounding. |
93
AVAILABLE FUNDS AND PRINCIPAL PURPOSES
Management of Eagle estimates that Amerix and Eagle have
working capital deficiencies of approximately ($535,000) and ($2,000,000),
respectively, as at October 31, 2014, assuming no material change in working
capital from September 1, 2014 to October 31, 2014 other than transaction costs.
The working capital of Amerix as of October 31, 2014 includes ($465,000)
attributable to MVPR, which is expected to be assumed by the buyer in the event
that MVPR is sold. In any case, Amerix will not fund the MVPR deficiency. The
working capital of Eagle as of October 31, 2014 includes approximately
$1,522,000 (after conversion into Canadian funds) attributable to the Prepayment
Amount provided by ANH under the ANH Off-Take Agreement; this amount is
repayable by Eagle under the terms of the ANH Off-Take Agreement in product out
of inventoried stock and future production rather than cash. See Information
Concerning Eagle General Development of the Business Description of the
Business ANH Off-Take Agreement and Information Concerning the
Resulting Issuer Risk Factors Meeting the Obligations under the ANH Off-Take
Agreement and GSA. Consequently, of the combined estimated working capital
deficit of ($2,535,000) of Amerix and Eagle as at October 31, 2014, $1,987,000
of this deficit is not payable in cash. Also included in the negative working
capital position is $825,000 owing to the Holders of the Eagle Notes, which will
be automatically converted into securities of the Resulting Issuer upon
completion of the Acquisition and will therefore not be settled in cash,
assuming completion of the Acquisition.
Consequently, taking into account the proceeds of the Private
Placements of an aggregate of $2,598,000 (of which $1,093,000 will be spent to
incur Canadian Exploration Expenses within the meaning of such term in the Tax
Act), which are currently held in escrow pending satisfaction of the Escrow
Release Conditions, and approximately $350,000 in other funds on hand due to the
Promissory Notes, that after the Closing Date and after giving effect to the
Acquisition and assuming satisfaction of the Escrow Release Conditions, the
Resulting Issuer will have available to it approximately $2,400,000 from those
sources (before deducting costs associated with the Acquisition and the Private
Placements). The intended use of those funds is as follows: (i) to incur
Canadian Exploration Expenses (within the meaning of such term in the Tax Act)
in the gross amount raised pursuant to the Amerix Private Placement; (ii) to pay
for exploration expenditures incurred in connection with the exploration of the
Black Crystal Property, including the first phase of the recommended exploration
programs set out in the Technical Report; (iii) to pay for capital costs
associated with the Black Crystal Property; (iv) to pay expenses incurred in
connection with the Private Placements and the Acquisition; and (v) to pay for
general and administrative expenses of the Resulting Issuer over the ensuing 12
months following completion of the Acquisition. Budgets are expected to be
regularly reviewed in light of the success of the expenditures and other
opportunities which may become available to the Resulting Issuer. Accordingly,
while it is expected that the Resulting Issuer will have the ability to spend
the funds available to it as stated in above and elsewhere in this Circular,
there may be circumstances where, for sound business reasons, a reallocation of
funds may be prudent (other than the amount to be spent incurring Canadian
Exploration Expenses).
The following table sets out information respecting the
Resulting Issuers sources of cash and intended uses of such cash for a period
of twelve months following the completion of the Acquisition. The amounts shown
in the table are estimates only and are based on the best information available
to Amerix and Eagle as of the date hereof. The intended uses of such cash and/or
the Resulting Issuers capital needs may vary based on a number of factors,
including the ability of the Resulting Issuer to meet its exploration and
production schedule and to execute its operating and strategic plans.
Sources |
Amount |
Estimated working capital of Amerix as at October 31, 2014
|
($70,000)(1) |
Estimated working capital of Eagle as at October 31, 2014
|
($478,000)(2) |
Gross proceeds from Amerix Private Placement |
$1,093,000 |
Gross proceeds from Eagle Private Placement |
$1,505,000 |
Gross proceeds remaining from Eagle Notes |
$350,000 |
Pro Forma Adjustments (other than Gross Proceeds from
Placements) |
Private Nil |
Total Available Capital |
$2,400,000
|
Notes:
(1) |
Amerix has a working capital deficiency of $535,000;
however, $465,000 of this working capital deficiency attributable to MVPR
will not be funded by Amerix. See the narrative description above for
further details of certain assumptions and adjustments relating to
Amerixs working capital deficiency. |
(2) |
Eagle has a working capital deficiency of $2,000,000;
however, approximately $1,522,000 (after conversion into Canadian funds)
of this working capital deficiency attributable to the Prepayment Amount
provided by ANH under the ANH Off-Take Agreement is repayable by Eagle
under the terms of the ANH Off-Take Agreement in product out of
inventoried stock and future production rather than cash. See the
narrative description above for further details of certain assumptions and
adjustments relating to Eagles working capital
deficiency. |
94
Use of Proceeds |
Amount(1) |
|
|
Exploration expenses |
|
Phase One Work Program |
|
Ground Penetrating Radar Survey and interpretation |
$30,000 |
Drilling (1,000 m @ $120/m) |
$120,000 |
Mob and Demob |
$3,000 |
Trenching costs |
$10,000 |
Field Crew (geologist/ assistant) |
$30,000 |
Field Costs (food, accommodation, vehicle rental etc.) |
$15,000 |
Analytical (200 samples @ $50/sample) |
$10,000 |
Head Office costs, report |
$10,000 |
|
$228,000 |
Other |
|
Permitting and property taxes |
$48,700 |
Plant equipment insurance |
$30,000 |
Base utility costs |
$36,000 |
Plant employee costs |
$259,000 |
|
$373,700 |
|
|
Canadian Eligible Exploration Expenditures(2) |
$1,093,000 |
|
|
Expenses in connection with the Private Placements and
Acquisition |
$381,860 |
|
|
General and administrative expenses |
$223,440 |
|
|
Unallocated working capital |
$100,000 |
|
|
Total Uses |
$2,400,000 |
Notes:
(1) |
Does not include contingency of approximately 15% of the
budget for Phase 1. |
(2) |
Within the meaning of such term in the Tax
Act. |
The Resulting Issuer intends to spend the funds available to it
on the completion of the Acquisition for the principal purposes as indicated
above. Notwithstanding the foregoing, there may also be circumstances where, for
sound business reasons, a reallocation of funds may be necessary for the
Resulting Issuer to achieve these objectives.
DIVIDENDS
There will be no restrictions in the Resulting Issuers
articles or elsewhere which would prevent the Resulting Issuer from paying
dividends subsequent to the Closing. It is not contemplated that any dividends
will be paid on the Resulting Issuer Common Shares in the immediate future
subsequent to the Closing as it is anticipated that all available funds will be
invested to finance the growth of the Resulting Issuers business. The directors
of the Resulting Issuer will determine if, and when, dividends will be declared
and paid in the future from funds properly applicable to the payment of
dividends based on the Resulting Issuers financial position at the relevant
time. All of the Resulting Issuer Common Shares are entitled to an equal share
in any dividends declared and paid subject to the rights of the holders of
Resulting Issuer First Preference Shares and Resulting Issuer Second Preference
Shares. See Information Concerning Amerix Description of the
Securities.
95
PRINCIPAL SECURITYHOLDERS
|
Type of Ownership |
Number of Resulting Issuer
Common Shares Beneficially Owned prior to giving effect to
the Acquisition |
Number of Resulting Issuer
Common Shares beneficially owned after giving effect to the
Acquisition, the Consolidation and the Stock Split and assuming
satisfaction of the Escrow Release Conditions |
Name and municipality of residence |
|
Number |
|
Percentage (%) |
Number |
|
Percentage (%) |
Latitude Minerals Inc.(1) British Columbia |
Of record and beneficially |
0
|
|
0%(2)
|
200,028,800
|
|
74.7%(1)
|
Notes:
(1) |
Latitude, a corporation incorporated under the
Business Corporations Act (British Columbia), currently holds
approximately 91% of the outstanding shares of Eagle. Mr. Deith is the
controlling shareholder of Latitude, which is expected to hold 200,028,800
Resulting Issuer Common Shares after giving effect to the Acquisition, the
Consolidation and the Stock Split and assuming satisfaction of the Escrow
Release Conditions. |
(2) |
Excludes any Resulting Issuer Common Shares issuable upon
the exercise of Resulting Issuer Stock Options, Resulting Issuer Warrants
or other convertible securities of the Resulting
Issuer. |
DIRECTORS, OFFICERS AND PROMOTERS
Promoters
No person or company has been, within the two most recently
completed financial years or during the current financial year of each of Amerix
and Eagle, a Promoter of Amerix or Eagle or a subsidiary thereof.
Directors and Officers of the Resulting Issuer
The names and jurisdictions of residence of the proposed
directors and officers of the Resulting Issuer, the number and percentage of
voting securities beneficially owned, or over which each exercises control or
direction, directly or indirectly, following the completion of the Acquisition
and assuming satisfaction of the Escrow Release Conditions and after giving
effect to the Consolidation and the Stock Split, and the offices to be held by
each in the Resulting Issuer are as follows:
Name and Country of Residence |
Position/Offices to be
Held |
Number of
Resulting Issuer Common Shares Beneficially Owned or
Controlled after giving effect to the Acquisition, the
Consolidation and the Stock Split and assuming satisfaction of
the Escrow Release Conditions (1)(2)(3) |
Percentage of
Resulting Issuer Common Shares Beneficially Owned or
Controlled after giving effect to the Acquisition, the
Consolidation and the Stock Split and assuming satisfaction of
the Escrow Release Conditions (1)(2)(3) |
Jamie Deith(4)(5) British
Columbia, Canada |
CEO and Director |
201,088,800(5) |
75.16% |
Dan Hamilton Ontario, Canada |
CFO |
66,250 |
Less than 1%
|
Steve Brunelle(4) Ontario, Canada |
Director |
54,934 |
Less than 1%
|
Robert Matter Mesa, Arizona, United
States of America |
Director |
Nil |
Nil |
Dr. Brian Bapty(4) British
Columbia, Canada |
Director |
Nil |
Nil
|
Notes:
(1) |
The information as to Resulting Issuer Common Shares
beneficially owned, or over which control or direction is exercised,
directly or indirectly, is based upon information furnished to Amerix by
the respective directors and senior officers as at the date
hereof. |
(2) |
Excludes any Resulting Issuer Common Shares issuable upon
the exercise of Resulting Issuer Stock Options, Resulting Issuer Warrants
or other convertible securities of the Resulting Issuer. |
(3) |
After giving effect to the Acquisition, the directors,
officers and promoters of the Resulting Issuer, and their respective
Associates and Affiliates, will, collectively, hold 201,209,984 Resulting
Issuer Common Shares, representing approximately 75.21% of the issued and
outstanding Resulting Issuer Common Shares, assuming satisfaction of the
Escrow Release Conditions. |
(4) |
Proposed member of the Audit Committee of the Resulting
Issuer. |
(5) |
Includes securities held by Latitude. Latitude, a
corporation incorporated under the Business Corporations Act
(British Columbia), currently holds approximately 91% of the
outstanding shares of Eagle. Mr. Deith is the controlling shareholder of
Latitude, which is expected to hold 200,028,800 Resulting
Issuer Common Shares after giving effect to the Acquisition, the Consolidation
and the Stock Split and assuming satisfaction of the Escrow Release Conditions. |
96
As at the date of this Circular and after giving effect to the
Acquisition, the Consolidation and the Stock Split and assuming satisfaction of
the Escrow Release Conditions, the directors and executive officers of the
Resulting Issuer as a group beneficially own, directly or indirectly, or
exercise control or direction over, an aggregate of approximately 201,209,984
Resulting Issuer Common Shares, representing approximately 75.21% of the issued
and outstanding Resulting Issuer Common Shares.
Each director of the Resulting Issuer will hold office until
the next annual meeting of the shareholders of the Resulting Issuer or until his
or her successor is duly elected or appointed, as the case may be, unless his or
her office is earlier vacated in accordance with the by-laws of the Resulting
Issuer or the provisions of the OBCA to which the Resulting Issuer will be
subject or any similar corporate legislation to which the Resulting Issuer
becomes subject.
The following sets out details respecting the proposed
directors and officers of the Resulting Issuer, including the principal
occupation of each individual for at least the preceding five years.
Jamie Deith, President, Chief Executive Officer and
Director
Jamie Deith has served as the President and sole director of
Eagle since its incorporation in 2004. Previously, Mr. Deith served as Chief
Technology Officer of Wantsa Inc., and as President of CV Sleep Ltd., a company
specializing in the treatment of sleep disorders. Mr. Deith also served as
Managing Director of TD Banks Capital Markets in the derivatives division. He
enjoyed a 12-year career in TD Banks derivatives business, working his way up
through various positions, ranging from Programmer to Global Co-Head of Exotic
Derivatives Trading, and finally Managing Director of Derivatives Systems. He
served at TD Bank until 2003 and his various roles included postings in Toronto,
London, and Dublin. Mr. Deith has an undergraduate degree in Systems Design
Engineering from the University of Waterloo. Mr. Deith will work full time for
the Resulting Issuer as President, Chief Executive Officer, and a
non-independent director. Mr. Deith has not and does not currently have a
non-competition or non-disclosure agreement with Eagle, nor does he intend to
enter into such agreement with the Resulting Issuer.
Steve Brunelle, Director
Steve Brunelle is the current President and CEO and a director
of Amerix. He is a Canadian geologist with over 30 years of experience in
mineral exploration throughout the Americas. He has been an officer and director
of several resource companies, most recently Stingray Copper Inc., and prior to
that, Corner Bay Silver Inc. At Stingray Copper, the bulk Mexican minable oxide
copper deposit, El Pilar, was taken to feasibility in 2009 and, thereafter,
Stingray was merged with Mercator Minerals Ltd. At Corner Bay Silver, the bulk
minable silver deposit, Alamo Dorado, was taken to feasibility and Corner Bay
was acquired by Pan American Silver Corp.
Brian Bapty, Ph.D., Director
Dr. Bapty has been active in the capital markets for the last
14 years, most recently as the President and former Director of Confederation
Minerals Ltd. and as a consultant for Helius Medical Technologies, both publicly
traded companies. Prior to this Dr. Bapty was the CEO of the institutional
brokerage firm Northland Capital Partners. Also in the brokerage industry, Dr.
Bapty held two positions at Raymond James, most recently as VP institutional
sales (London, UK), where he moved after eight years as a Healthcare and
Biotechnology Analyst (Vancouver). Dr. Bapty received both his PhD in
Experimental Medicine and his BSc in Cell and Developmental Biology from the
University of British Columbia. During both degrees Dr. Bapty was a senior
executive and director for a number of junior resource companies. Dr. Baptys
capital markets experience, business plan analysis skills and general experience
with high-growth companies are key assets for Eagle.
Robert Matter, P.E., Director
Mr. Matter is a registered professional Mining engineer, with
JDS Energy & Mining Inc. Mr. Matter has more than 21 years of progressive
experience in a broad range of management and engineering roles directly
involved with the mining industry. With engineering experience in open pit and
strip coal mining, open pit metals mining, and aggregate resource operations, he
has developed a solid understanding of both the financial and operational
criteria necessary for a mining operation to be competitively successful.
97
Daniel Hamilton, Chief Financial Officer
Dan Hamilton is the current Chief Financial Officer of Amerix.
He has served as the CFO or a board member of several companies listed on the
Toronto Stock Exchange or the Exchange since 2003. His prior experience includes
serving as Vice-President, Controller for Amec Americas (a multi-national
engineering and project management services firm) and as Group Controller, Zinc
at Noranda.
Corporate Cease Trade Orders or Bankruptcies
Except as disclosed below, no proposed director, officer,
Promoter or securityholder anticipated to hold a sufficient number of securities
of the Resulting Issuer to affect materially the control of the Resulting Issuer
has, within the previous ten year period, been a director, officer or Promoter
of any other issuer that, while that person was acting in that capacity, was the
subject of a cease trade order or similar order, or an order that denied the
other issuer access to any exemptions under applicable securities legislation,
for a period of more than 30 consecutive days, or became bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceedings, arrangement or compromise with
creditors or had a receiver, receiver manager or trustee appointed to hold its
assets.
Mr. Daniel Hamilton was the Chief Financial Officer of McLaren
Resources Inc. (McLaren) and was subject to a cease trade order imposed
by the Ontario Securities Commission on February 4, 2009 for the failure of
McLaren to file its audited annual financial statements and related MD&A for
the year ended September 30, 2008. Mr. Hamilton resigned as the Chief Financial
Officer of McLaren on March 16, 2009. The cease trade order against McLaren was
subsequently revoked on December 22, 2009.
Penalties or Sanctions
No proposed director, officer, Promoter or securityholder
anticipated to hold a sufficient number of securities of the Resulting Issuer to
affect materially the control of the Resulting Issuer has been subject to any
penalties or sanctions imposed by a court relating to securities legislation or
by a securities regulatory authority or has entered into a settlement agreement
with a securities regulatory authority or has been subject to any other
penalties or sanctions imposed by a court or regulatory body or self-regulatory
authority that would be likely to be considered important to a reasonable
securityholder making a decision about the Acquisition.
Personal Bankruptcies
No proposed director, officer, Promoter or securityholder
anticipated to hold a sufficient number of securities of the Resulting Issuer to
affect materially the control of the Resulting Issuer, or a personal holding
company of any such persons, has within the ten years preceding the date of this
Circular, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or been subject to or instituted any proceedings,
arrangement or compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold the assets of the individual.
Conflicts of Interest
There are potential conflicts of interest to which the proposed
directors, officers or Promoters of the Resulting Issuer may be subject in
connection with the operations of the Resulting Issuer. Certain of the
directors, officers and Promoters are engaged in and will continue to be
engaged in corporations or businesses which may be in competition with the
business of the Resulting Issuer. Accordingly, situations may arise where the
directors, officers or Promoters will be in direct competition with the
Resulting Issuer. Conflicts, if any, will be subject to the procedures and
remedies as provided under the OBCA. See also Information Concerning Eagle
Risk Factors Possible Conflicts of Interest of Directors and Officers of the
Resulting Issuer.
Other Reporting Issuer Experience
The following table sets out the proposed directors, officers
and Promoters of the Resulting Issuer that are, or have been within the last
five years, directors, officers or Promoters of other reporting issuers:
Name of Director or
Officer
|
Name and
Jurisdiction of Reporting Issuer
|
Exchange
|
Position
|
From
|
To
|
Steven Brunelle
|
Duran Ventures Inc. Rio
Silver Inc. Messina Minerals Klondike Gold Corp. |
(TSXV: DRV) (TSXV: RYO) (TSXV: MMI)
(TSXV:KG) |
Director Director Director
Director |
July 2010 April 2006 December 2000
February 2014 |
Present Present December 2013
Present |
98
Name of Director
or Officer |
Name and Jurisdiction of
Reporting Issuer |
Exchange |
Position |
From |
To |
Dr. Brian Bapty |
Confederation Minerals Ltd. |
(TSXV: CFM) |
Director |
March 2012 |
November 2014 |
Robert Matter |
N/A |
N/A |
N/A |
N/A |
N/A |
EXECUTIVE COMPENSATION
It is anticipated that following the completion of the
Acquisition, the objective and approach to executive compensation of the
Resulting Issuer will be the same as that of Amerix. See Information
Concerning Amerix Executive Compensation, having regard to industry
standards for companies similar to the Resulting Issuer.
It is anticipated that the following executive officers will
receive the following base compensation for the 12 month period after completion
of the Acquisition:
|
(a) |
Jamie Deith, President, Chief Executive Officer and a
director $100,000 per annum; and |
|
|
|
|
(b) |
Daniel Hamilton, Chief Financial Officer $60,000
per annum. |
INDEBTEDNESS OF DIRECTORS AND OFFICERS
No director or officer of Amerix or Eagle, or a person who
acted in such capacity in the last financial year of each of Amerix or Eagle, or
a proposed director or officer of the Resulting Issuer, or any Associate of any
such director or officer is, or has been at any time since the beginning of the
most recently completed financial year of each of Amerix and Eagle, indebted to
Amerix or Eagle, as the case may be, nor has any indebtedness of any such person
to another entity been the subject of a guarantee, support agreement, letter of
credit or other similar arrangement or understanding provided by Amerix or
Eagle.
INVESTOR RELATIONS ARRANGEMENTS
No written or oral agreement or understanding has been reached
with any person to provide any promotional or investor relations services for
the Resulting Issuer.
OPTIONS TO PURCHASE SECURITIES
The following chart sets out information as to Resulting Issuer
Stock Options that will be held upon the completion of the Acquisition, assuming
completion of the Consolidation, by the following persons:
Optionee |
Number of Resulting Issuer
Common Shares Reserved under Option |
Exercise Price per
Resulting Issuer Common Share |
Expiry Date |
All proposed officers of the
Resulting Issuer(1) |
25,000 7,500 2,500 |
$6.00 $4.40 $2.20 |
March 7, 2015 July 19, 2016
January 17, 2017 |
All proposed directors of the
Resulting Issuer who are not also officers (2) |
50,000 7,500 2,500 |
$7.50 $4.40 $2.20 |
January 25, 2016 July 19,
2016 January 17, 2017 |
Former officers and directors
of Amerix (3) |
25,000 25,000 7,500 |
$6.00 $4.40 $2.20 |
March 7, 2015 July 19, 2016
January 17, 2017 |
Former officers and directors
of Eagle |
Nil |
N/A |
N/A |
Former consultants of Amerix
|
10,416 10,000 1,250
2,500 |
$6.00 $4.40 $2.20
$2.40 |
March 7, 2015 July 19, 2016
January 17, 2017 October 1, 2017 |
Notes:
(1) |
The individuals comprising this group are as follows: Dan
Hamilton. |
(2) |
The individuals comprising this group are as follows:
Steve Brunelle. |
(3) |
The individuals comprising this group are as follows:
Jeffrey Reeder, Robert Crombie, and Luciano
Borges. |
99
RESULTING ISSUER STOCK OPTION PLAN
Following the Acquisition, the Resulting Issuer will adopt and
administer the Amerix Stock Option Plan, which was approved by Amerix
Shareholders at the January Meeting. See Information Concerning Amerix
Amerix Stock Option Plan.
ESCROWED SECURITIES
The following table sets out the Holders of Resulting Issuer
securities that will be subject to escrow, the number of such Resulting Issuer
securities to be held by each and the percentage this represents of the issued
and outstanding Resulting Issuer Common Shares immediately following the
completion of the Acquisition, the Consolidation and the Stock Split and
assuming satisfaction of the Escrow Release Conditions. Please note that the
below table is provided based on the expectations of the Resulting Issuer and
has not been approved by the Exchange and as such is subject to change.
Name and Municipality of
Residence of Securityholder |
Designation of
Class |
After Giving Effect to the
Acquisition, the Consolidation, the
Stock Split and the Private
Placements and assuming satisfaction of the Escrow Release
Conditions
|
Number of Securities to be
held
in Escrow |
Percentage of Class
|
[Tier 1 Value Security Escrow
Agreement](1) |
Latitude Minerals Inc., Courtenay, BC
(2) |
Resulting Issuer Common
Shares |
200,028,800 |
74.7% |
Daniel Hamilton, Toronto, Ontario |
Resulting Issuer Common
Shares |
66,250 |
Less than 1% |
Steven Brunelle, Toronto, Ontario |
Resulting Issuer Common
Shares |
54,934 |
Less than 1% |
[Tier 2 Value Security Escrow
Agreement](3) |
Jamie Deith, Courtenay, BC |
Resulting Issuer Common
Shares |
1,060,000 |
Less than 1% |
Notes:
(1) |
The Resulting Issuer Common Shares subject to the Tier 1
Value Security Escrow Agreement will be released from escrow as follows:
25% immediately following the issuance of the Final Exchange Bulletin in
respect of the Acquisition and 25% every six months thereafter for a
period of 18 months from the date of the Final Exchange Bulletin. The
escrow agent will be Equity Financial Trust Company. |
(2) |
Latitude, a corporation incorporated under the
Business Corporations Act (British Columbia), currently holds
approximately 91% of the outstanding shares of Eagle. Mr. Deith is the
controlling shareholder of Latitude, which is expected to hold 200,028,800
Resulting Issuer Common Shares after giving effect to the Acquisition, the
Consolidation and the Stock Split and assuming satisfaction of the Escrow
Release Conditions. |
(3) |
The Resulting Issuer Common Shares subject to the Tier 2
Value Security Escrow Agreement will be released from escrow as follows:
10% immediately following the issuance of the Final Exchange Bulletin in
respect of the Acquisition and 15% every six months thereafter for a
period of 36 months from the date of the Final Exchange Bulletin. If the
Resulting Issuer meets the Exchange Tier 1 minimum listing requirements
after the completion of the Acquisition, the release of the Resulting
Issuer Common Shares will be accelerated. The escrow agent will be Equity
Financial Trust Company. |
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditor of the Resulting Issuer immediately after
completion of the Acquisition is anticipated to be MNP LLP, Chartered
Accountants, 701 Evans Avenue, 8th Floor, Toronto, Ontario, M9C
1A3.
Upon the completion of the Acquisition, it is intended that the
Resulting Issuers transfer agent and registrar will be Equity Financial Trust
Company, 200 University Avenue, Suite 300, Toronto, Ontario, M5H 4H1.
RISK FACTORS
In addition to the risk factors described under Information
Concerning Amerix Risk Factors and Information Concerning Eagle
Risk Factors, there are risks associated with completion of the
Acquisition.
Immediate Dilutive Effect of Acquisition
An aggregate of 267,541,546 Resulting Issuer Common Shares are
anticipated to be issued and outstanding upon completion of the Acquisition. As
a result, former Amerix Shareholders will experience immediate and substantial
dilution. In addition,
100
Eagle has issued approximately $825,000 aggregate principal
amount of Eagle Notes (which are convertible into 9,240,000 Eagle Common Shares
and 4,620,000 Eagle Warrants, in each case on a post-Stock Split basis), 400,000
stock options (which are convertible into 8,000,000 Eagle Common Shares on a
post-Stock Split basis as well as 7,525,000 Eagle Warrants and 1,053,500 Eagle
Broker Warrants, which will be replaced with Resulting Issuer Warrants and
Resulting Issuer Broker Warrants, respectively. If these Resulting Issuer
Warrants and Resulting Issuer Broker Warrants are exercised, former Amerix
Shareholders will experience further dilution.
Failure to Realize the Anticipated Benefits of the
Acquisition
Both Amerix and Eagle believe the Acquisition will provide
benefits to their respective shareholders. However, there is a risk that
anticipated benefits of the Acquisition may not materialize, or may not occur
within the time frames anticipated by Amerix and Eagle. The realization of such
benefits may be affected by a number of factors, many of which are beyond the
control of the Resulting Issuer. The market price of Resulting Issuer Common
Shares may decline as a result of the transaction if the Resulting Issuer does
not achieve the perceived benefits of the Acquisition as rapidly as, or to the
extent, anticipated. Accordingly, shareholders of the Resulting Issuer may
experience a loss as a result of a decline in the market price of the Resulting
Issuer Common Shares. In addition, a decline in the market price of the
Resulting Issuer Common Shares could adversely affect the Resulting Issuers
ability to issue additional securities and its ability to obtain additional
financing in the future.
Meeting the Obligations Under the ANH Off-Take Agreement
and GSA
The Resulting Issuer will assume Eagles obligations as set
forth under the ANH Off-Take Agreement and as set forth pursuant to the ANH LOI.
In order to meet these obligations, Eagle must make monthly deliveries to ANH
totalling an aggregate of 1,620 metric tonnes of graphite between January 31,
2015 and June 30, 2016 or else refund the balance of the Prepayment Amount
advanced to Eagle in connection with the ANH Off-Take Agreement, approximately
equal to $1,522,000 (after conversion into Canadian funds). While Eagle
anticipates that it will be able to comply with the obligations set forth
pursuant to the ANH Off-Take Agreement, there can be no assurances that either
Eagle or the Resulting Issuer will be able to do so. In order to secure the
Prepayment Amount of approximately $1,522,000 advanced to Eagle in connection
with the ANH Off-Take Agreement, ANH has registered the GSA over all of Eagles
present and after-acquired property, and Eagle has granted ANH a security
assignment of certain contracts, rights, permits and licenses under the ANH
Security Assignment Agreement. In the event that Eagle or the Resulting Issuer
is unable to meet the obligations under the ANH Off-Take Agreement and as set
forth pursuant to the ANH LOI, ANH may be able to realize on its security
interest pursuant to the GSA and/or pursuant to the ANH Security Assignment
Agreement, which could have a material adverse effect on the Resulting Issuer
and its operations.
Lack of Experience in Managing a Public Entity
Management has historically operated the business of the
Resulting Issuer as a privately-owned company. The individuals who will
constitute the Resulting Issuers senior management team have limited experience
in managing a publicly traded entity. The Resulting Issuer may be adversely
affected if these individuals are unable to satisfactorily manage a public
entity and ensure the Resulting Issuers compliance with all continuous
disclosure and other requirements applicable to public entities.
Absence of a Prior Public Market
There has been no public market for the Eagle Common Shares and
there can be no assurance that an active public market will develop or be
sustained after the closing of the Acquisition for the Resulting Issuer Common
Shares. The lack of an active public market could have a material adverse effect
on the price and liquidity of the Resulting Issuer Common Shares and the share
price may decline below the offering price under the Private Placements. The
offering price of securities sold under the Private Placements was determined by
negotiation between each of Eagle and Amerix and the Agent based on several
factors and may not be indicative of the fair value or the future market prices
of the Resulting Issuer Common Shares.
Influence by Latitude
Upon closing of the Acquisition, the principal shareholder of
the Resulting Issuer, Latitude, will hold or control, directly or indirectly,
200,028,800 Resulting Issuer Common Shares representing approximately 74.7% of
the Resulting Issuer Common Shares. As a result, Latitude will have the ability
to affect the control of the Resulting Issuers strategic direction and
policies, including any sale of all or substantially all of its assets, the
election and composition of the board of directors of the Resulting Issuer, the
amendment of the Resulting Issuers constating documents and the declaration of
dividends. The foregoing ability to affect the control and direction of the
Resulting Issuer could adversely affect investors perception of the Resulting Issuers corporate governance and reduce its
attractiveness as a target for potential take-over bids and business
combinations, and correspondingly affect its share price.
101
Future Sales of Shares by Latitude
Sales by Latitude of a large number of Resulting Issuer Common
Shares in the public markets, or the potential for such sales, could decrease
the trading price of the Resulting Issuer Common Shares and could impair the
Resulting Issuers ability to raise capital through future sales of Resulting
Issuer Common Shares.
Shares May be Affected by Different Factors
Upon completion of the Acquisition, former Eagle Shareholders
and former Amerix Shareholders will become shareholders of the Resulting Issuer.
The Resulting Issuers results of operations, as well as the trading price of
the Resulting Issuer Common Shares, may be affected by factors different from
those affecting Eagle or Amerix. Therefore, events or circumstances that might
not have caused the Amerix Common Shares to decline in value might result in a
decline in value of the Resulting Issuer Common Shares. Moreover, events or
circumstances that might have caused an increase in the value of the Amerix
Common Shares might not result in an increase in the value of the Resulting
Issuer Common Shares.
Future Profits/Losses and Production Revenues/Expenses
There can be no assurance that significant losses will not
occur in the near future or that the Resulting Issuer will be profitable in the
future. The Resulting Issuers operating expenses and capital expenditures may
increase in subsequent years as consultants, personnel and equipment associated
with advancing exploration, development and commercial production, if any, of
the Black Crystal Property and any other properties the Resulting Issuer may
acquire are added. The amounts and timing of expenditures will depend on the
progress of ongoing exploration and development, the results of consultants
analyses and recommendations, the rate at which operating losses are incurred,
the execution of any joint venture agreements with strategic partners, and the
Resulting Issuers acquisition of additional properties and other factors, many
of which are beyond the Resulting Issuers control. The Resulting Issuer does
not expect to receive revenues from operations in the foreseeable future. The
Resulting Issuer expects to incur losses unless and until such time as the Black
Crystal Property or any other properties the Resulting Issuer may acquire enter
into commercial production and generate sufficient revenues to fund its
continuing operations. The development of the Black Crystal Property and any
other properties the Resulting Issuer may acquire will require the commitment of
substantial resources to conduct the time-consuming exploration and development
thereof. There can be no assurance that the Resulting Issuer will generate any
revenues or achieve profitability. There can be no assurance that the underlying
assumed levels of expenses will prove to be accurate.
Exchange Approval May Not be Granted
The Exchange has not approved the transactions associated with
the Acquisition, the contents of this Circular or the listing of the Resulting
Issuer Common Shares, and there can be assurances that such approval will be
forthcoming. In the event the Exchange does not approve the Acquisition and
related transactions, the Acquisition will not proceed on the terms set out
herein, and the Resulting Issuer Common Shares will not be listed on the
Exchange.
102
GENERAL MATTERS
SPONSORSHIP AND AGENT RELATIONSHIP
Amerix, Eagle and the Resulting Issuer are relying on the
exemption from the sponsorship requirement of the Exchange based on the
exemption provided by Section 3.4 of Exchange Policy 2.2 Sponsorship and
Sponsorship Requirement.
EXPERTS
Interest of Experts
No experts have any interest, direct or indirect, in Amerix or
Eagle other than as disclosed below.
T.H. Carpenter and A. Koffyberg prepared the Technical Report.
Neither of T.H. Carpenter nor A. Koffyberg nor any of their respective
Associates has any interest, direct or indirect, in Amerix, Eagle or the
Resulting Issuer.
MNP LLP, Chartered Accountants, the auditors of Amerix, audited
the financial statements of Amerix for the years ended July 31, 2014, 2013 and
2012, and delivered the auditors report thereon. The audited financial
statements of Amerix are posted on Amerixs SEDAR profile, available at www.sedar.com. Neither MNP LLP nor any Associate or
Affiliate thereof has any interest, direct or indirect, in Amerix, Eagle or the
Resulting Issuer.
Collins Barrow Toronto LLP, the auditors of Eagle, audited the
financial statements of Eagle for the years ended May 31, 2014 and 2013, and
delivered the auditors report thereon, attached as Exhibit A to this Circular.
Neither Collins Barrow Toronto LLP nor any Associate or Affiliate thereof has
any interest, direct or indirect, in Amerix, Eagle or the Resulting Issuer.
Wildeboer Dellelce LLP is counsel to Amerix in connection with
certain legal matters relating to the Acquisition. As of the date hereof and
after giving effect to the Acquisition, the partners and associates of Wildeboer
Dellelce LLP, as a group, beneficially own, directly and indirectly, less than
1% of the outstanding Resulting Issuer Common Shares.
Cassels Brock & Blackwell LLP is counsel to Eagle in
connection with certain legal matters relating to the Acquisition. As of the
date hereof and after giving effect to the Acquisition, the partners and
associates of Cassels Brock & Blackwell LLP, as a group, beneficially own,
directly and indirectly, less than 1% of the outstanding Resulting Issuer Common
Shares.
OTHER MATERIAL FACTS
Costs of the Acquisition, including expenses incurred by Amerix
and Eagle in respect of legal, accounting, professional advisory fees,
transfer agent, printing and stock exchange listing fees are estimated to be
$445,000, including the fees payable to the Agent in connection with the
Private Placements.
There are no other material facts regarding Amerix, Eagle, the
Resulting Issuer, the Acquisition or matters related thereto that have not been
disclosed in this Circular.
BOARD APPROVAL
The contents and filing of this Circular have been approved by
each of the Amerix Board and the Eagle Board. Where information contained in
this Circular rests particularly within the knowledge of a person other than
Amerix and Eagle, Amerix and Eagle have relied upon information furnished by
such person.
103
CERTIFICATES
CERTIFICATE OF AMERIX PRECIOUS METALS CORPORATION
The foregoing document constitutes full, true and plain
disclosure of all material facts relating to the securities of Amerix Precious
Metals Corporation assuming the completion of the Acquisition.
Dated: November 25, 2014.
(signed) Steve Brunelle |
(signed) Daniel Hamilton |
Chief Executive Officer |
Chief Financial Officer |
On behalf of the Board of Directors
(signed) Steve Brunelle |
(signed) Robert Crombie |
Director |
Director |
104
CERTIFICATE OF EAGLE GRAPHITE CORPORATION
The foregoing document as it relates to Eagle Graphite
Corporation constitutes full, true and plain disclosure of all material facts
relating to the securities of Eagle Graphite Corporation.
Dated: November 25, 2014.
(signed) Jamie Deith
President
On behalf of the Board of Directors
(signed) Jamie Deith
Director
105
EXHIBIT A
EAGLE FINANCIAL STATEMENTS AND MD&A
Unaudited Interim Financial Statements for the Three Months
Ended August 31, 2014 and 2013
Audited Annual Statements for the Years Ended May 31, 2014 and
2013
Annual Financial Statements for the Years Ended May 31, 2013
(audited) and 2012 (unaudited)
Management Discussion and Analysis for the Years Ended May 31,
2014, May 31, 2013, and May 31, 2012
Management Discussion and Analysis for the Three Month Period
ended August 31, 2014
A-1
Eagle Graphite Corporation
Unaudited Condensed Interim Financial Statements
For the Three Months Ended August 31, 2014 and 2013
(Expressed in Canadian Dollars, unless otherwise noted)
Eagle Graphite Corporation
|
Unaudited Condensed Interim Statements of Financial
Position |
(Expressed in Canadian Dollars) |
As at
|
|
|
August 31, 2014 |
|
|
May 31, 2014 |
|
|
|
|
|
|
(audited) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
53,988 |
|
$ |
57,811 |
|
Other receivables (note
4) |
|
14,582 |
|
|
12,460 |
|
Prepaid expenses |
|
26,606 |
|
|
26,606 |
|
|
|
|
|
|
|
|
|
|
95,176 |
|
|
96,877 |
|
|
|
|
|
|
|
|
Mineral property rights (note 5) |
|
241,016 |
|
|
241,016 |
|
Reclamation bond (note 6) |
|
135,000 |
|
|
135,000 |
|
Property, plant and equipment (note 7) |
|
190,860 |
|
|
208,840 |
|
|
|
|
|
|
|
|
|
$ |
662,052 |
|
$ |
681,733 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
$ |
99,903 |
|
$ |
88,420 |
|
Advances under graphite sales contract
(note 9) |
|
1,521,116 |
|
|
1,521,116 |
|
Notes payable (note 10)
|
|
475,000 |
|
|
375,000 |
|
Due to shareholder (note 15) |
|
21,007 |
|
|
21,007 |
|
|
|
2,117,026 |
|
|
2,005,543 |
|
|
|
|
|
|
|
|
Decommissioning obligation
(notes 6 and 11) |
|
135,000 |
|
|
135,000 |
|
|
|
2,252,026 |
|
|
2,140,543 |
|
|
|
|
|
|
|
|
Shareholders' Equity (Deficiency) |
|
|
|
|
|
|
Share capital (note 8)
|
|
4,806,453 |
|
|
4,806,453 |
|
Contributed surplus (note 8) |
|
190,506 |
|
|
190,506 |
|
Deficit |
|
(6,586,933 |
) |
|
(6,455,769 |
) |
|
|
|
|
|
|
|
|
|
(1,589,974 |
) |
|
(1,458,810 |
) |
|
|
|
|
|
|
|
|
$ |
662,052 |
|
$ |
681,733 |
|
Nature of operations and going concern (Note 1)
Commitments
(Note 13)
Subsequent events (Note 17)
Approved on behalf of the Board
Jamie
Deith
Signed: Director
The accompanying notes are an integral part of these unaudited
condensed interim financial statements
2
Eagle Graphite Corporation
|
Unaudited Condensed Interim Statements of Comprehensive
Loss |
For the three months ended August 31 |
(Expressed in
Canadian Dollars) |
|
|
2014 |
|
|
2013
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Exploration and evaluation (note 5) |
$ |
94,135 |
|
$ |
190,109 |
|
Advertising |
|
259 |
|
|
- |
|
Travel |
|
3,009 |
|
|
8,011 |
|
Office and general |
|
23,468 |
|
|
45,519 |
|
Amortization
|
|
9,669 |
|
|
9,739
|
|
|
|
130,540 |
|
|
253,378 |
|
Other income (expense) |
|
|
|
|
|
|
Interest income |
|
(624 |
) |
|
1,840 |
|
|
|
|
|
|
|
|
Loss and comprehensive loss for the period |
$ |
(131,164 |
) |
$ |
(251,538 |
) |
|
|
|
|
|
|
|
Basic and diluted loss per share |
$ |
(0.01 |
) |
$ |
(0.02 |
) |
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
11,009,940 |
|
|
11,001,440 |
|
The accompanying notes are an integral part of these unaudited
condensed interim financial statements
3
Eagle Graphite Corporation
|
Unaudited Condensed Interim Statements of Changes in Equity
|
For the three months ended August 31 |
(Expressed in
Canadian Dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Contributed |
|
|
|
|
|
shareholders' |
|
|
|
Number of shares |
|
|
Amount |
|
|
surplus |
|
|
Deficit |
|
|
deficit |
|
Balance at May 31, 2013
|
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
- |
|
$ |
(5,922,382 |
) |
$ |
(1,132,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
(251,538 |
) |
|
(251,538 |
) |
Balance at August 31, 2013 |
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
- |
|
$ |
(6,173,920 |
) |
$ |
(1,384,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation (note 8) |
|
8,500 |
|
|
17,000 |
|
|
- |
|
|
- |
|
|
17,000 |
|
Share-based
compensation (note 8) |
|
- |
|
|
- |
|
|
190,506 |
|
|
- |
|
|
190,506 |
|
Loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
(281,849 |
) |
|
(281,849 |
) |
Balance at May 31, 2014 |
|
11,009,940 |
|
$ |
4,806,453 |
|
$ |
190,506 |
|
$ |
(6,455,769 |
) |
$ |
(1,458,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
(131,164 |
) |
|
(131,164 |
) |
Balance at August 31, 2014 |
|
11,009,940 |
|
$ |
4,806,453 |
|
$ |
190,506 |
|
$ |
(6,586,933 |
) |
$ |
(1,589,974 |
) |
The accompanying notes are an integral part of these unaudited
condensed interim financial statements
4
Eagle Graphite Corporation
|
Unaudited Condensed Interim Statements of Changes in Equity
|
For the three months ended August 31 |
(Expressed in
Canadian Dollars) |
|
|
2014 |
|
|
2013
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
Loss for the period |
$ |
(131,164 |
) |
$ |
(251,538 |
) |
Items not involving cash: |
|
|
|
|
|
|
Amortization |
|
17,980 |
|
|
18,051 |
|
Changes in non-cash operating working
capital: |
|
|
|
|
|
|
Other receivables |
|
(2,122 |
) |
|
(6,047 |
) |
Accounts payable and accrued
liabilities |
|
11,483 |
|
|
(49,514 |
) |
|
|
|
|
|
|
|
|
|
(103,823 |
) |
|
(289,048 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
Advances from shareholders |
|
- |
|
|
10,982 |
|
Notes issued |
|
100,000 |
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
135,982 |
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(3,823 |
) |
|
(153,066 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
57,811 |
|
|
178,173 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
$ |
53,988 |
|
$ |
25,107 |
|
The accompanying notes are an integral part of these unaudited
condensed interim financial statements
5
Eagle Graphite Corporation
|
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
1. |
Nature of operations and going concern |
|
|
|
|
Eagle Graphite Corporation (the Company or Eagle) is
a graphite exploration and evaluation company located in British Columbia,
Canada. The address of the Companys registered office is 2100-40 King Street West, Toronto, ON, M5H 3C2. |
|
|
|
|
These unaudited condensed interim financial statements
were approved by the Companys board of directors on November 25,
2014. |
|
|
|
|
These unaudited condensed interim financial statements
have been prepared on the basis of a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course
of business. The Company is currently in the exploration stage and has not
commenced commercial operations. As at August 31, 2014, the Company has an
accumulated deficit of $6,586,933 and has not yet generated positive cash
flows from operations. |
|
|
|
|
In assessing whether the going concern assumption is
appropriate management takes into account all available information about
the foreseeable future, which is at least, but not limited to, twelve
months from the end of the reporting period. The Companys ability to
continue operations and fund its mining interest expenditures is dependent
on managements ability to secure additional financing; this casts
significant doubt about the Companys ability to continue as a going
concern. Management is actively pursuing such additional sources
of financing, and while it has been successful in doing so in the past,
there can be no assurance it will be able to do so in the future. The
financial statements do not give effect to the required adjustments to the
carrying amounts and classifications of assets and liabilities should the
Company be unable to continue as a going concern. |
|
|
|
2. |
Basis of preparation |
|
|
|
|
(a) |
Statement of compliance |
|
|
|
|
|
These unaudited condensed interim financial statements
are in compliance with International Accounting Standard (IAS) 34,
Interim Financial Reporting. Accordingly, certain information and
footnote disclosure normally included in annual financial statements
prepared in accordance with International Financial Reporting Standards
(IFRS), as issued by the International Accounting Standards Board (IASB),
have been omitted. The preparation of these unaudited condensed interim
financial statements in accordance with IAS 34 requires the use of certain
critical accounting estimates. It also requires management to exercise
judgment in applying the Company's accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the financial statements have
been set out in note 3 of the Company's financial statements for the year
ended May 31, 2014. |
|
|
|
|
(b) |
Basis of presentation |
|
|
|
|
|
The unaudited condensed interim financial statements have
been prepared on the historical cost basis. Where there are assets and
liabilities calculated on a different basis, this fact is disclosed in the
relevant accounting policy. |
6
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
2. |
Basis of preparation (continued) |
|
|
|
|
(c) |
Functional and presentation currencies |
|
|
|
|
|
The Companys functional currency, as determined by
management is Canadian dollars. These financial statements are presented in Canadian
dollars. |
|
|
|
|
(d) |
Use of estimates and judgments |
|
|
|
|
|
The preparation of unaudited condensed interim financial
statements requires management to make judgments, estimates and
assumptions that affect the application of policies and reported amounts
of assets and liabilities, and revenue and expenses. The estimates and
associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgments about carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. |
|
|
|
|
|
The estimates, judgements and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and further
periods if the review affects both current and future periods. Significant
estimates include: |
|
|
|
|
|
Amounts recognized for amortization and amounts used for
impairment calculations are based on estimates of useful life and expected
cash flows. By their nature, the estimates of future prices, costs,
discount rates and the related future cash flows are subject to
measurement uncertainty. |
|
|
|
|
|
Tax interpretations, regulations and legislations in the
jurisdiction in which the Company operates are subject to change. As such,
income taxes are subject to measurement uncertainty. Deferred income tax
assets are assessed by management at the end of the reporting period to
determine the likelihood that they will be realized from future taxable
earnings. |
|
|
|
|
|
The application of the Companys accounting policy for
mineral property interest acquisition costs requires judgment in
determining whether it is likely that future economic benefits will flow
to the Company, which may be based on assumptions about future events or
circumstances. Estimates and assumptions made may change if new
information becomes available. If, after costs are capitalized,
information becomes available suggesting that the recovery of expenditure
is unlikely, the amount capitalized is written off to profit or loss in
the period the new information becomes available. |
|
|
|
|
|
Amounts recognized for decommissioning obligations and
the related accretion expense requires the use of estimates with respect
to the amount and timing of decommissioning expenditures. Other provisions
are recognized in the period when it becomes probable that there will be a
future cash outflow. |
|
|
|
|
|
Judgement is required to determine the functional
currency of the Company. These judgements are continuously evaluated and
are based on managements experience and knowledge of relevant facts and
circumstances. |
|
|
|
|
|
Assessing the stage of a mineral property to determine
when a mineral property moves into the development and production stage
being when the mineral property demonstrates commercial viability and
technical feasibility requires the use of judgement. The
Company |
7
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
2. |
Basis of preparation (continued) |
|
|
|
|
(d) |
Use of estimates and judgments (continued) |
|
|
|
|
|
considers various relevant criteria to assess when the
development and production phases are considered to commence and all
related amounts are reclassified from the mineral property under
construction to a producing mine and plant and equipment. |
|
|
|
3. |
Significant accounting policies |
|
|
|
|
The unaudited condensed interim financial statements are
prepared in accordance with IFRS and follow the same accounting policies
and methods of their application as the most recent audited financial
statements for the year ended May 31, 2014. These unaudited condensed
financial statements should be read in conjunction with those audited
financial statements. |
|
|
|
|
New standards and interpretations issued but not yet
adopted |
|
|
|
|
The following pronouncements issued by the IASB and
interpretations published by IFRIC will become effective for annual
periods beginning on or after January 1, 2014, with earlier adoption
permitted. |
|
|
|
|
IFRS 7 (Amendment): Financial Instruments: Disclosures is
effective for annual periods beginning on or after 1 January 2015 and
requires modification of associated disclosures upon application of IFRS 9
Financial Instruments: Classification and Measurement. |
|
|
|
|
IFRS 9 Financial Instruments was issued by the IASB in
October 2010 and will replace IAS 39 Financial Instruments: Recognition
and Measurement. IFRS 9 uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value, replacing the
multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity
manages its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets. Most of
the requirements in IAS 39 for classification and measurement of financial
liabilities were carried forward unchanged to IFRS 9. The new standard
also requires a single impairment method to be used, replacing the
multiple impairment methods in IAS 39. The effective date is for annual
periods beginning on or after 1 January 2018. |
|
|
|
|
In May 2014, the IASB issued IFRS 15 Revenue from
Contracts with Customers (IFRS 15) which supersedes IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real Estate,
IFRIC 18 Transfers of Assets from Customers, and SIC 31 Revenue
Barter Transactions involving Advertising Services. IFRS 15 establishes a
single five-step model for determining the nature, amount, timing and
uncertainty of revenue and cash flows arising from a contract with a
customer. The standard is effective for annual periods beginning on or
after January 1, 2017, with early adoption permitted. |
|
|
|
|
The Company is currently evaluating the impact of the
above mentioned standards on financial statements. |
8
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
New standards and interpretations issued and
adopted |
|
|
|
IAS 32 Financial Instruments: Presentation was amended by
the IASB in December 2011. Offsetting Financial Assets and Financial
Liabilities amendment addresses inconsistencies identified in applying
some of the offsetting criteria. The amendment is effective for annual
periods beginning on or after January 1, 2014. There was no impact on the
Companys financial statements due to the adoption of this
standard. |
|
|
|
IAS 36 Impairment of Assets was amended by the IASB in
June 2013. Recoverable Amount Disclosures for Non-Financial Assets
amendment modifies certain disclosure requirements about the recoverable
amount of impaired assets if that amount is based on fair value less costs
of disposal. The amendment is effective for annual periods beginning on or
after January 1, 2014. There was no impact on the Companys financial
statements due to the adoption of this standard. |
|
|
4. |
Other receivables |
|
|
|
The Companys other receivables consist primarily from
harmonized sales tax (HST) and trade receivables due in less than one
year. The Company expects a full recovery of these amounts and therefore
no impairment has been recorded against these receivables. |
|
|
5. |
Mineral property interests and exploration and
evaluation expenditures |
|
|
|
As at August 31, 2014, the Company owns 11 (May 31, 2014
11) mineral tenures covering an area of approximately 3,400 (May 31,
2014 3,400) hectares of land near Nelson, British Columbia. Acquisition
costs of the properties were $241,016 (May 31, 2014
$241,016). |
9
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
5. |
Mineral property interests and exploration and
evaluation expenditures (continued) |
|
|
|
A summary of exploration expenditures incurred for the
three months ended August 31, is as follows: |
|
|
2014 |
|
|
2013 |
|
Exploration and evaluation
expenditures |
|
|
|
|
|
|
Labour and wages |
|
32,614 |
|
|
141,962 |
|
Subcontracts |
|
28,299 |
|
|
3,299 |
|
Amortization |
|
8,311 |
|
|
8,311 |
|
Other direct costs |
|
13,609 |
|
|
26,267 |
|
Repairs and maintenance |
|
- |
|
|
9,316 |
|
Permits and licenses
|
|
14,021 |
|
|
6,000 |
|
Sample sales, net of costs |
|
(2,719 |
) |
|
(5,046 |
) |
|
$ |
94,135 |
|
$ |
190,109 |
|
The minimum maintenance costs for the
mineral tenures are as follow:
|
|
2015 |
2016 |
2017 |
2018 |
2019 |
Total |
|
|
|
|
|
|
|
|
|
Minimum maintenance cost |
$ 36,000 |
$ 36,000 |
$ 36,000 |
$ 37,000 |
$ 67,000 |
$ 212,000
|
6. |
Reclamation bond |
|
|
|
The Company has a term deposit with a chartered Canadian
bank. The deposit supports various letters of credit totalling $135,000
(May 31, 2014 - $135,000) granted in favour of the Ministry of Energy,
Mines and Petroleum Resources of British Columbia, as a reclamation bond
in connection with its mineral exploration permit. |
10
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
7. |
Property, plant and equipment |
|
|
|
A summary of property, plant and equipment is as
follows: |
|
|
Vehicles & |
|
|
Manfucturing and |
|
|
Comp Hardware |
|
|
Furniture & |
|
|
|
|
|
|
|
|
|
Structures |
|
|
Processing
Equipment |
|
|
& Software |
|
|
Fixtures |
|
|
Buildings |
|
|
Total |
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2013, 2014 and August
31, 2013, 2014 |
$ |
179,523 |
|
$ |
591,961 |
|
$ |
7,638 |
|
$ |
51,213 |
|
$ |
23,505 |
|
$ |
853,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2013 |
|
51,004 |
|
|
476,473 |
|
|
7,638 |
|
|
28,023 |
|
|
9,660 |
|
|
572,798 |
|
Amortization |
|
7,890 |
|
|
8,311 |
|
|
- |
|
|
1,523 |
|
|
326 |
|
|
18,051 |
|
Balance as at August 31, 2013 |
$ |
58,894 |
|
$ |
484,784 |
|
$ |
7,638 |
|
$ |
29,546 |
|
$ |
9,986 |
|
$ |
590,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2014 |
$ |
82,565 |
|
$ |
509,714 |
|
$ |
7,638 |
|
$ |
34,117 |
|
$ |
10,967 |
|
$ |
645,000 |
|
Amortization |
|
7,865 |
|
|
8,311 |
|
|
- |
|
|
1,478 |
|
|
326 |
|
|
17,980 |
|
Balance as at August 31, 2014 |
$ |
90,430 |
|
$ |
518,025 |
|
$ |
7,638 |
|
$ |
35,595 |
|
$ |
11,293 |
|
$ |
662,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2014 |
$ |
96,958 |
|
$ |
82,247 |
|
$ |
- |
|
$ |
17,096 |
|
$ |
12,538 |
|
$ |
208,840 |
|
Balance as at August 31, 2014 |
$ |
89,093 |
|
$ |
73,936 |
|
$ |
- |
|
$ |
15,618 |
|
$ |
12,212 |
|
$ |
190,860 |
|
8. |
Share capital |
|
|
|
As at August 31, 2014, the Company was authorized to
issue an unlimited number of common shares. |
|
|
|
In 2014, the Company issued 8,500 common shares at a
price of $2.00 per share. $17,000 represented the fair value of
shares. |
|
|
|
In 2013, the Company granted an option to an advisor to
acquire up to 300,000 common shares of the Company, exercisable in whole
or in part, at a price of $0.10 per share. The option shall only be
exercisable for a term commencing on the date the Company completes a
going public event and ending on the date that is 24 months following the
going public event. |
|
|
|
In 2014, the Company issued an option to a party of an
amended supply agreement to acquire up to 100,000 common shares of the
Company at a price of US$0.10 per share, exercisable any time on or before
May 31, 2016 (note 9). The stock options were valued at $190,506 using the
Black- Scholes option-pricing model with the following assumptions:
expected life of 2 years, risk-free rate of 1.03%, expected dividend yield
of 0%, and expected volatility of 100% using industry
comparables. |
11
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
9. |
Advances under graphite sales contract |
|
|
|
The Company received a prepayment of $1,552,000 USD for
delivery of 3,075 tonnes of graphite by December 31, 2013, in accordance
with a customer supply agreement. The Company has assigned to the
counterparty a first ranking security interest and charge in and to all
assets and undertaking of the Company. Under the agreement, the Company
will refund any outstanding prepayments by January 31, 2014, unless the
parties come to an agreement to extend the delivery period for the
graphite to be shipped. If the Company is unable to refund any outstanding
prepayment with finished graphite or monetary amounts, the counterparty
will be entitled to enforce its security over the assets of the Company.
At any time, the Company may repay any outstanding balance, plus interest
in the amount of 15% per annum, calculated on a pro-rata basis from the
date of prepayment. |
|
|
|
On January 31, 2014, the customer agreed to extend the
terms of the supply agreement subject to certain amendments. The amended
production commitment involves the delivery of 1,620 metric tonnes of
graphite between January 1, 2014 and December 31, 2015. The supply
agreement was further amended on May 30, 2014 whereby the parties agreed
to extend the production commitment to June 30, 2016. The Company also
agreed to secure a commitment for financing of at least $3,000,000 no
later than August 31, 2014, which was later extended to January 31, 2015
(see note 17). Should the Company fail to meet its production commitment
by July 31, 2016; or the Company fails to obtain adequate financing; or if
the agreement is terminated prior to July 31, 2016, the Company shall
immediately refund the balance of the advance at that date. As part of
this amendment, the Company also issued an option to the counterparty to
acquire up to 100,000 common shares of the Company at a price of US$0.10
per share, exercisable any time on or before May 31, 2016. |
|
|
|
Refer to subsequent event note 17 which describes the
extension to the graphite sales contract. |
|
|
10. |
Notes payable |
|
|
|
On May 22, 2013, the Company issued $225,000 in
promissory notes and bear interest in the form of 1,250 common shares per
each $25,000 note, per month. On May 31, 2013, the Company issued an
additional $25,000 of notes under the same terms. The notes matured on May
22, 2014. |
|
|
|
During June and July 2013, the Company issued a total of
$125,000 in promissory notes. The notes bore interest in the form of 1,250
common shares per each $25,000 note, per month. The notes matured on May
22, 2014. |
|
|
|
On May 22, 2014, a total of $375,000 of promissory notes
was exchanged for $375,000 of new notes due June 22, 2015. These notes
bear interest in the form of 1,250 common shares per each $25,000 note,
per month. In the event that the Company completes an equity financing
transaction prior to or in connection with go-public transaction or a
sale, transfer, assignment or other disposition by the Company of all or
substantially all of the Companys assets (a Financing Transaction), the
notes will be immediately exchanged for the same type of securities as are
issued in connection with the Financing Transaction (the Financing
Securities), at an exchange rate of $25,000 in principal amount of the
outstanding notes for $28,000 of Financing
Securities. |
12
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
10. |
Notes payable (continued) |
|
|
|
The unpaid interest owing on the promissory notes as at
May 22, 2014 was forgiven in exchange for an on-going 0.25% royalty on net
smelter returns from the sale of all minerals and 0.25% of the net
proceeds from the sale of all by-products (note 13). |
|
|
|
On June 22, 2014, a total of $100,000 of promissory notes
was issued. These notes bear interest in the form of 1,250 common shares
per each $25,000 note, per month and are due June 22, 2015. As at August
31, 2014, interest has been accrued and shares have yet to be
issued. |
|
|
11. |
Decommissioning obligation |
|
|
|
It is the Companys intent to protect the land on which
it operates in accordance with best practices of the mining industry and
to comply with all applicable laws governing protection of the land. As
such, the Company recognizes a provision related to its constructive and
legal obligation in British Columbia to restore the properties. The cost
of this obligation is determined based on the expected future level of
activity and costs associated with decommissioning the mines and restoring
the properties. The provision is calculated as the sum of undiscounted
future expected cash flows related to ground disturbances in the Company's
5-year mine plan of $41,134, undiscounted expected lump sum costs of
decommissioning mining infrastructure of $25,750, and the present value of
expected annual monitoring and engineering costs post-closure of $66,667.
The present value of post-closure costs are estimated using a formula
mandated by the government of British Columbia, currently equivalent to
$2,000 per year in perpetuity, discounted at a risk free rate of 3% per
annum. The sum has been rounded up to the nearest $5,000. As of August 31,
2014, the Company recorded a decommissioning obligation for mine
rehabilitation of $135,000 (May 31, 2014 $135,000). |
|
|
12. |
Financial risk management and financial
instruments |
|
|
|
Financial instruments |
|
|
|
The Company has classified its cash and cash equivalents
as FVTPL; other receivables (excluding HST portion) as loans and
receivables; accounts payable, accrued liabilities, notes payable and due
to shareholder as other financial liabilities. |
|
|
|
The Company has exposure to the following risks from its
use of financial instruments: |
|
|
credit risk; |
|
|
liquidity risk; and |
|
|
market risk |
13
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
12. |
Financial risk management and financial instruments
(continued) |
|
|
|
|
|
|
(a) |
Credit risk |
|
|
|
|
|
|
|
Credit risk is the risk of financial loss associated with
counterpartys inability to fulfill its contractual obligations. |
|
|
|
|
|
|
|
The maximum credit exposure at August 31, 2014 is the
carrying amount of cash and cash equivalents and other receivables
(excluding HST), with a combined amount of $57,186 (May 31, 2014
$61,009). All cash are placed with a major Canadian financial institution.
The majority of other receivables are due from government
authorities. |
|
|
|
|
|
|
(b) |
Liquidity risk |
|
|
|
|
|
|
|
Liquidity risk is the risk that the Company will
encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or another
financial asset. The Companys executives continually review the liquidity
position including cash flow forecasts to determine the forecast liquidity
position and maintain appropriate liquidity levels. |
|
|
|
|
|
|
|
The Company prepares annual expenditure budgets, which
are regularly monitored and updated as considered necessary. Management
reviews to ensure the Company will have sufficient funding to meet
required expenditures. Surplus cash is invested in guaranteed investment
certificates, choosing maturities which are aligned with expected cash
needs. |
|
|
|
|
|
|
|
As of August 31, 2014, the Company had $99,903 (May 31,
2014 $88,420) of accounts payable and accrued liabilities due within 12
months and notes payable due in 2015. |
|
|
|
|
|
|
(c) |
Fair value |
|
|
|
|
|
|
|
Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties
in an arms length transaction. The fair value of the Companys cash and
cash equivalents, accounts payable and accrued liabilities, note payable,
due to the shareholder are estimated by management to approximate their
carrying values due to their short-term nature. |
|
|
|
|
|
|
(d) |
Market risk |
|
|
|
|
|
|
|
Market risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in
market prices. |
|
|
|
|
|
|
|
(i) |
Foreign exchange currency risk |
|
|
|
|
|
|
|
|
The Companys operations are based principally in Canada,
but have minimal exposure to foreign exchange risk from the United States
dollar. |
|
|
|
|
|
|
|
(ii) |
Interest rate risk |
|
|
|
|
|
|
|
|
The Company is subject to cash flow interest rate risk
due to fluctuations in the prevailing levels of market interest rates.
Notes payable bear a variable interest rate as the payment of the interest
on the notes payable is based on the Companys share price. Due to the
short-term nature of these financial instruments, the Company considers
this risk to be immaterial. |
14
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
12. |
Financial risk management and financial instruments
(continued) |
|
|
|
|
|
(d) |
Market risk (continued) |
|
|
|
|
|
|
(iii) |
Commodity price risk |
|
|
|
|
|
|
|
The Company is exposed to commodity price risk. Commodity
price risk is defined as the potential adverse impact on earnings and
economic value due to commodity price movements and volatilities. The
Company closely monitors the price of graphite to determine the
appropriate course of action to be taken by the
Company. |
|
(e) |
Capital management |
|
|
|
|
|
The Company includes equity; comprised of share capital
and deficit, in the definition of capital. |
|
|
|
|
|
The Companys objectives when managing its capital are to
safeguard its ability to continue as a going concern, to meet its capital
expenditures for its continued exploration programs, and to maintain a
flexible capital structure which optimizes the cost of capital within a
framework of acceptable risk. The Company manages the capital structure
and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. To maintain or adjust
its capital structure, the Company may issues new shares, issue new debt,
acquire or dispose of assets. |
|
|
|
|
|
The Company is not subject to externally imposed capital
requirements. |
|
|
|
|
|
Management reviews its capital management approach on an
ongoing basis and believes that this approach, given the relative size of
the Company, is reasonable. There have been no changes to the Companys
capital management approach in the period. |
13. |
Commitments |
|
|
|
The Company must pay royalties of 2.5% of net smelter
returns from the sale of all minerals and 2.5% of the net proceeds from
the sale of all by-products to Latitude Minerals Inc
(Latitude). Latitude is a related party of the Company due to a
common director and Latitudes shareholdings in the Company. In the event
that the Company has a go-public event prior to June 17, 2015, the
Latitude royalty agreement will be terminated with zero amount
owing. |
|
|
|
During the year ended May 31, 2014, the Company exchanged
$375,000 of promissory notes for $375,000 of new notes due June 22, 2015.
These notes bear interest in the form of 1,250 common shares per each
$25,000 note, per month (note 10). |
|
|
|
On June 22, 2014, a total of $100,000 of promissory notes
was issued. These notes bear interest in the form of 1,250 common shares
per each $25,000 note, per month and are due June 22, 2015 (note
10). |
|
|
|
Under the Companys supply agreement with a third party,
the Company is to supply 3,075 metric tonnes of graphite by December 31,
2013. During the year ended May 31, 2014, the customer agreed to extend
the terms of the supply agreement subject to certain amendments. The
amended production commitment involves the delivery of 1,620 metric tonnes
of graphite between January 1, 2014 and June 30, 2016 (note
9). |
15
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
14. |
Key management compensation |
|
|
|
Key management includes the president who has the
authority and responsibility for planning, directing, and controlling the
activities of the Company. The compensation was paid in the form of cash
and short term benefits. Total compensation for key management personnel
for the period ended August 31, 2014 was $25,000 (2013 -
$4,167). |
|
|
15. |
Related party transactions |
|
|
|
As of August 31, 2014, the Company owed $21,007 (May 31,
2014 - $21,007) in shareholder loans, which bear no interest and are
repayable on demand. |
|
|
16. |
Proposed Transaction |
|
|
|
On July 6, 2014, Amerix Precious Metals (AMERIX) and
Eagle entered into a Letter of Intent to complete an Acquisition
(Acquisition), which was superseded by the Amalgamation Agreement, dated
November 5, 2014. The Acquisition will constitute a reverse takeover
transaction within the meaning of Exchange Policy 5.2 Change of
Business and Reverse Takeovers. When completed, Amerix will become the
resulting issuer, and will carry on the business of Eagle, being the
exploration and development of the Black Crystal Property and other
prospective graphite properties in British Columbia. It is anticipated
that, on or prior to completion of the Acquisition, Amerix (Resulting
Issuer) will change its name to Eagle Graphite Corporation, or such
other name as agreed upon by Eagle and Amerix and as is permitted by
applicable law and acceptable to the Exchange. |
|
|
|
The Company is also seeking a private placement of
$7,000,000 financing (the Financing) in conjunction with the Transaction
at a price of $0.10 per unit, post-Transaction. Each unit will entitle the
holder to one common share of the Company and one-half common share
purchase warrant, which will be exercisable for $0.15, for a period of 60
months following the closing of the Transaction. $1,000,000 of the
Financing will be in the form of flow-through shares. |
|
|
17. |
Subsequent events |
|
|
|
Eagle has raised bridge financing by issuing notes
(Eagle Notes) in the gross amount of $825,000. Approximately $375,000
was issued on May 22, 2014, $100,000 on June 22, 2014 and $350,000 on
October 22, 2014. Of this amount, as at October 31, 2014, approximately
$350,000 is available to Eagle. Each $25,000 principal amount of the Eagle
Notes is automatically convertible into $28,000 of units of Eagle on a
post-stock split basis at a price of approximately $0.0893 per unit (the
Eagle Note Units) immediately prior to the completion of the
Acquisition. Each Eagle Note Unit is comprised of one Eagle common share
and one-half of one Eagle warrant. The 9,240,000 Eagle common shares and
4,620,000 Eagle warrants issued on conversion of the Eagle Notes in
connection with the Acquisition will be exchanged on a 1:1 basis for
9,240,00 Resulting Issuer common shares and 4,620,000 Resulting Issuer
warrants. Unless otherwise converted into Eagle Note Units upon
satisfaction of the Eagle escrow release conditions, each Eagle Note is
due on June 22, 2015. |
16
Eagle Graphite Corporation |
Notes to the Unaudited Condensed Interim Financial
Statements |
For the three months ended August 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
17. |
Subsequent events (continued) |
|
|
|
On November 5, 2014, Eagle completed the first tranche of
the Private Placement, pursuant to which Eagle issued 15,050,000 Eagle
subscription receipts at a price of $0.10 per Eagle subscription receipt
for gross proceeds of $1,505,000, which proceeds have been placed in
escrow pending satisfaction of the escrow release conditions. Upon
satisfaction of the escrow release conditions and immediately prior to the
closing, the Eagle subscription receipts will automatically be exercised,
without payment of any additional consideration and with no further action
on the part of the holders thereof, for one Eagle Unit. Each Eagle Unit
will be comprised of one Eagle common share and one-half of one Eagle
warrant. |
|
|
|
If the Eagle escrow release conditions are not satisfied
prior to the escrow release deadline, the escrowed funds plus accrued
interest will be returned to the Eagle purchasers in accordance with the
terms of the Eagle Private Placement. To the extent that the escrowed
funds plus accrued interest are not sufficient to repay the purchase price
for all Eagle subscription receipts, Eagle has agreed to satisfy any
shortfall. |
|
|
|
As consideration for the services of the Agent in
connection with the Eagle Private Placement, Eagle agreed to pay the Agent
a commission equal to 7% of the gross proceeds from the sale of the
Private Placement Subscription Receipts ($105,350), which shall be
released to the Agent upon satisfaction of the Eagle Escrow Release
Conditions. As additional consideration for the services of the Agent, the
Agent was granted 1,053,500 Eagle Broker Warrants. Each Eagle Broker
Warrant entitles the Agent to purchase one Eagle Common Share at a price
of $0.10 per Eagle Common Share until November 5, 2016. |
|
|
|
On November 19, 2014, the customer granted an extension
to the commitment for obtaining minimum financing of $3,000,000 until
January 31, 2015. On November 19, 2014, the customer confirmed their
consent to the issuance of promissory notes (see note 10), and their
consent to the amalgamation with Amerix Precious Metals Corporation. The
Company also agreed to an assignment letter, the terms of which confirm
the customer's first ranking security interest and charge in and to all
assets and undertaking of the Company. The customer agreed to a letter of
intent, under which the parties expressed their intent to negotiate in
good faith an expansion of the customer sales contract by February 15,
2015. The letter of intent includes non-binding commitments to increased
volumes of graphite, an extension of the term of the supply agreement, and
certain adjustments to the pricing formulae, plus a binding commitment to
place the customer in the same or better position as would have been the
case had the Company commenced production in 2012. |
17
Eagle Graphite Corporation
Financial Statements
For the Years Ended May 31, 2014 and 2013
(Expressed in Canadian Dollars, unless otherwise noted)
|
Collins
Barrow Toronto LLP |
|
Collins
Barrow Place |
|
11 King
Street West |
|
Suite 700,
Box 27 |
|
Toronto,
Ontario |
|
M5H 4C7
Canada |
|
|
|
T.
416.480.0160 |
|
F.
416.480.2646 |
|
|
|
www.collinsbarrow.com |
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Eagle Graphite
Corporation
We have audited the accompanying financial statements of Eagle
Graphite Corporation which comprise the statement of financial position as at
May 31, 2014 and May 31, 2013, and the statements of loss and comprehensive
loss, changes in equity and cash flows for the years ended May 31, 2014 and May
31, 2013, and a summary of significant accounting policies and other explanatory
information.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditors judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entitys preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entitys internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all
material respects, the financial position of Eagle Graphite Corporation as at
May 31, 2014 and May 31, 2013, and its financial performance and its cash flows
for the years ended May 31, 2014 and May 31, 2013 in accordance with
International Financial Reporting Standards.
This office is independently owned and
operated by Collins Barrow Toronto LLP The Collins Barrow trademarks
are used under License. |
|
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in
the financial statements which describes matters and conditions that indicate
the existence of material uncertainties that may cast significant doubt about
the Companys ability to continue as a going concern.
Licensed Public Accountants
Chartered Accountants
Toronto, Ontario
November 25, 2014
Eagle Graphite Corporation
|
Statement of Financial Position |
(Expressed in Canadian Dollars) |
As at
|
|
|
May 31, 2014 |
|
|
May
31, 2013 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
57,811 |
|
$ |
178,173 |
|
Other receivables (note 4) |
|
12,460 |
|
|
136,933 |
|
Prepaid
expenses |
|
26,606 |
|
|
20,546 |
|
|
|
|
|
|
|
|
|
|
96,877 |
|
|
335,652 |
|
|
|
|
|
|
|
|
Mineral property rights (note 5) |
|
241,016 |
|
|
241,016 |
|
Reclamation bond (note 6) |
|
135,000 |
|
|
135,000 |
|
Property, plant
and equipment (note 7) |
|
208,840 |
|
|
281,042 |
|
|
|
|
|
|
|
|
|
$ |
681,733 |
|
$ |
992,710 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
88,420 |
|
$ |
210,686 |
|
Advances under graphite sales contract (note 9) |
|
1,521,116 |
|
|
1,521,116 |
|
Notes payable (note 10) |
|
375,000 |
|
|
250,000 |
|
Due to
shareholder (note 15) |
|
21,007 |
|
|
8,837
|
|
|
|
2,005,543 |
|
|
1,990,639 |
|
|
|
|
|
|
|
|
Decommissioning obligation (notes 6 and 11) |
|
135,000 |
|
|
135,000 |
|
|
|
2,140,543 |
|
|
2,125,639 |
|
|
|
|
|
|
|
|
Shareholders' Equity (Deficiency) |
|
|
|
|
|
|
Share capital (note 8) |
|
4,806,453 |
|
|
4,789,453 |
|
Contributed surplus (note 8) |
|
190,506 |
|
|
- |
|
Deficit |
|
(6,455,769 |
) |
|
(5,922,382 |
) |
|
|
|
|
|
|
|
|
|
(1,458,810 |
) |
|
(1,132,929 |
) |
|
|
|
|
|
|
|
|
$ |
681,733 |
|
$ |
992,710 |
|
Nature of operations and going concern (Note 1)
Commitments
(Note 13)
Subsequent events (Note 17)
Approved on behalf of the Board
(Signed) Jamie
Deith |
|
Director |
|
The accompanying notes are an integral part of these audited
financial statements
2
Eagle Graphite Corporation
|
Statement of Loss and Comprehensive Loss for the Years
Ended May 31, |
(Expressed in
Canadian Dollars) |
|
|
2014 |
|
|
2013
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Exploration and evaluation (note 5) |
$ |
164,275 |
|
$ |
1,675,642 |
|
Advertising |
|
446 |
|
|
4,033 |
|
Professional fees |
|
41,663 |
|
|
145,050 |
|
Travel |
|
13,133 |
|
|
23,003 |
|
Office and general |
|
78,940 |
|
|
182,164 |
|
Amortization |
|
38,959 |
|
|
21,861 |
|
Share based
compensation (note 8) |
|
190,506 |
|
|
- |
|
|
|
527,922 |
|
|
2,051,753 |
|
Other income (loss) |
|
|
|
|
|
|
Gain on disposition of capital assets
(note 7) |
|
- |
|
|
5,000 |
|
Foreign exchange (loss) gain |
|
- |
|
|
23,530 |
|
Interest income (expense) |
|
(5,465 |
) |
|
(5,597 |
) |
|
|
|
|
|
|
|
|
|
(5,465 |
) |
|
22,933 |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
(533,387 |
) |
|
(2,028,820 |
) |
|
|
|
|
|
|
|
Income taxes (note 16) |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
Loss and comprehensive loss for the year |
$ |
(533,387 |
) |
$ |
(2,028,820 |
) |
|
|
|
|
|
|
|
Basic and diluted loss per share |
$ |
(0.05 |
) |
$ |
(0.18 |
) |
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
11,009,940 |
|
|
11,001,440 |
|
The accompanying notes are an integral part of these audited
financial statements
3
Eagle Graphite Corporation
|
Statement of Changes in Equity for the Years Ended May 31,
|
(Expressed in
Canadian Dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Contributed |
|
|
|
|
|
shareholders' |
|
|
|
Number of shares |
|
|
Amount |
|
|
surplus |
|
|
Deficit |
|
|
deficit |
|
Balance at May 31, 2012 |
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
- |
|
$ |
(3,893,562 |
) |
$ |
895,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
(2,028,820 |
) |
|
(2,028,820 |
) |
Balance at May 31, 2013 |
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
- |
|
$ |
(5,922,382 |
) |
$ |
(1,132,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation (note 8) |
|
8,500 |
|
|
17,000 |
|
|
- |
|
|
- |
|
|
17,000 |
|
Share-based
compensation (note 8) |
|
- |
|
|
- |
|
|
190,506 |
|
|
- |
|
|
190,506 |
|
Loss for the year |
|
- |
|
|
- |
|
|
-
|
|
|
(533,387 |
) |
|
(533,387 |
) |
Balance at May 31, 2014 |
|
11,009,940 |
|
$ |
4,806,453 |
|
$ |
190,506 |
|
$ |
(6,455,769 |
) |
$ |
(1,458,810 |
) |
The accompanying notes are an integral part of these audited
financial statements
4
Eagle Graphite Corporation
|
Statement of Cash Flows for the Years Ended May 31, |
(Expressed in
Canadian Dollars) |
|
|
2014 |
|
|
2013
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
Loss for the year |
$ |
(533,387 |
) |
$ |
(2,028,820 |
) |
Items not involving cash: |
|
|
|
|
|
|
Amortization |
|
72,202 |
|
|
74,991 |
|
Gain on disposition of
property, plant and equipment |
|
- |
|
|
(5,000 |
) |
Share - based compensation (note 8) |
|
190,506 |
|
|
- |
|
Employee compensation
(note 8) |
|
17,000 |
|
|
|
|
Changes in non-cash operating working capital: |
|
|
|
|
|
|
Other receivables |
|
124,473 |
|
|
(11,149 |
) |
Prepaid expenses |
|
(6,060 |
) |
|
20,895 |
|
Accounts payable and
accrued liabilities |
|
(122,266 |
) |
|
58,999 |
|
Advances under graphite sales contract |
|
- |
|
|
1,521,116 |
|
|
|
|
|
|
|
|
|
|
(257,532 |
) |
|
(368,968 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
Advances from shareholders |
|
12,170 |
|
|
25 |
|
Notes issued
|
|
125,000 |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
137,170 |
|
|
250,025 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
Proceeds on disposition of property,
plant and equipment (note 7) |
|
- |
|
|
5,000 |
|
Purchase of
property, plant and equipment (note 7) |
|
- |
|
|
(190,259 |
) |
|
|
- |
|
|
(185,259 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(120,362 |
) |
|
(304,202 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
178,173 |
|
|
482,375 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
$ |
57,811 |
|
$ |
178,173 |
|
Eagle Graphite Corporation
|
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
1. |
Nature of operations and going concern |
|
|
|
|
Eagle Graphite Corporation (the Company or Eagle) is
a graphite exploration and evaluation company located in British Columbia,
Canada. The address of the Companys registered office is 2100-40 King
Street West, Toronto, ON, M5H 3C2. |
|
|
|
|
These financial statements were approved by the Companys
board of directors on November 25, 2014. |
|
|
|
|
The accompanying financial statements have been prepared
on the basis of a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business.
The Company is currently in the exploration stage and has not commenced
commercial operations. As at May 31, 2014, the Company has an accumulated
deficit of $6,455,769 and has not yet generated positive cash flows from
operations. |
|
|
|
|
In assessing whether the going concern assumption is
appropriate management takes into account all available information about
the foreseeable future, which is at least, but not limited to, twelve
months from the end of the reporting period. The Companys ability to
continue operations and fund its mining interest expenditures is dependent
on managements ability to secure additional financing; this casts
significant doubt about the Companys ability to continue as a going
concern. Management is actively pursuing such additional sources of
financing, and while it has been successful in doing so in the past, there
can be no assurance it will be able to do so in the future. The financial
statements do not give effect to the required adjustments to the carrying
amounts and classifications of assets and liabilities should the Company
be unable to continue as a going concern. |
|
|
|
2. |
Basis of preparation |
|
|
|
|
(a) |
Statement of compliance |
|
|
|
|
|
The Companys financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB). |
|
|
|
|
(b) |
Basis of presentation |
|
|
|
|
|
The financial statements have been prepared on the
historical cost basis. Where there are assets and liabilities calculated
on a different basis, this fact is disclosed in the relevant accounting
policy. |
|
|
|
|
(c) |
Functional and presentation currencies |
|
|
|
|
|
The Companys functional currency, as determined by
management is Canadian dollars. These financial statements are presented
in Canadian dollars. |
6
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
2. |
Basis of preparation (continued) |
|
|
|
|
(d) |
Use of estimates and judgments |
|
|
|
|
|
The preparation of financial statements requires
management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities,
and revenue and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the
basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates. |
|
|
|
|
|
The estimates, judgements and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and further
periods if the review affects both current and future periods. Significant
estimates included: |
|
|
|
|
|
Amounts recognized for amortization and amounts used for
impairment calculations are based on estimates of useful life and expected
cash flows. By their nature, the estimates of future prices, costs,
discount rates and the related future cash flows are subject to
measurement uncertainty. |
|
|
|
|
|
Tax interpretations, regulations and legislations in the
jurisdiction in which the Company operates are subject to change. As such,
income taxes are subject to measurement uncertainty. Deferred income tax
assets are assessed by management at the end of the reporting period to
determine the likelihood that they will be realized from future taxable
earnings. |
|
|
|
|
|
The application of the Companys accounting policy for
mineral property interest acquisition costs requires judgment in
determining whether it is likely that future economic benefits will flow
to the Company, which may be based on assumptions about future events or
circumstances. Estimates and assumptions made may change if new
information becomes available. If, after costs are capitalized,
information becomes available suggesting that the recovery of expenditure
is unlikely, the amount capitalized is written off to profit or loss in
the period the new information becomes available. |
|
|
|
|
|
Amounts recognized for decommissioning obligations and
the related accretion expense requires the use of estimates with respect
to the amount and timing of decommissioning expenditures. Other provisions
are recognized in the period when it becomes probable that there will be a
future cash outflow. |
|
|
|
|
|
Judgement is required to determine the functional
currency of the Company. These judgements are continuously evaluated and
are based on managements experience and knowledge of relevant facts and
circumstances. |
|
|
|
|
|
Assessing the stage of a mineral property to determine
when a mineral property moves into the development and production stage
being when the mineral property demonstrates commercial viability and
technical feasibility requires the use of judgement. The Company considers
various relevant criteria to assess when the development and production
phases are considered to commence and all related amounts are reclassified
from the mineral property under construction to a producing mine and plant
and equipment. |
7
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies |
|
|
|
|
The following are a list of significant accounting
policies used by the Company: |
|
|
|
|
(a) |
Cash and cash equivalents |
|
|
|
|
|
Cash and cash equivalents comprises cash on hand and
highly liquid investments that are readily convertible into known amounts
of cash with maturities of three months or less. |
|
|
|
|
(b) |
Mineral property rights and related costs |
|
|
|
|
|
Exploration and evaluation costs are charged to
operations as incurred until such time that proven reserves are
discovered. Costs of acquisition of mineral rights are capitalized until
the properties are abandoned, sold, the rights expire or there is
impairment in value. |
|
|
|
|
|
When proven reserves are determined, the Company will
capitalize all costs to the extent that future cash flows from mineral
reserves are expected to equal or exceed the costs deferred. The deferred
costs will be amortized over the recoverable reserves when a property
reaches commercial production. To date, no commercial production has
commenced and proven reserves have not yet been determined. |
|
|
|
|
|
Capitalized costs are reviewed annually or when changes
in circumstances suggest their carrying value has become impaired. As the
Company currently has no operational income, any incidental revenues and
related tax credits earned in connection with exploration and evaluation
activities are applied as a reduction to exploration and evaluation
expenditures. |
|
|
|
|
(c) |
Property, plant and equipment (PP&E) |
|
|
|
|
|
Capitalization |
|
|
|
|
|
Items of PP&E are measured at cost less accumulated
depletion and amortization and accumulated impairment losses. |
|
|
|
|
|
When significant parts of PP&E items have different
useful lives, they are accounted for as separate components and amortized
at applicable rates. |
|
|
|
|
|
Gains and losses on disposal of PP&E are determined
by comparing net proceeds from disposal with carrying amounts and are
recognized in the statement of comprehensive loss. |
|
|
|
|
|
Amortization |
|
|
|
|
|
Amortization is recognized in profit or loss over the
estimated useful lives of each part of an item of property, plant and
equipment. Amortization methods, useful lives and residual values are
reviewed at each reporting date. |
|
|
|
|
|
PP&E are amortized over the useful lives using the
straight-line method, as follows: |
|
|
Computer hardware and software (3
years) |
|
|
Vehicles and structures (5 years)
|
|
|
Manufacturing and processing
equipment (5 years) |
|
|
Furniture and fixtures (5 years)
|
|
|
Buildings (10 to 20 years)
|
8
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
|
(d) |
Revenue recognition |
|
|
|
|
|
Revenue from the sale of goods is recognized when the
significant risks and rewards are transferred to the buyer, which is
generally when product is shipped, the sales price and costs incurred or
to be incurred can be measured reliably, collectability is probable and
significant risks and rewards are transferred to the buyer. |
|
|
|
|
(e) |
Income taxes |
|
|
|
|
|
Income tax expense consisting of current and deferred tax
expense is recognized in the statement of operations. Current tax expense
is the expected tax payable on the taxable income for the year, using tax
rates enacted or substantively enacted at period end, adjusted for
amendments to tax payable with regards to previous years. |
|
|
|
|
|
Deferred tax assets and liabilities and the related
deferred income tax expense or recovery are recognized for deferred tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that substantive
enactment occurs. |
|
|
|
|
|
A deferred tax asset is recognized to the extent that it
is probable that future taxable income will be available against which the
asset can be utilized. To the extent that the Company does not consider it
probable that a deferred tax asset will be recovered, the deferred tax
asset is reduced. |
|
|
|
|
|
Deferred tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the
same taxation authority and the Company intends to settle its current tax
assets and liabilities on a net basis. |
|
|
|
|
(f) |
Share capital |
|
|
|
|
|
Share capital is classified as equity. Incremental costs
directly attributable to the issue of common shares are recognized as a
deduction from equity. |
|
|
|
|
(g) |
Share-based payments |
|
|
|
|
|
The fair value of options awarded to employees is
measured using the Black-Scholes option pricing model and recognized in
the statement of comprehensive loss, with corresponding increase in
contributed surplus over the vesting period. Upon exercise of the option,
consideration received, together with the amount previously recognized in
contributed surplus, is recorded as an increase to share
capital. |
|
|
|
|
|
Employees of the Company receive a portion of their
remuneration in the form of share-based payments, whereby employees render
services as consideration for equity instruments (equity instruments).
In situations where equity instruments are issued to non-employees and
some or all of the goods or services received by the entity as
consideration cannot be reliably measured, the transactions are measured
at fair value of the share-based payment. |
9
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
|
(h) |
Loss per share |
|
|
|
|
|
Basic earnings (loss) per share is calculated using the
weighted average number of common shares outstanding during the period.
The dilutive effect on earnings per share is calculated presuming the
exercise of outstanding options, warrants and similar instruments. It
assumes that the proceeds of such exercise would be used to repurchase
common shares at the average market price during the period. However, the
calculation of diluted loss per share excludes the effects of various
conversions and exercise of options and warrants that would be
anti-dilutive. |
|
|
|
|
(i) |
Foreign currency transactions |
|
|
|
|
|
Transactions in foreign currencies are translated to the
respective functional currencies of the Company at the rates of exchange
prevailing at the dates of the transactions. At the end of each reporting
period, monetary items denominated in foreign currencies are retranslated
to the functional currency at the exchange rates prevailing at that
date. |
|
|
|
|
|
Non-monetary items denominated in foreign currencies that
are measured at fair value are retranslated to the functional currency at
the exchange rate at the date that the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date of the
transaction and are not retranslated. The foreign currency gain or loss
resulting, if any, is recognized in the statements of loss and
comprehensive loss in the period in which they arise. |
|
|
|
|
(i) |
Financial instruments |
|
|
|
|
|
Financial assets are classified into one of four
categories: |
|
|
fair value through profit or loss
(FVTPL); |
|
|
held-to-maturity (HTM); |
|
|
available for sale (AFS); and
|
|
|
loans and receivables.
|
|
(i) |
FVTPL financial assets |
|
|
|
|
|
Financial assets are classified as FVTPL when the
financial asset is held for trading or it is designated as
FVTPL. |
|
|
|
|
|
A financial asset is classified as held for trading
if: |
|
|
it has been acquired principally
for the purpose of selling in the near future; |
|
|
it is a part of an identified portfolio of financial
instruments that the Company manages and has an actual pattern of
short-term profit-taking; or |
|
|
it is a derivative that is not
designated and effective as a hedging instrument. |
|
|
Financial assets classified as FVTPL are stated at fair
value with any resultant gain or loss recognized in profit or
loss. |
|
|
|
|
(ii) |
HTM investments |
|
|
|
|
|
HTM investments are recognized on a trade-date basis and
are initially measured at fair value, including transaction costs and
subsequently at amortized cost. |
10
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
|
|
(i) |
Financial instruments (continued) |
|
|
|
|
|
|
(iii) |
AFS financial assets |
|
|
|
|
|
|
|
AFS financial assets are those non-derivative financial
assets that are designated as available for sale or are not classified as
loans and receivables, HTM or FVTPL. The Company classifies its short-term
investments and other assets as AFS and carries them at their fair value.
Gains and losses arising from changes in fair value are recognized
directly in equity in the investments revaluation reserve. Impairment
losses, interest calculated using the effective interest method and
foreign exchange gains and losses on monetary assets, are recognized
directly in profit or loss rather than equity. When an investment is
disposed of or is determined to be impaired, the cumulative gain or loss
previously recognized in the investments revaluation reserve is included
in profit or loss |
|
|
|
|
|
|
(iv) |
Loans and receivables |
|
|
|
|
|
|
|
Other receivables that have fixed or determinable
payments that are not quoted in an active market are classified as loans
and receivables. |
|
|
|
|
|
|
|
Loans and receivables are initially recognized at the
transaction value and subsequently carried at amortized cost less
impairment losses. The impairment loss of receivables is based on a review
of all outstanding amounts at period end. Bad debts are written off during
the year in which they are identified. Interest income is recognized by
applying the effective interest rate, except for short-term receivables
when the recognition of interest would be immaterial. |
|
|
|
|
|
|
(v) |
Impairment of financial assets |
|
|
|
|
|
|
|
Financial assets, other than those at FVTPL, are assessed
for indicators of impairment at each period end. Financial assets are
impaired when there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the investment have been
impacted. |
|
|
|
|
|
|
|
Objective evidence of impairment could include the
following: |
|
|
significant financial difficulty
of the issuer or counterparty; |
|
|
default or delinquency in
interest or principal payments; or |
|
|
it has become probable that the
borrower will enter bankruptcy or financial reorganization.
|
For financial assets carried at
amortized cost, the amount of the impairment is the difference between the
assets carrying amount and the present value of the estimated future cash
flows, discounted at the financial assets original effective interest rate.
The carrying amount of all financial
assets, excluding trade receivables, is directly reduced by the impairment loss.
The carrying amount of trade receivables is reduced through the use of an
allowance account. When a trade receivable is considered uncollectible, it is
written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the allowance account
are recognized in profit or loss.
11
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
|
|
(i) |
Financial instruments (continued) |
|
|
|
|
|
|
(v) |
Impairment of financial assets (continued) |
|
|
|
|
|
|
|
With the exception of AFS equity instruments, if, in a
subsequent period, the amount of the impairment loss decreases and the
decrease relates to an event occurring after the impairment was
recognized; the previously recognized impairment loss is reversed through
profit or loss. On the date of impairment reversal, the carrying amount of
the financial asset cannot exceed its amortized cost had impairment not
been recognized. |
|
|
|
|
|
|
(vi) |
Financial liabilities and equity |
|
|
|
|
|
|
|
Debt and equity instruments are classified as either
financial liabilities or as equity in accordance with the substance of the
contractual arrangement. |
|
|
|
|
|
|
|
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs. Financial liabilities are
classified as either financial liabilities at FVTPL or other financial
liabilities. |
|
|
|
|
|
|
(vii) |
Other financial liabilities |
|
|
|
|
|
|
|
Other financial liabilities are initially measured at
fair value, net of transaction costs, and are subsequently measured at
amortized cost using the effective interest method, with interest expense
recognized on an effective yield basis. |
|
|
|
|
|
|
|
The effective interest method is a method of calculating
the amortized cost of a financial liability and of allocating interest
expenses over the corresponding period. The effective interest rate is the
rate that exactly discounts estimated future cash payments over the
expected life of the financial liability, or, where appropriate, a shorter
period, to the net carrying amount on initial
recognition. |
|
(j) |
Provisions |
|
|
|
|
|
Provisions are recorded when a present legal or
constructive obligation exists as a result of past events where it is
probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount
of the obligation can be made. |
|
|
|
|
|
The amount recognized as a provision is the best estimate
of the consideration required to settle the present obligation at the
statement of financial position date, taking into account the risks and
uncertainties surrounding the obligation. Where a provision is measured
using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows. When some or all
of the economic benefits required to settle a provision are expected to be
recovered from a third party, the receivable is recognized as an asset if
it is virtually certain that reimbursement will be received and the amount
receivable can be measured reliably. |
12
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
|
(k) |
Decommissioning obligation |
|
|
|
|
|
The Companys activities give rise to dismantling,
decommissioning and site disturbance remediation activities. Provision is
made for the estimated cost of site restoration. Decommissioning
obligations are measured at the present value of managements best
estimate of expenditures required to settle the present obligation at the
reporting date. The fair value of the estimated obligation is recorded as
a liability with a corresponding increase in the carrying amount of the
related asset. The obligation is subsequently adjusted at the end of each
period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The increase in the provision due to
the passage of time is recognized as accretion costs whereas increases or
decreases due to changes in the estimated future cash flows or changes in
the discount rate are capitalized. Actual costs incurred upon settlement
of the decommissioning obligations are charged against the provision to
the extent the provision was established. |
|
|
|
|
(l) |
New standards and interpretations issued but not yet
adopted |
|
|
|
|
|
The following pronouncements issued by the IASB and
interpretations published by IFRIC will become effective for annual
periods beginning on or after January 1, 2014, with earlier adoption
permitted. |
|
|
|
|
|
IFRS 7 (Amendment): Financial Instruments: Disclosures is
effective for annual periods beginning on or after 1 January 2015 and
requires modification of associated disclosures upon application of IFRS 9
Financial Instruments: Classification and Measurement. |
|
|
|
|
|
IFRS 9 Financial Instruments was issued by the IASB in
October 2010 and will replace IAS 39 Financial Instruments: Recognition
and Measurement. IFRS 9 uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value, replacing the
multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity
manages its financial instruments in the context of its business model and
the contractual cash flow characteristics of the financial assets. Most of
the requirements in IAS 39 for classification and measurement of financial
liabilities were carried forward unchanged to IFRS 9. The new standard
also requires a single impairment method to be used, replacing the
multiple impairment methods in IAS 39. The effective date is for annual
periods beginning on or after 1 January 2018. |
|
|
|
|
|
IAS 32 Financial Instruments: Presentation was amended by
the IASB in December 2011. Offsetting Financial Assets and Financial
Liabilities amendment addresses inconsistencies identified in applying
some of the offsetting criteria. The amendment is effective for annual
periods beginning in or after January 1, 2014. Earlier application is
permitted. |
|
|
|
|
|
IAS 36 Impairment of Assets was amended by the IASB in
June 2013. Recoverable Amount Disclosures for Non-Financial Assets
amendment modifies certain disclosure requirements about the recoverable
amount of impaired assets if that amount is based on fair value less costs
of disposal. The amendment is effective for annual periods beginning on or
after January 1, 2014. Earlier application is permitted when the entity
has already applied IFRS13. |
13
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
3. |
Significant accounting policies
(continued) |
|
|
|
|
(l) |
New standards and interpretations issued but not yet
adopted (continued) |
|
|
|
|
|
In May 2014, the IASB issued IFRS 15 Revenue from
Contracts with Customers (IFRS 15) which supersedes IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real Estate,
IFRIC 18 Transfers of Assets from Customers, and SIC 31 Revenue
Barter Transactions involving Advertising Services. IFRS 15 establishes a
single five-step model for determining the nature, amount, timing and
uncertainty of revenue and cash flows arising from a contract with a
customer. The standard is effective for annual periods beginning on or
after January 1, 2017, with early adoption permitted. |
|
|
|
|
|
The Company is currently evaluating the impact of the
above mentioned standards on financial statements. |
|
|
|
|
(m) |
New standards and interpretations issued and
adopted |
|
|
|
|
|
IFRS 13 Fair Value Measurement defines fair value,
requires disclosure about fair value measurements and provides a framework
for measuring fair value when it is required or permitted within IFRS
standards. The adoption of IFRS 13 did not require any adjustment to the
valuation techniques used to measure fair value and did not result in any
measurement adjustments as at January 1, 2013. |
|
|
|
4. |
Other receivables |
|
|
|
|
The Companys other receivables consist primarily from
harmonized sales tax (HST) and trade receivables due in less than one
year. The Company expects a full recovery of these amounts and therefore
no impairment has been recorded against these receivables. |
|
|
|
5. |
Mineral property interests and exploration and
evaluation expenditures |
|
|
|
|
As at May 31, 2014, the Company owns 11 (2013 32)
mineral tenures covering an area of approximately 3,400 (2013 14,486)
hectares of land near Nelson, British Columbia. Acquisition costs of the
properties were $241,016 (2013 $241,016). During the year ended May 31,
2014, 21 of the Companys mineral tenures covering an area of
approximately 10,986 hectares were allowed to elapse. The Company received
a refund related to a mining exploration tax credit of $163,608 during the
year ended May 31, 2014. |
14
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
5. |
Mineral property interests and exploration and
evaluation expenditures (continued) |
|
|
|
A summary of exploration expenditures incurred for the
years ended May 31, is as follows: |
|
|
2014 |
|
|
2013 |
|
Exploration and evaluation
expenditures |
|
|
|
|
|
|
Drilling |
$ |
- |
|
$ |
202 |
|
Labour and wages |
|
174,736 |
|
|
796,633 |
|
Subcontracts |
|
8,014 |
|
|
73,856 |
|
Amortization |
|
33,243 |
|
|
53,130 |
|
Other direct costs |
|
91,182 |
|
|
686,264 |
|
Repairs and maintenance |
|
20,859 |
|
|
94,554 |
|
Travel and lodging |
|
1,101 |
|
|
582 |
|
Permits and licenses |
|
6,188 |
|
|
19,897 |
|
Sample sales, net of
costs |
|
(7,440 |
) |
|
(49,476 |
) |
Mineral exploration tax credit |
|
(163,608 |
) |
|
- |
|
|
$ |
164,275 |
|
$ |
1,675,642 |
|
The minimum maintenance costs for the
mineral tenures are as follow:
|
|
2015 |
2016 |
2017 |
2018 |
2019 |
Total |
|
|
|
|
|
|
|
|
|
Minimum maintenance cost |
$ 36,000 |
$ 36,000 |
$ 36,000 |
$ 37,000 |
$ 67,000 |
$ 212,000
|
6. |
Reclamation bond |
|
|
|
The Company has a term deposit with a chartered Canadian
bank. The deposit supports various letters of credit totalling $135,000
(2013 - $135,000) granted in favour of the Ministry of Energy, Mines and
Petroleum Resources of British Columbia, as a reclamation bond in
connection with its mineral exploration permit. |
15
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
7. |
Property, plant and equipment |
|
|
|
A summary of property, plant and equipment is as
follows: |
|
|
Vehicles & |
|
|
Manfucturing and |
|
|
Comp Hardware |
|
|
Furniture & |
|
|
|
|
|
|
|
|
|
Structures |
|
|
Processing Equipment |
|
|
& Software |
|
|
Fixtures |
|
|
Buildings |
|
|
Total |
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2012 |
$ |
94,430 |
|
$ |
530,661 |
|
$ |
7,638 |
|
$ |
24,847 |
|
$ |
23,505 |
|
$ |
681,081 |
|
Additions |
|
85,093 |
|
|
78,800 |
|
|
-
|
|
|
26,366 |
|
|
- |
|
|
190,259 |
|
Less: Disposals |
|
- |
|
|
(17,500 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(17,500 |
) |
Balance as at May 31,
2013 |
|
179,523 |
|
|
591,961 |
|
|
7,638 |
|
|
51,213 |
|
|
23,505 |
|
|
853,840 |
|
Additions |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Less: Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Balance as at May 31, 2014 |
$ |
179,523 |
|
$ |
591,961 |
|
$ |
7,638 |
|
$ |
51,213 |
|
$ |
23,505 |
|
$ |
853,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31, 2012 |
$ |
36,462 |
|
$ |
443,453 |
|
$ |
7,638 |
|
$ |
20,704 |
|
$ |
7,050 |
|
$ |
515,307 |
|
Amortization |
|
14,542 |
|
|
50,520 |
|
|
-
|
|
|
7,319 |
|
|
2,610 |
|
|
74,991 |
|
Less: Disposals |
|
- |
|
|
(17,500 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(17,500 |
) |
Balance as at May 31,
2013 |
|
51,004 |
|
|
476,473 |
|
|
7,638 |
|
|
28,023 |
|
|
9,660 |
|
|
572,798 |
|
Amortization |
|
31,561 |
|
|
33,243 |
|
|
- |
|
|
6,094 |
|
|
1,304 |
|
|
72,202 |
|
Balance as at May 31,
2014 |
$ |
82,565 |
|
$ |
509,716 |
|
$ |
7,638 |
|
$ |
34,117 |
|
$ |
10,964 |
|
$ |
645,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at May 31,
2013 |
$ |
128,519 |
|
$ |
115,488 |
|
$ |
- |
|
$ |
23,190 |
|
$ |
13,845 |
|
$ |
281,042 |
|
Balance as at May 31, 2014 |
$ |
96,958 |
|
$ |
82,245 |
|
$ |
- |
|
$ |
17,096 |
|
$ |
12,541 |
|
$ |
208,840 |
|
In 2013, the Company sold manufacturing
and processing equipment, which was fully amortized, for proceeds of $5,000 and
recognized a gain of $5,000.
8. |
Share capital |
|
|
|
As at May 31, 2014, the Company was authorized to issue
an unlimited number of common shares. |
|
|
|
In 2014, the Company issued 8,500 common shares at a
price of $2.00 per share. $17,000 represented the fair value of
shares. |
|
|
|
In 2013, the Company granted an option to an advisor to
acquire up to 300,000 common shares of the Company, exercisable in whole
or in part, at a price of $0.10 per share. The option shall only be
exercisable for a term commencing on the date the Company completes a
going public event and ending on the date that is 24 months following the
going public event. |
|
|
|
In 2014, the Company issued an option to a party of an
amended supply agreement to acquire up to 100,000 common shares of the
Company at a price of US$0.10 per share, exercisable any time on or before
May 31, 2016 (note 9). The stock options were valued at $190,506 using the
Black-Scholes option-pricing model with the following assumptions:
expected life of 2 years, risk-free rate of 1.03%, expected dividend yield
of 0%, and expected volatility of 100% using industry
comparables. |
16
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
9. |
Advances under graphite sales contract |
|
|
|
The Company received a prepayment of $1,552,000 USD for
delivery of 3,075 tonnes of graphite by December 31, 2013, in accordance
with a customer supply agreement. The Company has assigned to the
counterparty a first ranking security interest and charge in and to all
assets and undertaking of the Company. Under the agreement, the Company
will refund any outstanding prepayments by January 31, 2014, unless the
parties come to an agreement to extend the delivery period for the
graphite to be shipped. If the Company is unable to refund any outstanding
prepayment with finished graphite or monetary amounts, the counterparty
will be entitled to enforce its security over the assets of the Company.
At any time, the Company may repay any outstanding balance, plus interest
in the amount of 15% per annum, calculated on a pro-rata basis from the
date of prepayment. |
|
|
|
On January 31, 2014, the customer agreed to extend the
terms of the supply agreement subject to certain amendments. The amended
production commitment involves the delivery of 1,620 metric tonnes of
graphite between January 1, 2014 and December 31, 2015. The supply
agreement was further amended on May 30, 2014 whereby the parties agreed
to extend the production commitment to June 30, 2016. The Company also
agreed to secure a commitment for financing of at least $3,000,000 no
later than August 31, 2014, which was later extended to January 31, 2015
(see note 17). Should the Company fail to meet its production commitment
by July 31, 2016; or the Company fails to obtain adequate financing; or if
the agreement is terminated prior to July 31, 2016, the Company would
immediately refund the balance of the advance at that date. As part of
this amendment, the Company also issued an option to the counterparty to
acquire up to 100,000 common shares of the Company at a price of US$0.10
per share, exercisable any time on or before May 31, 2016. |
|
|
|
Refer to subsequent event note 17 which describes the
extension to the graphite sales contract. |
|
|
10. |
Notes payable |
|
|
|
On May 22, 2013, the Company issued $225,000 in
promissory notes and bear interest in the form of 1,250 common shares per
each $25,000 note, per month. On May 31, 2013, the Company issued an
additional $25,000 of notes under the same terms. The notes matured on May
22, 2014. |
|
|
|
During June and July 2013, the Company issued a total of
$125,000 in promissory notes. The notes bore interest in the form of 1,250
common shares per each $25,000 note, per month. The notes matured on May
22, 2014. |
|
|
|
On May 22, 2014, a total of $375,000 of promissory notes
was exchanged for $375,000 of new notes due June 22, 2015. These notes
bear interest in the form of 1,250 common shares per each $25,000 note,
per month. In the event that the Company completes an equity financing
transaction prior to or in connection with go-public transaction or a
sale, transfer, assignment or other disposition by the Company of all or
substantially all of the Companys assets (a Financing Transaction), the
notes will be immediately exchanged for the same type of securities as are
issued in connection with the Financing Transaction (the Financing
Securities), at an exchange rate of $25,000 in principal amount of the
outstanding notes for $28,000 of Financing Securities. |
|
|
|
The unpaid interest owing on the promissory notes as at
May 22, 2014 was forgiven in exchange for an on-going 0.25% royalty on net
smelter returns from the sale of all minerals and 0.25% of the net
proceeds from the sale of all by-products (note
13). |
17
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
11. |
Decommissioning obligation |
|
|
|
It is the Companys intent to protect the land on which
it operates in accordance with best practices of the mining industry and
to comply with all applicable laws governing protection of the land. As
such, the Company recognizes a provision related to its constructive and
legal obligation in British Columbia to restore the properties. The cost
of this obligation is determined based on the expected future level of
activity and costs associated with decommissioning the mines and restoring
the properties. The provision is calculated as the sum of undiscounted
future expected cash flows related to ground disturbances in the Company's
5-year mine plan of $41,134, undiscounted expected lump sum costs of
decommissioning mining infrastructure of $25,750, and the present value of
expected annual monitoring and engineering costs post-closure of $66,667.
The present value of post-closure costs are estimated using a formula
mandated by the government of British Columbia, currently equivalent to
$2,000 per year in perpetuity, discounted at a risk free rate of 3% per
annum. The sum has been rounded up to the nearest $5,000. As of May 31,
2014, the Company recorded a decommissioning obligation for mine
rehabilitation of $135,000 (May 31, 2013 $135,000). |
|
|
12. |
Financial risk management and financial
instruments |
|
|
|
Financial instruments |
|
|
|
The Company has classified its cash and cash equivalents
as FVTPL; other receivables (excluding HST portion) as loans and
receivables; accounts payable, accrued liabilities, notes payable and due
to shareholder as other financial liabilities. |
|
|
|
Financial risk management |
|
|
|
The Company has exposure to the following risks from its
use of financial instruments: |
|
|
credit risk; |
|
|
liquidity risk; and |
|
|
market risk
|
|
(a) |
Credit risk |
|
|
|
|
|
Credit risk is the risk of financial loss associated with
counterpartys inability to fulfill its contractual obligations.
|
|
|
|
|
|
The maximum credit exposure at May 31, 2014 is the
carrying amount of cash and cash equivalents and other receivables
(excluding HST), with a combined amount of $61,009 (2013 $194,746). All
cash are placed with a major Canadian financial institution. The majority
of other receivables are due from government authorities. |
|
|
|
|
(b) |
Liquidity risk |
|
|
|
|
|
Liquidity risk is the risk that the Company will
encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or another
financial asset. The Companys executives continually review the liquidity
position including cash flow forecasts to determine the forecast liquidity
position and maintain appropriate liquidity levels.
|
18
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
12. |
Financial risk management and financial instruments
(continued) |
|
|
|
|
|
(b) |
Liquidity risk (continued) |
|
|
|
|
|
|
The Company prepares annual expenditure budgets, which
are regularly monitored and updated as considered necessary. Management
reviews to ensure the Company will have sufficient funding to meet
required expenditures. Surplus cash is invested in guaranteed investment
certificates, choosing maturities which are aligned with expected cash
needs. |
|
|
|
|
|
|
As of May 31, 2014, the Company had $88,420 (May 31, 2013
$210,686) of accounts payable and accrued liabilities due within 12
months and notes payable due in 2015. |
|
|
|
|
|
(c) |
Fair value |
|
|
|
|
|
|
Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties
in an arms length transaction. The fair value of the Companys cash and
cash equivalents, accounts payable and accrued liabilities, note payable,
due to the shareholder are estimated by management to approximate their
carrying values due to their short-term nature. |
|
|
|
|
|
(d) |
Market risk |
|
|
|
|
|
|
Market risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in
market prices. |
|
|
|
|
|
|
(i) |
Foreign exchange currency risk |
|
|
|
|
|
|
|
The Companys operations are based principally in Canada,
but have minimal exposure to foreign exchange risk from the United States
dollar. |
|
|
|
|
|
|
(ii) |
Interest rate risk |
|
|
|
|
|
|
|
The Company is subject to cash flow interest rate risk
due to fluctuations in the prevailing levels of market interest rates.
Notes payable bear a variable interest rate as the payment of the interest
on the notes payable is based on the Companys share price. Due to the
short-term nature of these financial instruments, the Company considers
this risk to be immaterial. |
|
|
|
|
|
|
(iii) |
Commodity price risk |
|
|
|
|
|
|
|
The Company is exposed to commodity price risk. Commodity
price risk is defined as the potential adverse impact on earnings and
economic value due to commodity price movements and volatilities. The
Company closely monitors the price of graphite to determine the
appropriate course of action to be taken by the
Company. |
19
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
12. |
Financial risk management and financial instruments
(continued) |
|
|
|
|
(e) |
Capital management |
|
|
|
|
|
The Company includes equity, comprised of share capital
and deficit, in the definition of capital. |
|
|
|
|
|
The Companys objectives when managing its capital are to
safeguard its ability to continue as a going concern, to meet its capital
expenditures for its continued exploration programs, and to maintain a
flexible capital structure which optimizes the cost of capital within a
framework of acceptable risk. The Company manages the capital structure
and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. To maintain or adjust
its capital structure, the Company may issues new shares, issue new debt,
acquire or dispose of assets. |
|
|
|
|
|
The Company is not subject to externally imposed capital
requirements. |
|
|
|
|
|
Management reviews its capital management approach on an
ongoing basis and believes that this approach, given the relative size of
the Company, is reasonable. There have been no changes to the Companys
capital management approach in the period. |
|
|
|
13. |
Commitments |
|
|
|
|
The Company must pay royalties of 2.5% of net smelter
returns from the sale of all minerals and 2.5% of the net proceeds from
the sale of all by-products to Latitude Minerals Inc (Latitude).
Latitude is a related party of the Company due to a common director and
Latitudes shareholdings in the Company. In the event that the Company has
a go-public event prior to June 17, 2015, the Latitude royalty agreement
will be terminated with zero amount owing. |
|
|
|
|
The Company exchanged $375,000 of promissory notes for
$375,000 of new notes due June 22, 2015. These notes bear interest in the
form of 1,250 common shares per each $25,000 note, per month (note
10). |
|
|
|
|
Under the Companys supply agreement with a third party,
the Company is to supply 3,075 metric tonnes of graphite by December 31,
2013. During the year ended May 31, 2014, the customer agreed to extend
the terms of the supply agreement subject to certain amendments. The
amended production commitment involves the delivery of 1,620 metric tonnes
of graphite between January 1, 2014 and June 30, 2016 (note 9). |
|
|
|
14. |
Key management compensation |
|
|
|
|
Key management includes the president who has the
authority and responsibility for planning, directing, and controlling the
activities of the Company. The compensation was paid in the form of cash
and short term benefits. Total compensation for key management personnel
for the year was $8,333 (2013 - $101,694). |
20
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
15. |
Related party transactions |
|
|
|
As of May 31, 2014, the Company owed $21,007 (2013 -
$8,837) in shareholder loans, which bear no interest and are repayable on
demand. |
|
|
|
On May 22, 2014, a total of $50,000 of promissory notes
owed to an officer and director were exchanged for $50,000 of new notes
due June 22, 2015 as part of a note exchange (note 10). |
|
|
16. |
Income taxes and deferred income taxes |
|
|
|
A reconciliation of income taxes at the statutory rate
with the reported taxes for the years ended May 31, is as
follows: |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
$ |
533,387 |
|
$ |
2,028,820 |
|
|
Statutory rate |
|
26.0%
|
|
|
25.2%
|
|
|
|
|
|
|
|
|
|
|
Expected recovery at combined basic federal and provincial
tax rate |
|
138,681 |
|
|
510,586 |
|
|
Effect on income taxes of: |
|
|
|
|
|
|
|
Change in rates |
|
(43,665 |
) |
|
56,933 |
|
|
Permanent differences |
|
(58,316 |
) |
|
(1,228 |
) |
|
Change in recognized temporary differences and
other |
|
(487,506 |
) |
|
131,007 |
|
|
Valuation allowance |
|
450,806 |
|
|
(697,298 |
) |
|
Income tax
expense |
$ |
- |
|
$ |
- |
|
The significant components of the
Companys future income tax assets and liabilities are as follows:
|
|
|
2014 |
|
|
2013 |
|
|
Deferred income tax asset |
|
|
|
|
|
|
|
Non-capital loss carry forward |
$ |
789,886 |
|
$ |
1,139,923 |
|
|
Temporary differences |
|
535,407 |
|
|
636,177 |
|
|
Less: Valuation
allowance |
|
(1,325,294 |
) |
|
(1,776,100 |
) |
|
|
|
|
|
|
|
|
|
Deferred
income tax asset |
$ |
- |
|
$ |
- |
|
The Company has available for deduction
against future taxable income non-capital losses of approximately $3,038,025.
These losses, if not utilized, will begin to expire in 2015. Future tax
benefits, which may arise as a result of these non-capital losses, have not been
recognized in these financial statements and have been offset by a valuation
allowance due to the uncertainty of their realization.
21
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
17. |
Subsequent events |
|
|
|
On June 22, 2014, a total of $100,000 of promissory notes
was issued. These notes bear interest in the form of 1,250 common shares
per each $25,000 note, per month and are due June 22, 2015. |
|
|
|
On July 6, 2014, Amerix Precious Metals (AMERIX) and
Eagle entered into a Letter of Intent to complete an Acquisition
(Acquisition), which was superseded by the Amalgamation Agreement, dated
November 5, 2014. The Acquisition will constitute a reverse takeover
transaction within the meaning of Exchange Policy 5.2 Change of
Business and Reverse Takeovers. When completed, Amerix will become the
resulting issuer, and will carry on the business of Eagle, being the
exploration and development of the Black Crystal Property and other
prospective graphite properties in British Columbia. It is anticipated
that, on or prior to completion of the Acquisition, Amerix (Resulting
Issuer) will change its name to Eagle Graphite Corporation, or such
other name as agreed upon by Eagle and Amerix and as is permitted by
applicable law and acceptable to the Exchange. |
|
|
|
The Company is also seeking a private placement (Private
Placement) of $7,000,000 financing (the Financing) in conjunction with
the Acquisition at a price of $0.10 per unit, post-Acquisition. Each unit
will entitle the holder to one common share of the Company and one-half
common share purchase warrant, which will be exercisable for $0.15, for a
period of 60 months following the closing of the Acquisition. $1,000,000
of the Financing will be in the form of flow-through shares. |
|
|
|
Eagle has raised bridge financing by issuing notes
(Eagle Notes) in the gross amount of $825,000. Approximately $375,000
was issued on May 22, 2014, $100,000 on June 22, 2014 and $350,000 on
October 22, 2014. Of this amount, as at October 31, 2014, approximately
$350,000 is available to Eagle. Each $25,000 principal amount of the Eagle
Notes is automatically convertible into $28,000 of units of Eagle on a
post-stock split basis at a price of approximately $0.0893 per unit (the
Eagle Note Units) immediately prior to the completion of the
Acquisition. Each Eagle Note Unit is comprised of one Eagle common share
and one-half of one Eagle warrant. The 9,240,000 Eagle common shares and
4,620,000 Eagle warrants issued on conversion of the Eagle Notes in
connection with the Acquisition will be exchanged on a 1:1 basis for
9,240,00 Resulting Issuer common shares and 4,620,000 Resulting Issuer
warrants. Unless otherwise converted into Eagle Note Units upon
satisfaction of the Eagle escrow release conditions, each Eagle Note is
due on June 22, 2015. |
|
|
|
On November 5, 2014, Eagle completed the first tranche of
the Private Placement, pursuant to which Eagle issued 15,050,000 Eagle
subscription receipts at a price of $0.10 per Eagle subscription receipt
for gross proceeds of $1,505,000, which proceeds have been placed in
escrow pending satisfaction of the escrow release conditions. Upon
satisfaction of the escrow release conditions and immediately prior to the
closing, the Eagle subscription receipts will automatically be exercised,
without payment of any additional consideration and with no further action
on the part of the holders thereof, for one Eagle Unit. Each Eagle Unit
will be comprised of one Eagle common share and one-half of one Eagle
warrant. |
|
|
|
If the Eagle escrow release conditions are not satisfied
prior to the escrow release deadline, the escrowed funds plus accrued
interest will be returned to the Eagle purchasers in accordance with the
terms of the Eagle Private Placement. To the extent that the escrowed
funds plus accrued interest are not sufficient to repay the purchase price
for all Eagle subscription receipts, Eagle has agreed to satisfy any
shortfall. |
22
Eagle Graphite Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2014 and 2013 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
17. |
Subsequent events (continued) |
|
|
|
As consideration for the services of the Agent in
connection with the Eagle Private Placement, Eagle agreed to pay the Agent
a commission equal to 7% of the gross proceeds from the sale of the
Private Placement Subscription Receipts ($105,350), which shall be
released to the Agent upon satisfaction of the Eagle Escrow Release
Conditions. |
|
|
|
As additional consideration for the services of the
Agent, the Agent was granted 1,053,500 Eagle Broker Warrants. Each Eagle
Broker Warrant entitles the Agent to purchase one Eagle Common Share at a
price of $0.10 per Eagle Common Share until November 5, 2016. |
|
|
|
On November 19, 2014, the customer granted an extension
to the commitment for obtaining minimum financing of $3,000,000 until
January 31, 2015. On November 19, 2014, the customer confirmed their
consent to the issuance of promissory notes (see note 10), and their
consent to the amalgamation with Amerix Precious Metals Corporation. The
Company also agreed to an assignment letter, the terms of which confirm
the customer's first ranking security interest and charge in and to all
assets and undertaking of the Company. The customer agreed to a letter of
intent, under which the parties expressed their intent to negotiate in
good faith an expansion of the customer sales contract by February 15,
2015. The letter of intent includes non-binding commitments to increased
volumes of graphite, an extension of the term of the supply agreement, and
certain adjustments to the pricing formulae, plus a binding commitment to
place the customer in the same or better position as would have been the
case had the Company commenced production in 2012. |
23
Eagle Graphite Corporation
Financial Statements
Year Ended May 31, 2013
(Expressed in Canadian Dollars, unless otherwise noted)
|
Collins Barrow Toronto LLP
|
|
Collins Barrow Place
|
|
11 King Street West
|
|
Suite 700, Box 27
|
|
Toronto, Ontario
|
|
M5H 4C7 Canada
|
|
|
|
T. 416.480.0160
|
|
F. 416.480.2646
|
|
|
INDEPENDENT AUDITORS' REPORT |
www.collinsbarrow.com
|
To the Shareholders of
Eagle Graphite
Corporation
We have audited the accompanying financial statements of Eagle
Graphite Corporation which comprise the statement of financial position as at
May 31, 2013, and the statements of loss and comprehensive loss, changes in
equity and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditors judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entitys preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entitys internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all
material respects, the financial position of Eagle Graphite Corporation as at
May 31, 2013, and its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards.
This office is independently owned and
operated by Collins Barrow Toronto LLP |
|
|
The Collins Barrow trademarks are used
under License. |
|
|
2 |
Comparative Information
Without modifying our opinion we, draw your attention to Note 2
to the financial statements which describes that Eagle Graphite Corporation
adopted International Financial Reporting Standards on June 1, 2012 with a
transition date of June 1, 2011. These standards were applied retrospectively by
management to the comparative information in these financial statements,
including the statements of financial position as at May 31, 2012 and June 1,
2011, and the statement of loss and comprehensive loss, statement of changes in
equity and statement of cash flows for the year ended May 31, 2012 and related
disclosures. We were not engaged to report on the restated comparative
information, and as such, it is unaudited.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in
the financial statements which describes matters and conditions that indicate
the existence of material uncertainties that may cast significant doubt about
the Companys ability to continue as a going concern.
Licensed Public Accountants
Chartered Accountants
Toronto, Ontario
June 24, 2014
|
3 |
|
Eagle Graphite Corporation
|
Statement of Financial Position |
(Expressed in Canadian Dollars) |
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2012 |
|
|
June 1, 2011 |
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
May 31, 2013 |
|
|
(note 18) |
|
|
(note 18) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
178,173 |
|
$ |
482,375 |
|
$ |
27,427 |
|
Other receivables (note 4) |
|
136,933 |
|
|
125,784 |
|
|
27,037 |
|
Prepaid expenses |
|
20,546 |
|
|
41,441 |
|
|
20,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
335,652 |
|
|
649,600 |
|
|
74,809 |
|
|
|
|
|
|
|
|
|
|
|
Mineral property rights (note 5) |
|
241,016 |
|
|
241,016 |
|
|
241,016 |
|
Reclamation bond (note 6) |
|
135,000 |
|
|
135,000 |
|
|
135,000 |
|
Property, plant
and equipment (note 7) |
|
281,042 |
|
|
165,774 |
|
|
93,906 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
992,710 |
|
$ |
1,191,390 |
|
$ |
544,731 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
210,686 |
|
$ |
151,687 |
|
$ |
20,798 |
|
Advances under graphite sales contract (note
9) |
|
1,521,116 |
|
|
- |
|
|
- |
|
Notes payable (note 10) |
|
250,000 |
|
|
- |
|
|
- |
|
Due
to shareholder (note 16) |
|
8,837 |
|
|
8,812
|
|
|
2,848,815 |
|
|
|
1,990,639 |
|
|
160,499 |
|
|
2,869,613 |
|
|
|
|
|
|
|
|
|
|
|
Decommissioning obligation (notes 6 and 11) |
|
135,000 |
|
|
135,000 |
|
|
135,000 |
|
|
|
2,125,639 |
|
|
295,499 |
|
|
3,004,613 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
Share capital (note 8)
|
|
4,789,453 |
|
|
4,789,453 |
|
|
120 |
|
Deficit |
|
(5,922,382 |
) |
|
(3,893,562 |
) |
|
(2,460,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,132,929 |
) |
|
895,891 |
|
|
(2,459,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
992,710 |
|
$ |
1,191,390 |
|
$ |
544,731 |
|
Nature of operations and going concern (Note 1)
Commitments
(Note 13)
Subsequent events (Note 17)
Approved on behalf of the Board
Jamie Deith
________________________________
Signed:
Director
The accompanying notes are an integral part of these audited
financial statements
4
Eagle Graphite Corporation
|
Statement of Loss and Comprehensive Loss for the Years
Ended May 31, |
(Expressed in
Canadian Dollars) |
|
|
|
|
|
2012 |
|
|
|
|
|
|
(unaudited) |
|
|
|
2013 |
|
|
(note 18) |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Exploration and evaluation
(note 5) |
$ |
1,675,642 |
|
$ |
1,081,531 |
|
Advertising |
|
4,033 |
|
|
2,207 |
|
Professional fees |
|
145,050 |
|
|
157,148 |
|
Travel |
|
23,003 |
|
|
41,884 |
|
Office and general |
|
182,164 |
|
|
133,889 |
|
Amortization |
|
21,861 |
|
|
19,451 |
|
|
|
2,051,753 |
|
|
1,436,110 |
|
Other income (loss) |
|
|
|
|
|
|
Gain on disposition of capital
assets (note 7) |
|
5,000 |
|
|
- |
|
Foreign exchange (loss) gain |
|
23,530 |
|
|
(47 |
) |
Interest income (expense) |
|
(5,597 |
) |
|
2,759 |
|
|
|
|
|
|
|
|
|
|
22,933 |
|
|
2,712 |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
(2,028,820 |
) |
|
(1,433,398 |
) |
|
|
|
|
|
|
|
Incometaxes(note14)
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
Loss and comprehensive loss for the year |
|
(2,028,820 |
) |
|
(1,433,398 |
) |
|
|
|
|
|
|
|
Basic and diluted
loss per share |
$ |
(0.18 |
) |
$ |
(0.15 |
) |
|
|
|
|
|
|
|
Weighted average number
of shares outstanding |
|
11,001,440 |
|
|
9,572,664 |
|
The accompanying notes are an integral part of these audited
financial statements
5
Eagle Graphite Corporation
|
Statement of Changes in Equity |
For the years ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
All
Classes of Shares (note 8) |
|
|
|
|
|
shareholders' |
|
|
|
Number of |
|
|
Amount |
|
|
Deficit |
|
|
equity |
|
Balance at
June 1, 2011
(unaudited) (note18) |
|
10,396 |
|
$ |
120 |
|
$ |
(2,460,002 |
) |
$ |
(2,459,882 |
) |
Redemption of shares |
|
(180 |
) |
|
(18 |
) |
|
(162 |
) |
|
(180 |
) |
Exchange of all classes for
new common shares (note 8) |
|
8,571,224 |
|
|
- |
|
|
- |
|
|
- |
|
Transfer of balances due to shareholder (note
8) |
|
1,420,000 |
|
|
2,840,000 |
|
|
- |
|
|
2,840,000 |
|
Private placement |
|
1,000,000 |
|
|
2,000,000 |
|
|
- |
|
|
2,000,000 |
|
Private placement issuance costs |
|
- |
|
|
(50,649 |
) |
|
- |
|
|
(50,649 |
) |
Loss for the year |
|
- |
|
|
- |
|
|
(1,433,398 |
) |
|
(1,433,398 |
) |
Balance
at May 31, 2012
(unaudited) |
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
(3,893,562 |
) |
$ |
895,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
1, 2012 |
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
(3,893,562 |
) |
$ |
895,891 |
|
Loss for the year |
|
- |
|
|
- |
|
|
(2,028,820 |
) |
|
(2,028,820 |
) |
Balance
at May 31, 2013
|
|
11,001,440 |
|
$ |
4,789,453 |
|
$ |
(5,922,382 |
) |
$ |
(1,132,929 |
) |
The accompanying notes are an integral part of these audited
financial statements
6
Eagle Graphite Corporation
|
Statement of Cash Flows for the Years Ended May 31, |
(Expressed in
Canadian Dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
2013 |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
Loss for the year |
$ |
(2,028,820 |
) |
$ |
(1,433,398 |
) |
Items not involving cash: |
|
|
|
|
|
|
Amortization |
|
74,991 |
|
|
90,950 |
|
Loss (gain) on disposition of
property, plant and equipment |
|
(5,000 |
) |
|
- |
|
Changes in non-cash operating
working capital: |
|
|
|
|
|
|
Other receivables |
|
(11,149 |
) |
|
(98,747 |
) |
Prepaid expenses
|
|
20,895 |
|
|
(21,096 |
) |
Accounts payable and accrued
liabilities |
|
58,999 |
|
|
130,889 |
|
Advances under graphite sales
contract |
|
1,521,116 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
(368,968 |
) |
|
(1,331,402 |
) |
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
Advances from shareholders |
|
25 |
|
|
- |
|
Notes issued |
|
250,000 |
|
|
- |
|
Common shares issued, net of issuance costs (note 8) |
|
-
|
|
|
1,949,168 |
|
|
|
|
|
|
|
|
|
|
250,025 |
|
|
1,949,168 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
Proceeds on disposition of
propery, plant and equipment (note 7) |
|
5,000 |
|
|
- |
|
Purchase of property, plant and equipment (note 7) |
|
(190,259 |
) |
|
(162,818 |
) |
|
|
(185,259 |
) |
|
(162,818 |
) |
|
|
|
|
|
|
|
Change in
cash and cash
equivalents |
|
(304,202 |
) |
|
454,948 |
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning of
year |
|
482,375 |
|
|
27,427 |
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of
year |
$ |
178,173 |
|
$ |
482,375 |
|
The accompanying notes are an integral part of these audited
financial statements
7
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
1. |
Nature of operations and going concern |
|
|
|
|
Eagle Graphite Corporation (the Company or Eagle) is
a graphite exploration and evaluation company located in British Columbia,
Canada. The address of the Companys registered office is 2100-40 King
Street West, Toronto, ON, M5H 3C2. |
|
|
|
|
These financial statements were approved by the Companys
board of directors on June 24, 2014. |
|
|
|
|
The accompanying financial statements have been prepared
on the basis of a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business.
The Company is currently in the exploration stage and has not commenced
commercial operations. As at May 31, 2013, the Company has an accumulated
deficit of $5,922,382 and has not yet generated positive cash flows from
operations. |
|
|
|
|
In assessing whether the going concern assumption is
appropriate management takes into account all available information about
the foreseeable future, which is at least, but not limited to, twelve
months from the end of the reporting period. The Companys ability to
continue operations and fund its mining interest expenditures is dependent
on managements ability to secure additional financing; this casts
significant doubt about the Companys ability to continue as a going
concern. Management is actively pursuing such additional sources of
financing, and while it has been successful in doing so in the past, there
can be no assurance it will be able to do so in the future. The financial
statements do not give effect to the required adjustments to the carrying
amounts and classifications of assets and liabilities should the Company
be unable to continue as a going concern. |
|
|
|
2. |
Basis of preparation |
|
|
|
|
(a) |
Statement of compliance |
|
|
|
|
|
The Company adopted International Financial Reporting
Standards on June 1, 2012 with a transition date of June 1, 2011. These
standards were applied retrospectively by management to the comparative
information in these financial statements, including the statements of
financial position as at May 31, 2012 and June 1, 2011, and the statement
of loss and comprehensive loss, statement of changes in equity and
statement of cash flows for the year ended May 31, 2012 and related
disclosures. |
|
|
|
|
|
The Companys financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB). These are
the Companys first financial statements prepared in accordance with IFRS
and IFRS 1 First Time Adoption of International Financial Reporting
Standards has been applied. An explanation of how the transition to IFRS
has affected the financial position, financial performance and cash flows
of the Company is provided in Note 18. |
|
|
|
|
(b) |
Basis of presentation |
|
|
|
|
|
The financial statements have been prepared on the
historical cost basis. Where there are assets and liabilities calculated
on a different basis, this fact is disclosed in the relevant accounting
policy. |
|
|
|
|
(c) |
Functional and presentation currencies |
|
|
|
|
|
The Companys functional currency, as determined by
management is Canadian dollars. These financial statements are presented
in Canadian dollars. |
8
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
2. |
Basis of preparation (continued) |
|
|
|
|
(d) |
Use of estimates and judgments (continued) |
|
|
|
|
|
The preparation of financial statements requires
management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities,
and revenue and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the
basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates. |
|
|
|
|
|
The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised if the revision affects only that
period or in the period of the revision and further periods if the review
affects both current and future periods. Significant estimates
included: |
|
|
|
|
|
Amounts recognized for amortization and amounts used for
impairment calculations are based on estimates of mineral reserves. By
their nature, the estimates of reserves, including the estimates of future
prices, costs, discount rates and the related future cash flows, are
subject to measurement uncertainty. |
|
|
|
|
|
Tax interpretations, regulations and legislations in the
jurisdiction in which the Company operates are subject to change. As such,
income taxes are subject to measurement uncertainty. Deferred income tax
assets are assessed by management at the end of the reporting period to
determine the likelihood that they will be realized from future taxable
earnings. |
|
|
|
|
|
The application of the Companys accounting policy for
mineral property interest acquisition costs requires judgment in
determining whether it is likely that future economic benefits will flow
to the Company, which may be based on assumptions about future events or
circumstances. Estimates and assumptions made may change if new
information becomes available. If, after costs are capitalized,
information becomes available suggesting that the recovery of expenditure
is unlikely, the amount capitalized is written off to profit or loss in
the period the new information becomes available. |
|
|
|
|
|
Amounts recognized for decommissioning obligations and
the related accretion expense requires the use of estimates with respect
to the amount and timing of decommissioning expenditures. Other provisions
are recognized in the period when it becomes probable that there will be a
future cash outflow. |
|
|
|
|
|
Judgement is required to determine the functional
currency of the Company. These judgements are continuously evaluated and
are based on managements experience and knowledge of relevant facts and
circumstances. |
|
|
|
|
|
Assessing the stage of a mineral property to determine
when a mineral property moves into the development and production stage
being when the mineral property demonstrates commercial viability and
technical feasibility requires the use of judgement. The Company considers
various relevant criteria to assess when the development and production
phases are considered to commence and all related amounts are reclassified
from the mineral property under construction to a producing mine and plant
and equipment. |
9
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies |
|
|
|
|
The following are a list of significant accounting
policies used by the Company: |
|
|
|
|
(a) |
Cash and cash equivalents |
|
|
|
|
|
Cash and cash equivalents comprises cash on hand and
highly liquid investments that are readily convertible into known amounts
of cash with maturities of three months or less. |
|
|
|
|
(b) |
Mineral property rights and related costs |
|
|
|
|
|
Exploration and evaluation costs are charged to
operations as incurred until such time that proven reserves are
discovered. Costs of acquisition of mineral rights are capitalized until
the properties are abandoned, sold, the rights expire or there is
impairment in value. |
|
|
|
|
|
When proven reserves are determined, the Company will
capitalize all costs to the extent that future cash flows from mineral
reserves are expected to equal or exceed the costs deferred. The deferred
costs will be amortized over the recoverable reserves when a property
reaches commercial production. To date, no commercial production has
commenced and proven reserves have not yet been determined. |
|
|
|
|
|
Capitalized costs are reviewed annually or when changes
in circumstances suggest their carrying value has become impaired. As the
Company currently has no operational income, any incidental revenues
earned in connection with exploration and evaluation activities are
applied as a reduction to exploration and evaluation
expenditures. |
|
|
|
|
(c) |
Property, plant and equipment (PP&E) |
|
|
|
|
|
Capitalization |
|
|
|
|
|
Items of PP&E are measured at cost less accumulated
depletion and amortization and accumulated impairment losses. |
|
|
|
|
|
When significant parts of PP&E items have different
useful lives, they are accounted for as separate components and amortized
at applicable rates. |
|
|
|
|
|
Gains and losses on disposal of PP&E are determined
by comparing net proceeds from disposal with carrying amounts and are
recognized in the statement of comprehensive loss. |
|
|
|
|
|
Amortization |
|
|
|
|
|
Amortization is recognized in profit or loss over the
estimated useful lives of each part of an item of property, plant and
equipment. Amortization methods, useful lives and residual values are
reviewed at each reporting date. |
|
|
|
|
|
PP&E are amortized over the useful lives using the
straight-line method, as follows: |
|
|
Computer hardware and software (3
years) |
|
|
Vehicles and structures (5 years)
|
|
|
Manufacturing and processing
equipment (5 years) |
|
|
Furniture and fixtures (5 years)
|
|
|
Buildings (10 to 20 years)
|
10
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies
(continued) |
|
|
|
|
(d) |
Revenue recognition |
|
|
|
|
|
Revenue from the sale of goods is recognized when the
significant risk of rewards of ownership have been transferred to the
buyer, which is usually when legal title passes to the external party, and
collection is reasonably assured. |
|
|
|
|
(e) |
Income taxes |
|
|
|
|
|
Income tax expense consisting of current and deferred tax
expense is recognized in the statement of operations. Current tax expense
is the expected tax payable on the taxable income for the year, using tax
rates enacted or substantively enacted at period end, adjusted for
amendments to tax payable with regards to previous years. |
|
|
|
|
|
Deferred tax assets and liabilities and the related
deferred income tax expense or recovery are recognized for deferred tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that substantive
enactment occurs. |
|
|
|
|
|
A deferred tax asset is recognized to the extent that it
is probable that future taxable income will be available against which the
asset can be utilized. To the extent that the Company does not consider it
probable that a deferred tax asset will be recovered, the deferred tax
asset is reduced. |
|
|
|
|
|
Deferred tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the
same taxation authority and the Company intends to settle its current tax
assets and liabilities on a net basis. |
|
|
|
|
(f) |
Share capital |
|
|
|
|
|
Share capital is classified as equity. Incremental costs
directly attributable to the issue of common shares are recognized as a
deduction from equity. |
|
|
|
|
(g) |
Loss per share |
|
|
|
|
|
Basic earnings (loss) per share is calculated using the
weighted average number of common shares outstanding during the period.
The dilutive effect on earnings per share is calculated presuming the
exercise of outstanding options, warrants and similar instruments. It
assumes that the proceeds of such exercise would be used to repurchase
common shares at the average market price during the period. However, the
calculation of diluted loss per share excludes the effects of various
conversions and exercise of options and warrants that would be
anti-dilutive. |
|
|
|
|
(h) |
Foreign currency transactions |
|
|
|
|
|
Transactions in foreign currencies are translated to the
respective functional currencies of the Company at the rates of exchange
prevailing at the dates of the transactions. At the end of each reporting
period, monetary items denominated in foreign currencies are retranslated
to the functional currency at the exchange rates prevailing at that
date. |
11
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies
(continued) |
|
|
|
|
(h) |
Foreign currency transactions (continued) |
|
|
|
|
|
Non-monetary items denominated in foreign currencies that
are measured at fair value are retranslated to the functional currency at
the exchange rate at the date that the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date of the
transaction and are not retranslated. The foreign currency gain or loss
resulting, if any, is recognized in the statements of loss and
comprehensive loss in the period in which they arise. |
|
|
|
|
(i) |
Financial instruments |
|
|
|
|
|
Financial assets are classified into one of four
categories: |
|
|
fair value through profit or loss (FVTPL);
|
|
|
held-to-maturity (HTM); |
|
|
available for sale (AFS); and |
|
|
loans and receivables. |
|
(i) |
FVTPL financial assets |
|
|
|
|
|
Financial assets are classified as FVTPL when the
financial asset is held for trading or it is designated as
FVTPL. |
|
|
|
|
|
A financial asset is classified as held for trading
if: |
|
|
it has been acquired principally for the
purpose of selling in the near future; |
|
|
it is a part of an identified portfolio of financial
instruments that the Company manages and has an actual pattern of
short-term profit-taking; or |
|
|
it is a derivative that is not designated and
effective as a hedging instrument. |
|
|
Financial assets classified as FVTPL are stated at fair
value with any resultant gain or loss recognized in profit or loss. The
net gain or loss recognized incorporates any dividend or interest earned
on the financial asset. |
|
|
|
|
(ii) |
HTM investments |
|
|
|
|
|
HTM investments are recognized on a trade-date basis and
are initially measured at fair value, including transaction costs and
subsequently at amortized cost. |
|
|
|
|
(iii) |
AFS financial assets |
|
|
|
|
|
AFS financial assets are those non-derivative financial
assets that are designated as available for sale or are not classified as
loans and receivables, HTM or FVTPL. The Company classifies its short-term
investments and other assets as AFS and carries them at their fair value.
Gains and losses arising from changes in fair value are recognized
directly in equity in the investments revaluation reserve. Impairment
losses, interest calculated using the effective interest method and
foreign exchange gains and losses on monetary assets, are recognized
directly in profit or loss rather than equity. When an investment is
disposed of or is determined to be impaired, the cumulative gain or loss
previously recognized in the investments revaluation reserve is included
in profit or loss for the period. |
12
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies
(continued) |
|
|
|
|
|
(i) |
Financial instruments (continued) |
|
|
|
|
|
|
(iv) |
Loans and receivables |
|
|
|
|
|
|
|
Other receivables that have fixed or determinable
payments that are not quoted in an active market are classified as loans
and receivables. |
|
|
|
|
|
|
|
Loans and receivables are initially recognized at the
transaction value and subsequently carried at amortized cost less
impairment losses. The impairment loss of receivables is based on a review
of all outstanding amounts at period end. Bad debts are written off during
the year in which they are identified. Interest income is recognized by
applying the effective interest rate, except for short-term receivables
when the recognition of interest would be immaterial. |
|
|
|
|
|
|
(v) |
Impairment of financial assets |
|
|
|
|
|
|
|
Financial assets, other than those at FVTPL, are assessed
for indicators of impairment at each period end. Financial assets are
impaired when there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the investment have been
impacted. |
|
|
|
|
|
|
|
Objective evidence of impairment could include the
following: |
|
|
significant financial difficulty of the issuer or
counterparty; |
|
|
default or delinquency in interest or principal payments;
or |
|
|
it has become probable that the borrower will enter
bankruptcy or financial reorganization. |
For financial assets carried at
amortized cost, the amount of the impairment is the difference between the
assets carrying amount and the present value of the estimated future cash
flows, discounted at the financial assets original effective interest rate.
The carrying amount of all financial
assets, excluding trade receivables, is directly reduced by the impairment loss.
The carrying amount of trade receivables is reduced through the use of an
allowance account. When a trade receivable is considered uncollectible, it is
written off against the allowance account. Subsequent recoveries of amounts
previously written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognized in profit or loss.
With the exception of AFS equity
instruments, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease relates to an event occurring after the impairment
was recognized; the previously recognized impairment loss is reversed through
profit or loss. On the date of impairment reversal, the carrying amount of the
financial asset cannot exceed its amortized cost had impairment not been
recognized.
13
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies
(continued) |
|
|
|
|
|
(i) |
Financial instruments (continued) |
|
|
|
|
|
|
(vi) |
Financial liabilities and equity |
|
|
|
|
|
|
|
Debt and equity instruments are classified as either
financial liabilities or as equity in accordance with the substance of the
contractual arrangement. |
|
|
|
|
|
|
|
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs. |
|
|
|
|
|
|
|
Financial liabilities are classified as either financial
liabilities at FVTPL or other financial liabilities. |
|
|
|
|
|
|
(vii) |
Other financial liabilities |
|
|
|
|
|
|
|
Other financial liabilities are initially measured at
fair value, net of transaction costs, and are subsequently measured at
amortized cost using the effective interest method, with interest expense
recognized on an effective yield basis. |
|
|
|
|
|
|
|
The effective interest method is a method of calculating
the amortized cost of a financial liability and of allocating interest
expenses over the corresponding period. The effective interest rate is the
rate that exactly discounts estimated future cash payments over the
expected life of the financial liability, or, where appropriate, a shorter
period, to the net carrying amount on initial
recognition. |
|
(j) |
Provisions |
|
|
|
|
|
Provisions are recorded when a present legal or
constructive obligation exists as a result of past events where it is
probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount
of the obligation can be made. |
|
|
|
|
|
The amount recognized as a provision is the best estimate
of the consideration required to settle the present obligation at the
statement of financial position date, taking into account the risks and
uncertainties surrounding the obligation. Where a provision is measured
using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows. When some or all
of the economic benefits required to settle a provision are expected to be
recovered from a third party, the receivable is recognized as an asset if
it is virtually certain that reimbursement will be received and the amount
receivable can be measured reliably. |
14
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies
(continued) |
|
|
|
|
(k) |
Decommissioning obligation |
|
|
|
|
|
The Companys activities give rise to dismantling,
decommissioning and site disturbance remediation activities. Provision is
made for the estimated cost of site restoration. Decommissioning
obligations are measured at the present value of managements best
estimate of expenditures required to settle the present obligation at the
reporting date. The fair value of the estimated obligation is recorded as
a liability with a corresponding increase in the carrying amount of the
related asset. The obligation is subsequently adjusted at the end of each
period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The increase in the provision due to
the passage of time is recognized as accretion costs whereas increases or
decreases due to changes in the estimated future cash flows or changes in
the discount rate are capitalized. Actual costs incurred upon settlement
of the decommissioning obligations are charged against the provision to
the extent the provision was established. |
|
|
|
|
(l) |
New standards and interpretations issued but not yet
adopted |
|
|
|
|
|
A number of new standards, amendments to standards and
interpretations are not yet effective for the year ended May 31, 2013, and
have not been applied in preparing these financial statements. |
|
|
|
|
|
IFRS 10 Consolidated Financial Statements, effective for
annual periods beginning on or after January 1, 2013, with early adoption
permitted, builds on existing principles by identifying the concept of
control as the determining factor in whether an entity should be included
within the consolidated financial statements of the parent
company. |
|
|
|
|
|
IFRS 11 Joint Arrangements, effective for annual periods
beginning on or after January 1, 2013, with early adoption permitted,
addresses inconsistencies in the reporting of joint arrangements by
requiring a single method to account for interests in jointly controlled
entities. |
|
|
|
|
|
IFRS 12 Disclosure of Interests in Other Entities,
effective for annual periods beginning on or after January 1, 2013, with
early adoption permitted, is a new and comprehensive standard on
disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose vehicles and
other off balance sheet vehicles. |
|
|
|
|
|
IFRS 13 Fair Value Measurement defines fair value, sets
out in a single IFRS a framework for measuring fair value and requires
disclosures about fair value measurements. IFRS 13 applies when another
IFRS requires or permits fair value measurements or disclosures about fair
value measurements (and measurements, such as fair value less costs of
disposal, based on fair value or disclosures about those measurements),
except for: share-based payment transactions within the scope of IFRS 2
Share-based Payment; leasing transactions within the scope of IAS 17
Leases; measurements that have some similarities to fair value but that
are not fair value, such as net realizable value in IAS 2 Inventories or
value in use in IAS 36 Impairment of Assets. This standard is effective
for annual periods beginning on or after January 1, 2013, with early
application permitted. |
|
|
|
|
|
The Company is currently assessing the effects of the new
standards. |
15
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
3. |
Significant accounting policies
(continued) |
|
|
|
|
(m) |
Future accounting standards |
|
|
|
|
|
Standards issued but not yet effective up to the date of
issuance of these financial statements are listed below. This list is of
standards and interpretations issued that the Company reasonably expects
to be applicable at a future date. The Company intends to adopt those
standards when they become effective. |
|
|
|
|
|
IFRS 9 Financial Instruments: Classification and
Measurement, effective for annual periods yet to be determined. |
|
|
|
4. |
Other receivables |
|
|
|
|
The Companys other receivables consist primarily from
harmonized sales tax (HST) and trade receivables due in less than one
year. The Company expects a full recovery of these amounts and therefore
no impairment has been recorded against these receivables. |
|
|
|
5. |
Mineral property interests and exploration and
evaluation expenditures |
|
|
|
|
As at May 31, 2013, the Company owns approximately 32
(2012 164, 2011 26) mineral tenures covering and area of approximately
14,486 (2012 9,250) hectares of land near Nelson, British Columbia.
Acquisition costs of the properties were $241,016 (2012 $241,016, 2011
$241,016). Subsequent to year end, 21 of the Companys mineral tenures
were allowed to elapse (note 17). |
|
|
|
|
A summary of exploration expenditures incurred for the
years ended May 31, is as follows: |
|
|
|
|
|
2012 |
|
|
|
2013 |
|
|
(unaudited) |
|
Exploration and evaluation
expenditures |
|
|
|
|
|
|
Drilling |
$ |
202 |
|
$ |
255,898 |
|
Labour and wages
|
|
796,633 |
|
|
253,509 |
|
Subcontracts |
|
73,856 |
|
|
192,427 |
|
Amortization |
|
53,130 |
|
|
71,499 |
|
Other direct costs |
|
686,264 |
|
|
238,768 |
|
Repairs and
maintenance |
|
94,554 |
|
|
41,579 |
|
Travel and lodging |
|
582 |
|
|
2,574 |
|
Permits and
licenses |
|
19,897 |
|
|
33,941 |
|
Sample sales, net of costs |
|
(49,476 |
) |
|
(8,664 |
) |
|
$ |
1,675,642 |
|
$ |
1,081,531 |
|
The minimum maintenance costs for the
mineral tenures are as follow:
|
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum maintenance cost |
$ |
6,000 |
|
$ |
36,000 |
|
$ |
36,000 |
|
$ |
36,000 |
|
$ |
37,000 |
|
$ |
67,000 |
|
$ |
218,000 |
|
16
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
6. |
Reclamation bond |
|
|
|
The Company has a term deposit of with a chartered
Canadian bank. The deposit supports various letters of credit totalling
$135,000 (2012 - $135,000, 2011 $135,000) granted in favour of the
Ministry of Energy, Mines and Petroleum Resources of British Columbia, as
a reclamation bond in connection with its mineral exploration
permit. |
|
|
7. |
Property, plant and equipment |
|
|
|
A summary of property, plant and equipment is as
follows: |
|
|
|
|
|
|
Manfucturing |
|
|
Comp |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles & |
|
|
and Processing
|
|
|
Hardware&
|
|
|
Furniture & |
|
|
|
|
|
|
|
|
|
|
Structures |
|
|
|
|
|
Software |
|
|
Fixtures |
|
|
Buildings |
|
|
Total |
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June1,2011 |
|
22,221 |
|
|
443,245 |
|
|
7,638 |
|
|
21,654 |
|
|
23,505 |
|
|
518,263 |
|
|
Additions |
|
72,209 |
|
|
87,416 |
|
|
- |
|
|
3,193 |
|
|
- |
|
|
162,818 |
|
|
Less: Disposals |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Balance as at May 31,
2012 |
|
94,430 |
|
|
530,661 |
|
|
7,638 |
|
|
24,847 |
|
|
23,505 |
|
|
681,081 |
|
|
Additions |
|
85,093 |
|
|
78,800 |
|
|
- |
|
|
26,366 |
|
|
- |
|
|
190,259 |
|
|
Less: Disposals |
|
- |
|
|
(17,500 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(17,500 |
) |
|
Balance as at May 31, 2013 |
|
179,523 |
|
|
591,961 |
|
|
7,638
|
|
|
51,213
|
|
|
23,505
|
|
|
853,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 1,
2011 |
|
21,876 |
|
|
373,258 |
|
|
7,638 |
|
|
15,839 |
|
|
5,746 |
|
|
424,357 |
|
|
Amortization |
|
14,586
|
|
|
70,195
|
|
|
- |
|
|
4,865
|
|
|
1,304
|
|
|
90,950
|
|
|
Balance as at May 31,
2012 |
|
36,462 |
|
|
443,453 |
|
|
7,638 |
|
|
20,704 |
|
|
7,050 |
|
|
515,307 |
|
|
Amortization |
|
14,542 |
|
|
50,520 |
|
|
- |
|
|
7,319 |
|
|
2,610 |
|
|
74,991 |
|
|
Less: Disposals |
|
- |
|
|
(17,500 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(17,500 |
) |
|
Balance as at May 31, 2013 |
|
51,004
|
|
|
476,473 |
|
|
7,638
|
|
|
28,023
|
|
|
9,660
|
|
|
572,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 1,
2011 |
|
345 |
|
|
69,987 |
|
|
- |
|
|
5,815 |
|
|
17,759 |
|
|
93,906 |
|
|
Balance as at May 31, 2012 |
|
57,968 |
|
|
87,208 |
|
|
- |
|
|
4,143 |
|
|
16,455 |
|
|
165,774 |
|
|
Balance as at May 31,
2013 |
|
128,519 |
|
|
115,488 |
|
|
- |
|
|
23,190 |
|
|
13,845 |
|
|
281,042 |
|
In 2013, the Company sold manufacturing and processing
equipment, which was fully amortized, for proceeds of $5,000 and recognized a
gain of $5,000.
17
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
8. |
Share capital |
|
|
|
As at May 31, 2013, the Company was authorized to issue
an unlimited number of common shares. All other classes of shares
previously authorized were deleted on July 15, 2011. |
|
|
|
The table below presents the total number of each class
of share and associated investment: |
|
|
|
|
|
|
|
|
|
May
31, 2012 |
|
|
June
1, 2011 |
|
|
|
|
May 31, 2013 |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
Class |
|
Number |
|
|
Amount |
|
|
Number |
|
|
Amount |
|
|
Number |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class H shares |
|
- |
|
$ |
- |
|
|
- |
|
$ |
- |
|
|
1,816 |
|
$ |
18 |
|
|
Class I shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
1,600 |
|
|
16 |
|
|
Class J shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
3,200 |
|
|
32 |
|
|
Class K shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
900 |
|
|
9 |
|
|
Class L shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
900 |
|
|
9 |
|
|
Class M shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
1,800 |
|
|
18 |
|
|
Class N shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
60 |
|
|
6 |
|
|
Class O shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
60 |
|
|
6 |
|
|
Class P shares |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
60 |
|
|
6 |
|
|
Common shares |
|
11,001,440 |
|
|
4,789,453 |
|
|
11,001,440 |
|
|
4,789,453 |
|
|
- |
|
|
- |
|
|
Total |
|
11,001,440 |
|
$ |
4,789,453 |
|
|
11,001,440 |
|
$ |
4,789,453 |
|
|
10,396 |
|
$ |
120 |
|
Based on the ratio of conversion of the
other classes of shares to common shares of 840 common shares per each other
class of share, the following is a continuity of the representative number of
common shares outstanding:
|
|
|
Common Shares |
|
|
Amount |
|
|
Balance, June 1, 2011 |
|
8,732,640 |
|
$ |
120 |
|
|
Redemption of shares |
|
(151,200 |
) |
|
(18 |
) |
|
Private placement |
|
1,000,000 |
|
|
2,000,000 |
|
|
Share issuance costs |
|
- |
|
|
(50,649 |
) |
|
Issuance of shares for elimination of debt |
|
1,420,000 |
|
|
2,840,000 |
|
|
Balance, May 31,
2012 and 2013 |
|
11,001,440 |
|
$ |
4,789,453 |
|
On June 30, 2011, all of the shares in
Classes N, O and P were redeemed by the Company and a price of $1.00 per share
for a total of $180.
18
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
8. |
Share capital (continued) |
|
|
|
On July 15, 2011, all shares in Classes I, J, K, L and M
were exchanged for an equally number of shares in class H. Subsequently,
all 10,216 Class H shares were exchanged for 8,581,440 common shares of
the Company. After the exchanges, as the Company only had common shares
issued and outstanding the Company deleted all other Classes of
shares. |
|
|
|
On July 22, 2011, the Company repaid $2,840,000 in debt
owing to a shareholder of the Company by issuing 1,420,000 common shares
at $2.00 per common share. |
|
|
|
On July 28, 2011, the Company completed a private
placement of 900,000 common shares at $2.00 per share for gross proceeds
of $1,800,000. The Company incurred transaction fees of $42,259. |
|
|
|
On December 20, 2011, the Company completed a private
placement of 100,000 common shares at $2.00 per share for gross proceeds
of $200,000. The Company incurred transaction fees of $8,390. |
|
|
9. |
Advances under graphite sales contract |
|
|
|
The Company received a prepayment of $1,552,000 USD for
delivery of 3,075 tonnes of graphite by December 31, 2013, in accordance
with a customer supply agreement. The Company has assigned to the
counterparty a first ranking security interest and charge in and to all
assets and undertaking of the Company. Under the agreement, the Company
will refund any outstanding prepayments by January 31, 2014, unless the
parties come to an agreement to extend the delivery period for the
graphite to be shipped. If the Company is unable to refund any outstanding
prepayment with finished graphite or monetary amounts, the counterparty
will be entitled to enforce its security over the assets of the Company.
At any time, the Company may repay any outstanding credit, plus interest
in the amount of 15% per annum, calculated on a pro-rata basis from the
date of prepayment. At the end of the 2013 calendar year, $18,000 USD
worth of graphite had been delivered. The Company has recognized this
delivery as sample sales and the amount has been netted against
exploration and evaluation expenditures. |
|
|
|
On January 31, 2014, the customer agreed to extend the
terms of the supply agreement subject to certain amendments. The amended
production commitment involves the delivery of 1,620 metric tonnes of
graphite between January 1, 2014 and December 31, 2015 (note 18). The
supply agreement was further amended on May 30, 2014 whereby the parties
agreed to extend the production commitment to June 30, 2016. The Company
also agreed to secure a financing of at least $3,000,000 no later than
August 31, 2014. Should the Company fail to meet its production commitment
by July 31, 2016; or the Company fails to obtain adequate financing; or if
the agreement is terminated prior to July 31, 2016, the Company shall
immediately refund the balance of the advance at that date. As part of
this amendment, the Company also issued an option to the counterparty to
acquire up to 100,000 common shares of the Company at a price of US$0.10
per share, exercisable any time on or before May 31,
2016. |
19
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
10. |
Notes payable |
|
|
|
On May 22, 2013, the Company issued $225,000 in
promissory notes. The notes mature on May 22, 2014 and bear interest in
the form of 1,250 common shares per each $25,000 note, per month. As at
May 31, 2013, interest has been accrued and shares have yet to be
issued. |
|
|
|
On May 31, 2013, the Company issued an additional $25,000
of notes under the same terms. The Company has authorized 217,500 common
shares for issuance with respect to the interest owed on these notes. As
further described at Note 17, the terms of the notes payable were modified
subsequent to the year end. |
|
|
11. |
Decommissioning obligation |
|
|
|
It is the Companys intent to protect the land on which
it operates in accordance with best practices of the mining industry and
to comply with all applicable laws governing protection of the government.
As such, the Company recognizes a provision related to its constructive
and legal obligation in British Columbia to restore the properties. The
cost of this obligation is determined based on the expected future level
of activity and costs associated with decommissioning the mines and
restoring the properties. The provision is calculated as the sum of
undiscounted future expected cash flows related to ground disturbances in
the Company's 5-year mine plan of $41,134, undiscounted expected lump sum
costs of decommissioning mining infrastructure of $25,750, and the present
value of expected annual monitoring and engineering costs post-closure of
$66,667. The present value of post-closure costs are estimated using a
formula mandated by the government of British Columbia, currently
equivalent to $2,000 per year in perpetuity, discounted at a risk free
rate of 3% per annum. The sum has been rounded up to the nearest $5,000.
As at May 31, 2013, the Company recorded a decommissioning obligation for
mine rehabilitation of $135,000 (May 31, 2012 $135,000, June 1, 2011
$135,000). |
|
|
12. |
Financial risk management and financial
instruments |
|
|
|
Financial instruments |
|
|
|
The Company has classified its cash and cash equivalents
as FVTPL; other receivables (excluding HST portion) as loans and
receivables; accounts payable, accrued liabilities, notes payable and due
to shareholder as other financial liabilities. |
|
|
|
The carrying values of cash and cash equivalents, other
receivables, and accounts payable and accrued liabilities approximate
their fair values due to their short periods to maturity. |
|
|
|
Financial risk management |
|
|
|
The Company has exposure to the following risks from its
use of financial instruments: |
|
|
credit risk; |
|
|
liquidity risk; and |
|
|
market risk |
20
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
12. |
Financial risk management and financial instruments
(continued) |
|
|
|
|
|
|
(a) |
Credit risk |
|
|
|
|
|
|
|
Credit risk is the risk of financial loss associated with
counterpartys inability to fulfill its contractual obligations. |
|
|
|
|
|
|
|
The maximum credit exposure at May 31, 2013 is the
carrying amount of cash and cash equivalents and other receivables
(excluding HST), with a combined amount of $194,746 (2012 $787,486). All
cash and cash equivalents are placed with a major Canadian financial
institution. The majority of other receivables are due from government
authorities. |
|
|
|
|
|
|
(b) |
Liquidity risk |
|
|
|
|
|
|
|
Liquidity risk is the risk that the Company will
encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or another
financial asset. The Companys executives continually review the liquidity
position including cash flow forecasts to determine the forecast liquidity
position and maintain appropriate liquidity levels. |
|
|
|
|
|
|
|
The Company prepares annual expenditure budgets, which
are regularly monitored and updated as considered necessary. Management
reviews to ensure the Company will have sufficient funding to meet
required expenditures. Surplus cash is invested in guaranteed investment
certificates, choosing maturities which are aligned with expected cash
needs. |
|
|
|
|
|
|
|
As at May 31, 2013, the Company had $210,686 (May 31,
2012 $151,687, June 1, 2011 $20,798) of accounts payable and accrued
liabilities due within 12 months and notes payable due in 2014. |
|
|
|
|
|
|
(c) |
Fair value |
|
|
|
|
|
|
Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties
in an arms length transaction. The fair value of the Companys cash and
cash equivalents, accounts payable and accrued liabilities, note payable,
due to the shareholder are estimated by management to approximate their
carrying values due to their short-term nature. |
|
|
|
|
|
(d) |
Market risk |
|
|
|
|
|
|
Market risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in
market prices. |
|
|
|
|
|
|
(i) |
Foreign exchange currency risk |
|
|
|
|
|
|
|
The Companys operations are based principally in Canada,
but has minimal exposure to foreign exchange risk from the United States
dollar. |
21
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
12. |
Financial risk management and financial instruments
(continued) |
|
|
|
|
|
(d) |
Market risk (continued) |
|
|
|
|
|
|
(ii) |
Interest rate risk |
|
|
|
|
|
|
|
The Company is subject to cash flow interest rate risk
due to fluctuations in the prevailing levels of market interest rates.
Notes payable bear a variable interest rate as the payment of the interest
on the notes payable is based on the Companys share price. Due to the
short-term nature of these financial instruments, the Company considers
this risk to be immaterial. |
|
(e) |
Capital management |
|
|
|
|
|
The Companys objectives when managing its capital are to
safeguard its ability to continue as a going concern, to meet its capital
expenditures for its continued exploration programs, and to maintain a
flexible capital structure which optimizes the cost of capital within a
framework of acceptable risk. The Company manages the capital structure
and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. To maintain or adjust
its capital structure, the Company may issues new shares, issue new debt,
acquire or dispose of assets. |
|
|
|
|
|
The Company is not subject to externally imposed capital
requirements. |
|
|
|
|
|
Management reviews its capital management approach on an
ongoing basis and believes that this approach, given the relative size of
the Company, is reasonable. There have been no changes to the Companys
capital management approach in the period. |
13. |
Commitments |
|
|
|
The Company must pay royalties of 2.5% of net smelter
returns from the sale of all minerals and 2.5% of the net proceeds from
the sale of all by-products to Latitude Minerals Inc (Latitude).
Latitude is a related party of the Corporation due to a common director
and Latitudes shareholdings in the Company. Subsequent to year end the
Company and Latitude entered into the termination agreement as further
described in Note 17. |
|
|
|
Under the Companys supply agreement with a third party,
the Company is to supply 3,075 metric tonnes of graphite by December 31,
2013. Subsequent to year end, the customer agreed to extend the terms of
the supply agreement subject to certain amendments. The amended production
commitment involves the delivery of 1,620 metric tonnes of graphite
between January 1, 2014 and June 30, 2016 (note
9). |
22
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
14. |
Income taxes and deferred income taxes |
|
|
|
A reconciliation of income taxes at the statutory rate
with the reported taxes for the years ended May 31, is as
follows: |
|
|
|
|
|
|
2012 |
|
|
|
|
2013 |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
$ |
2,028,820 |
|
$ |
1,433,398 |
|
|
Statutory rate |
|
25.2%
|
|
|
25.9%
|
|
|
|
|
|
|
|
|
|
|
Expected recovery at combined basic federal and provincial
tax rate |
|
510,586 |
|
|
370,892 |
|
|
Effect on income taxes of: |
|
|
|
|
|
|
|
Change in rates and other |
|
56,933 |
|
|
(16,912 |
) |
|
Permanent differences |
|
(1,229 |
) |
|
75 |
|
|
Change in recognized temporary differences |
|
131,007 |
|
|
62,388 |
|
|
Unrecognized tax assets |
|
(697,297 |
) |
|
(416,443 |
) |
|
Income tax expense
|
$ |
- |
|
$ |
- |
|
The significant components of the
Companys future income tax assets and liabilities are as follows:
|
|
|
|
|
|
2012 |
|
|
|
|
2013 |
|
|
(unaudited) |
|
|
Deferred income tax asset |
|
|
|
|
|
|
|
Non-capital loss carry forward |
$ |
1,139,923 |
|
$ |
810,315 |
|
|
Temporary differences |
|
636,177 |
|
|
268,487 |
|
|
Unrecognized tax
assets |
|
(1,776,100 |
) |
|
(1,078,803 |
) |
|
Deferred income tax asset |
$ |
- |
|
$ |
- |
|
|
The Company has available for deduction against future
taxable income non-capital losses of approximately $4,384,319. These
losses, if not utilized, will begin to expire in 2025. Future tax
benefits, which may arise as a result of these non-capital losses, have
not been recognized in these financial statements and have been offset by
a valuation allowance due to the uncertainty of their
realization. |
|
|
15. |
Key management compensation |
|
|
|
Key management includes the president who has the
authority and responsibility for planning, directing, and controlling the
activities of the Company. The compensation was paid in the form of cash
and short term benefits. Total compensation for key management personnel
for the year was $101,694 (2012 - $75,000). |
23
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
16. |
Related party transactions |
|
|
|
As at May 31, 2013, the Company owed $8,837 (2012 -
$8,812, 2011 - $2,848,815) in shareholder loans, which bear no interest
and are repayable on demand. On July 22, 2011, the Company issued
1,420,000 common shares at $2.00 per share to settle the balance owing
(note 8). No gain or loss was recognized on the transaction. |
|
|
|
On May 22, 2014, a total of $50,000 of promissory notes
owed to an officer and director were exchanged for $50,000 of new notes
due June 22, 2015 as part of a note exchange (note 17). |
|
|
17. |
Subsequent events |
|
|
|
During June and July 2013, the Company issued a total of
$125,000 in promissory notes. The notes had a maturity date of May 22,
2014 and bore interest in the form of 1,250 common shares per each $25,000
note, per month. |
|
|
|
On May 22, 2014, a total of $375,000 of promissory notes
were exchanged for $375,000 of new notes due June 22, 2015. These notes
bear interest in the form of 1,250 common shares per each $25,000 note,
per month. In the event that the Company completes an equity financing
transaction prior to or in connection with go-public transaction or a
sale, transfer, assignment or other disposition by the Company of all or
substantially all of the Companys assets (a Financing Transaction), the
notes will be immediately exchanged for the same type of securities as are
issued in connection with the Financing Transaction (the Financing
Securities), at an exchange rate of $25,000 in principal amount of the
outstanding notes for $28,000 of Financing Securities. |
|
|
|
The unpaid interest owing on the promissory notes as at
May 22, 2014 were forgiven in exchange for an on-going 0.25% royalty on
net smelter returns from the sale of all minerals and 0.25% of the net
proceeds from the sale of all by-products. |
|
|
|
Subsequent to year end, the Company extended the terms of
its supply agreement subject to certain amendments (note 9). |
|
|
|
Subsequent to year end, 21 of the Companys mineral
tenures covering an area of approximately 10,986 hectares were allowed to
elapse. |
|
|
|
Subsequent to year end, the Company issued 8,500 common
shares at a price of $2.00 per share. $17,000 represented value of shares
where fair value was determined based on the value of services
provided. |
|
|
|
On June 17, 2014, the Company entered into the agreement
with Latitude where the termination of the original contract described at
Note 13 becomes effective upon the Companys public offering before June
17, 2015. |
|
|
18. |
Transition to International Financial Reporting
Standards (IFRS) |
|
|
|
These are the Companys first annual financial statements
prepared in accordance with IFRS. |
|
|
|
The policies set out in note 3 have been applied in
preparing the financial statements for the year ended May 31, 2013, the
comparative information presented for the year ended and as at May
31, 2012, and in the preparation of an opening IFRS statement
of financial position at June 1, 2011 (the Companys date of
transition). |
24
Eagle Graphite
Corporation |
Notes to the Financial Statements |
For the Years Ended May 31, 2013 and 2012 |
(Expressed in
Canadian Dollars, unless otherwise noted) |
|
18. |
Transition to International Financial Reporting
Standards (IFRS) (continued) |
|
|
|
The Company has followed the recommendations in IFRS 1
First-time adoption of IFRS, in preparing its transitional
financial statements. |
|
|
|
As part of the Companys adoption of IFRS, the following
election was made under IFRS 1: |
|
|
Decommissioning obligation The
decommissioning obligation was calculated on the transition date. |
|
IFRS Mandatory exceptions
Hindsight was not used to create or
revise estimates. The estimates previously made by the Company under Canadian
GAAP were not revised for application of IFRS except where necessary to reflect
any differences in accounting policies.
Reconciliations of Canadian GAAP to
IFRS
IFRS 1 requires an entity to reconcile
equity, comprehensive income and cash flows for prior periods. The Companys
first time adoption of IFRS did not have a material effect on the equity,
comprehensive income or total operating, investing and financing cash flows.
In preparing its opening IFRS statement
of financial position, no adjustments were required by the Company for amounts
reported previously in its financial statements prepared in accordance with
Canadian GAAP. There was no financial statement impact resulting from the
transition from Canadian GAAP to IFRS.
25
EAGLE GRAPHITE CORPORATION
MANAGEMENTS DISCUSSION
AND ANALYSIS
For the years ended May 31, 2014, 2013 and 2012
INTRODUCTION
This Managements Discussion and Analysis (MD&A) is
prepared as of November 25, 2014 and should be read in conjunction with the
audited annual financial statements of Eagle Graphite Corporation (Eagle
Graphite or the Company) for the years ended May 31, 2014 and 2013, which
have been prepared in accordance with International Financial Reporting
Standards (IFRS). This MD&A includes certain statements that may be deemed
"forward-looking statements". All statements in this discussion, other than
statements of historical fact, that address future exploration activities and
events or developments that the Company expects, are forward-looking statements.
Although the Company believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions, such statements are not
guarantees of future performance and actual results or developments may differ
materially from those in the forward-looking statements. All amounts are in
Canadian dollars.
All of the scientific and technical information in this
MD&A has been prepared or reviewed by Edward J. Nunn, P. Eng. Mr. Nunn is a
qualified person within the meaning of National Instrument 43-101.
Cautionary Note Regarding Forward-Looking
Statements
Certain statements contained in the sections Mineral
Exploration Properties, Company Outlook and Liquidity and Capital Resources
of this MD&A constitute forward-looking statements. These statements relate
to future events or the Companys future performance, business prospects or
opportunities. All statements other than statements of historical fact may be
forward-looking statements. Forward-looking statements are often, but not
always, identified by the use of words such as seek, anticipate, plan,
continue, estimate, expect, may, will, project, predict,
potential, targeting, intend, could, might, should, believe and
similar expressions. Information concerning the interpretation of drill results,
mineral resource and reserve estimates and capital cost estimates may also be
deemed as forward-looking statements as such information constitutes a
prediction of what mineralization might be found to be present and how much
capital will be required if and when a project is actually developed. These
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results or events to differ materially from those anticipated
in such forward-looking statements. The Company believes that the expectations
reflected in those forward-looking statements are reasonable, but no assurance
can be given that these expectations will prove to be correct and such
forward-looking statements included in this MD&A should not be unduly relied
upon. These statements speak only as of the date of this MD&A. Actual
results and developments are likely to differ, and may differ materially, from
those expressed or implied by the forward-looking statements contained in this
MD&A. Such statements are based on a number of assumptions which may prove
to be incorrect, including, but not limited to, assumptions about:
- general business and economic conditions;
- the supply and demand for, deliveries of, and the level and volatility of
prices of graphite;
- the availability of financing for the Companys development project on
reasonable terms;
- the ability to procure equipment and operating supplies in sufficient
quantities and on a timely basis;
- the ability to attract and retain skilled staff;
- market competition;
- the accuracy of our resource estimate (including, with respect to size,
grade and recoverability) and the geological, operational and price
assumptions on which it is based; and/or
- tax benefits and tax rates.
These forward-looking statements involve risks and
uncertainties relating to, among other things, changes in commodity prices,
access to skilled mining development and mill production personnel, results of
exploration and development activities, the Companys limited experience with
production and development stage mining operations, uninsured risks, regulatory
changes, defects in title, availability of materials and equipment, timeliness
of government approvals, actual performance of facilities, equipment and
processes relative to specifications and expectations and unanticipated
environmental impacts on operations. Actual results may differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include, but are not limited to,
the risk factors incorporated by reference herein. See Risk Factors. The
Company cautions that the foregoing list of important factors is not exhaustive.
Investors and others who base themselves on the Company's forward-looking
statements should carefully consider the above factors as well as the
uncertainties they represent and the risk they entail. The Company undertakes no
obligation to update forward-looking statements if these beliefs, estimates and
opinions or other circumstances should change, accept as otherwise required by
applicable law. The Company also cautions readers not to place undue reliance on
these forward-looking statements. Moreover, these forward-looking statements may
not be suitable for establishing strategic priorities and objectives, future
strategies or actions, financial objectives and projections other than those
mentioned above.
OVERVIEW
Eagle Graphite is a graphite exploration and evaluation company
located in British Columbia, Canada. The Company is a private company existing
under the Canada Business Corporations Act and does not trade on any stock
exchange. The head office of the Company is located at 6420 Eagles Drive,
Courtenay, British Columbia, V9J 1V4 and the registered office is located at
2100-40 King Street West, Toronto, ON, M5H 3C2.
The Company is in the business of mineral exploration and is
actively engaged in the acquisition, exploration and development of graphite
properties in British Columbia. The Company owns a graphite quarry and
processing plant which has historically operated at a throughput rate of 20
tonnes of feed per hour, a rate roughly equivalent to an annual output of 4,000
tonnes of high carbon natural flake graphite. Substantially all of the efforts
of the Company are devoted to these business activities. To date the Company has
not earned significant pre-production revenue and is considered to be in the
exploration stage.
MINERAL EXPLORATION PROPERTIES
In 2006, Eagle Graphite acquired the Black Crystal graphite
quarry and processing plant, located 3 km south of Valhalla Wilderness Park on
the eastern slope of the Monashee mountains. Since the purchase, Eagle Graphite
has invested in retooling the operation.
The active 100-hectare open cast quarry area is surrounded by
an additional 2,900 hectares (7,200 acres) of undeveloped mineral claims. The
processing plant, using locally generated hydroelectricity, incorporates a
closed system recirculating and filtered water supply and uses low impact
purification chemicals such as pine oil. Graphitic feed is drawn from the
quarry using excavation equipment and carried by dump truck to the processing
plant. The feed consists of loose sandy material, requiring no blasting.
As one of only two producing flake graphite mines in North
America, and strategically located close to the US city of Spokane, Washington
and the Canadian port of Vancouver, British Columbia, Eagle Graphite offers
efficient and economical shipping of high grade material to destinations
worldwide.
As at May 31, 2014, the Company owned 11 (2013 32; 2012 -
164) mineral tenures covering an area of approximately 3,400 (2013 14,486;
2012 9,250) hectares of land near Nelson, British Columbia. Acquisition costs
of the properties were $241,016 (2013 $241,016; 2012 - $241,016). Since May
31, 2012 the Company has allowed various non-core mineral tenures were allowed
to elapse. The lapsed tenures do not contain any of the Company's established
mineral resource estimates, nor did the Company have any near term plans to
carry out exploration activities that would justify the maintenance costs
associated with these tenures. The Company received a refund related to a mining
exploration tax credit of $163,608 during the year ended May 31, 2014.
Company Outlook and Exploration Project
Plans
Eagle expects to distribute graphite and by-products mined from
the Black Crystal Project by truck to refractories companies and golf courses,
respectively. Eagle does not have any material revenue over the next 12 months
Eagle anticipates exploring and developing the Black Crystal Property. Eagle
anticipates using quarrying and flotation methods to produce graphite.
Production of graphite will be done by Eagle using its leased property and plant
pursuant to the terms of its nine legacy mineral claims and two mining leases.
The two mineral leases expire on June 25, 2032, with an option to renew for an
additional 30 years. The nine mineral claims expire between December 28, 2014
and November 11, 2020. Eagle anticipates renewing the mineral claims in the
ordinary course prior to or upon expiry of the respective mineral claims. The
annual payment terms to maintain the mineral leases and mineral claims are
subject to a payment schedule which begins at a cost of $5 per hectare and
increases up to $20 per hectare. Eagles existing mineral leases and mineral
claims total approximately 3,400 hectares, therefore the anticipated maximum
annual cost of for Eagles current mineral claims and mineral leases is
approximately $70,000. Eagles mineral claims and mining leases are in good
standing as of the date of this report. The Company intends to develop the Black
Crystal project and estimates it will require approximately $228,000 to fund the
Phase 1 exploration work program recommended in the current National Instrument
43-101 compliant Technical Report.
Eagles management and employees have specialized skills and
knowledge particular to the graphite mining business which are suitable for
Eagles current business purposes and are comparable to other graphite companies
at the same stage as Eagle. Eagle uses chemical reagents, such as pine oil, and
bulk bags that are readily available and can be purchased from a number of
wholesalers at standard market rates. Eagles business expenses marginally
increase in the winter due to inclement weather in the Slocan Valley, British
Columbia. Over the course of the past fiscal year Eagle had seven employees on
average.
Upon completion of the development of the Black Crystal
Project, Eagle anticipates selling graphite globally and selling by-products
within a 200 kilometer range from the Black Crystal Project. Eagle anticipates
that graphite purchasers may become increasingly sensitive to the potential lack
of North American graphite supply and the historic reliance on Chinese graphite
producers.
The graphite industry is competitive with a number of companies
such as Imerys S.A., Qingdao Hensen Graphite Co., Ltd., Nacional de Grafite
Ltda. supplying the graphite market. Eagle believes that while graphite pricing
is competitive, Eagle has certain product quality advantages over a number of
its competitors. There is the potential for new competition in the industry over
the long-term from companies such as Northern Graphite Corporation, Mason
Graphite Inc. and Focus Graphite Inc.
The following table provides details of the exploration
expenditures for the years ended May 31, 2014, 2013 and 2012:
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Exploration and evaluation
expenditures |
|
|
|
|
|
|
|
(unaudited) |
|
Drilling |
$ |
- |
|
$ |
202 |
|
$ |
255,898 |
|
Labour and wages |
|
174,736 |
|
|
796,633 |
|
|
253,509 |
|
Subcontracts |
|
8,014 |
|
|
73,856 |
|
|
192,427 |
|
Amortization |
|
33,243 |
|
|
53,130 |
|
|
71,499 |
|
Other direct costs
|
|
91,182 |
|
|
686,264 |
|
|
238,768 |
|
Repairs and maintenance |
|
20,859 |
|
|
94,554 |
|
|
41,579 |
|
Travel and lodging
|
|
1,101 |
|
|
582 |
|
|
2,574 |
|
Permits and licenses |
|
6,188 |
|
|
19,897 |
|
|
33,941 |
|
Sample sales, net
of costs |
|
(7,440 |
) |
|
(49,476 |
) |
|
(8,664 |
) |
Mineral exploration tax credit |
|
(163,608 |
)
|
|
- |
|
|
- |
|
|
$ |
164,275 |
|
$ |
1,675,642 |
|
$ |
1,081,531 |
|
SELECTED ANNUAL INFORMATION
The following table summarizes selected financial data for the
Company for each of the last three fiscal years. The information set forth below
should be read in conjunction with the May 31, 2014 and 2013 audited
consolidated financial statements, prepared in accordance with International
Financial Reporting Standards (IFRS), and their related notes.
|
|
Years Ended |
|
|
|
May 31, 2014 |
|
|
May 31, 2013 |
|
|
May 31, 2012 (1) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Revenues |
|
Nil |
|
|
Nil |
|
|
Nil |
|
Loss and comprehensive loss |
|
(533,387 |
) |
|
(2,028,820 |
) |
|
(1,433,398 |
) |
Loss per share |
|
(0.05 |
)
|
|
(0.18 |
)
|
|
(0.15 |
) |
Total assets |
|
681,733 |
|
|
992,710 |
|
|
1,191,390 |
|
Working capital/(deficiency) |
|
(1,908,666 |
)
|
|
(1,654,987 |
)
|
|
489,101 |
|
Current liabilities |
|
2,005,543 |
|
|
1,990,639 |
|
|
160,499 |
|
Total long term liabilities |
|
135,000 |
|
|
135,000 |
|
|
135,000 |
|
Cash dividends |
|
Nil |
|
|
Nil |
|
|
Nil |
|
(1) - Unaudited
SUMMARY OF QUARTERLY RESULTS
A summary of quarterly results has not been provided since
Eagle, as a private company, has not historically prepared quarterly financial
statements.
RESULTS OF OPERATIONS
Consolidated Statements of Loss and Comprehensive Loss
|
|
For the years ended May 31,
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Expenses |
|
|
|
|
|
|
|
(Unaudited) |
|
Exploration and
evaluation |
$ |
164,275
|
|
$ |
1,675,642
|
|
$ |
1,081,531
|
|
Advertising |
|
446 |
|
|
4,033 |
|
|
2,207 |
|
Professional
fees |
|
41,663 |
|
|
145,050 |
|
|
157,148 |
|
Travel |
|
13,133 |
|
|
23,003 |
|
|
41,884 |
|
Office and
general |
|
78,940 |
|
|
182,164 |
|
|
133,889 |
|
Amortization |
|
38,959 |
|
|
21,861 |
|
|
19,451 |
|
Share based
compensation |
|
190,506 |
|
|
- |
|
|
- |
|
Gain on disposition of assets
|
|
- |
|
|
(5,000 |
) |
|
- |
|
Foreign exchange
loss (gain) |
|
- |
|
|
(23,530 |
)
|
|
47 |
|
Interest expense |
|
5,465 |
|
|
5,597 |
|
|
(2,759 |
) |
|
|
|
|
|
|
|
|
|
|
Loss |
$ |
533,387 |
|
$ |
2,028,820 |
|
$ |
1,433,398 |
|
For the year ended May 31, 2014
The Company incurred a loss of $533,387 for the year ended May
31, 2014 (2013 - $2,028,820). Exploration and evaluation expenditures amounted
to $164,275 (2013 - $1,675,642) as the Company scaled back its exploration and
development operations to preserve capital. Professional fees of $41,633 (2013 -
$145,050) were lower in the current period due primarily to decreased
requirement for professional geological services. Travel of $13,133 (2013 -
$23,003) was lower in the current period due to lower travel requirements to
support exploration and development operations. Office and general expense of
$78,940 (2013 - $182,164) was lower due to reductions in staff and salaries. A
detailed breakdown of office and general expenses follows:
|
|
For the years ended May 31,
|
|
|
|
2014 |
|
|
2013 |
|
Office and general |
|
|
|
|
|
|
Wages and salaries |
$ |
25,661 |
|
$ |
117,383 |
|
Investor
relations |
|
227 |
|
|
605 |
|
Office and administration
|
|
7,005 |
|
|
18,978 |
|
Insurance
|
|
34,060 |
|
|
41,615 |
|
Property tax |
|
11,987 |
|
|
3,583 |
|
|
|
|
|
|
|
|
Total |
$ |
78,940 |
|
$ |
182,164 |
|
Share-based compensation of $190,506 (2013 - $Nil) relates an
option granted to acquire 100,000 common shares issued to the counterparty to
the customer supply agreement. The gain on disposition of assets of $5,000
during 2013 relates to the sale of fully amortized manufacturing and processing
equipment. The foreign exchange gain in the current year was $Nil (2013 -
$23,530) as the prior year gain was a result of the impact of the strengthening
of the $CAN vs. the $US during the period on account balances held in $US.
For the year ended May 31, 2013
The Company incurred a loss of $2,028,820 for the year ended
May 31, 2013 (2012 - $1,433,398). Exploration and evaluation expenditures
amounted to $1,675,642 (2012 - $1,081,531) as the Company finalized its drilling
program conducted during 2011 and 2012, and further developed its production
capabilities at its processing plant. Professional fees of $145,050 (2012 -
$157,148) were comparable to the prior year and mainly reflect costs associated
with professional geological services. Travel of $23,003 (2012 - $41,884) was
lower in the current period due to less travel associated with the 2011/2012
drilling program. Office and general expense of $182,164 (2012 - $133,889) was
higher primarily due to higher wages. A detailed breakdown of office and general
expenses follows:
|
|
For the years ended May 31,
|
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
(Unaudited) |
|
Office and general |
|
|
|
|
|
|
Wages and salaries |
$ |
117,383 |
|
$ |
63,279 |
|
Investor
relations |
|
605 |
|
|
16,756 |
|
Office and administration
|
|
18,978 |
|
|
18,157 |
|
Insurance
|
|
41,615
|
|
|
31,845 |
|
Property tax |
|
3,583 |
|
|
3,852 |
|
|
|
|
|
|
|
|
Total |
$ |
182,164 |
|
$ |
133,889 |
|
Wages and salaries of $117,383 (2012 - $63,279) increased with
the addition of an Assistant Superintendent at the processing plant. Investor
relations of $605 (2012 - $16,756) decreased as the fundraising activities of
2012 were not repeated in 2013. Insurance of $41,615 (2012 - $31,845) increased
due primarily to an increase in vehicle fleet size and the corresponding
insurance coverage.
The gain on disposition of assets of $5,000 (2012 - $Nil)
relates to the sale of fully amortized manufacturing and processing equipment.
The foreign exchange gain in the current year of $(23,530) (2013 loss of $47)
was a result of the impact of the strengthening of the $CAN vs. the $US during
the period on account balances held in $US.
LIQUIDITY AND CAPITAL RESOURCES
As at May 31, 2014, the Company had cash and cash equivalents
of $57,811 (2013 - $178,173; 2012 - $482,375, total current assets of $96,877
(2013 - $335,652; 2012 - $649,600), and total current liabilities of $2,005,543
(2013 - $1,990,639; 2012 - $160,499) including $1,521,116 (2013 - $1,521,116;
2012 - $Nil) received as an advance under a graphite sales contract,
and notes payable of $375,000 (2013 - $250,000; 2012 - $Nil) resulting in a
working capital deficiency of $1,908,666 (2013: working capital deficiency
$1,654,987; 2012: working capital of $489,101). During the year ended May 31,
2014 the Companys average monthly cash burn rate, excluding exploration
expenditures, amortization, and foreign exchange, was approximately $10,500,
lower than the fiscal 2013 monthly cash burn rate of approximately $31,400 due
to ongoing cost cutting measures. The fiscal 2013 monthly cash burn rate was
higher than the fiscal 2012 monthly cash burn rate of approximately $28,000
reflecting the higher level of business activity during 2013. The Company has
also reduced exploration and development work at the Black Graphite quarry and
processing plant during fiscal 2014. The Companys future exploration and
development programs will be a function of the Companys ability to raise
additional capital in the future.
As a junior exploration stage company, Eagle Graphite has
traditionally relied on equity financings, promissory notes, and graphite sales
contract advances to fund exploration and development programs and general
working capital requirements.
The Companys ability to raise additional funds and its future
performance are largely tied to the health of the financial markets and investor
interest in the industrial minerals industry. Financial markets are currently
volatile, and are likely to remain so throughout 2014 and 2015, reflecting
ongoing concerns about the stability of the global economy, sovereign debt
levels, global growth prospects and many other factors that might impact the
Companys ability to raise additional funds.
In September 2013 the Company received a prepayment of
$1,552,000 USD for delivery of 3,075 tonnes of graphite by December 31, 2013, in
accordance with a customer supply agreement. The Company has assigned to the
counterparty a first ranking security interest and charge in and to all assets
and undertaking of the Company. Under the agreement, the Company will refund any
outstanding prepayments by January 31, 2014, unless the parties come to an
agreement to extend the delivery period for the graphite to be shipped. If the
Company is unable to refund any outstanding prepayment with finished graphite or
monetary amounts, the counterparty will be entitled to enforce its security over
the assets of the Company. At any time, the Company may repay any outstanding
balance, plus interest in the amount of 15% per annum, calculated on a pro-rata
basis from the date of prepayment.
On January 31, 2014, the customer agreed to extend the terms of
the supply agreement subject to certain amendments. The amended production
commitment involves the delivery of 1,620 metric tonnes of graphite between
January 1, 2014 and December 31, 2015. The supply agreement was further amended
on May 30, 2014 whereby the parties agreed to extend the production commitment
to June 30, 2016. The Company also agreed to secure a commitment for financing
of at least $3,000,000 no later than August 31, 2014 (see Subsequent Events
below). Should the Company fail to meet its production commitment by July 31,
2016; or the Company fails to obtain adequate financing; or if the agreement is
terminated prior to July 31, 2016, the Company shall immediately refund the
balance of the advance at that date. As part of this amendment, the Company also
issued an option to the counterparty to acquire up to 100,000 common shares of
the Company at a price of US$0.10 per share, exercisable any time on or before
May 31, 2016. The stock options were valued at $190,506 using the Black-Scholes
option-pricing model with the following assumptions: expected life of 2 years,
risk-free rate of 1.03%, expected dividend yield of 0%, and expected volatility
of 100%.
On June 22, 2014 the Company issued a total of $100,000 in
promissory notes, and on October 22, 2014 issued a further $350,000 in
promissory notes. The Company also issued $375,000 in promissory notes during
the period May - July 2013.
On July 6, 2014, Amerix Precious Metals Corporation (Amerix)
and Eagle entered into a Letter of Intent to complete an Acquisition
(Acquisition), which was superseded by the Amalgamation Agreement, dated
November 5, 2014. The Acquisition will constitute a reverse takeover
transaction within the meaning of Exchange Policy 5.2 Change of Business
and Reverse Takeovers. When completed, Amerix will become the resulting
issuer, and will carry on the business of Eagle, being the exploration and
development of the Black Crystal Property and other prospective graphite
properties in British Columbia. It is anticipated that, on or prior to
completion of the Acquisition, Amerix (Resulting Issuer) will change its name
to Eagle Graphite Corporation, or such other name as agreed upon by Eagle and
Amerix and as is permitted by applicable law and acceptable to the Exchange.
The Company is also seeking a private placement (Private
Placement) of $7,000,000 financing (the Financing) in conjunction with the
Acquisition at a price of $0.10 per unit, post-Acquisition. Each unit will
entitle the holder to one common share of the Company and one-half common share
purchase warrant, which will be exercisable for $0.15, for a period of 60 months
following the closing of the Acquisition. $1,000,000 of the Financing will be in
the form of flow-through shares.
Eagle has raised bridge financing by issuing notes (Eagle
Notes) in the gross amount of $825,000. Approximately $375,000 was issued on
May 22, 2014, $100,000 on June 22, 2014 and $350,000 on October 22, 2014. Of
this amount, as at October 31, 2014, approximately $350,000 is available to
Eagle. Each $25,000 principal amount of the Eagle Notes is automatically
convertible into $28,000 of units of Eagle on a post-stock split basis at a
price of approximately $0.0893 per unit (the Eagle Note Units) immediately
prior to the completion of the Acquisition. Each Eagle Note Unit is comprised of
one Eagle common share and one-half of one Eagle warrant. The 9,240,000 Eagle
common shares and 4,620,000 Eagle warrants issued on conversion of the Eagle
Notes in connection with the Acquisition will be exchanged on a 1:1 basis for
9,240,00 Resulting Issuer common shares and 4,620,000 Resulting Issuer warrants.
Unless otherwise converted into Eagle Note Units upon satisfaction of the Eagle
escrow release conditions, each Eagle Note is due on June 22, 2015.
On November 5, 2014, Eagle completed the first tranche of the
Private Placement, pursuant to which Eagle issued 15,050,000 Eagle subscription
receipts at a price of $0.10 per Eagle subscription receipt for gross proceeds
of $1,505,000, which proceeds have been placed in escrow pending satisfaction of
the escrow release conditions. Upon satisfaction of the escrow release
conditions and immediately prior to the closing, the Eagle subscription receipts
will automatically be exercised, without payment of any additional consideration
and with no further action on the part of the holders thereof, for one Eagle
Unit. Each Eagle Unit will be comprised of one Eagle common share and one-half
of one Eagle warrant.
If the Eagle escrow release conditions are not satisfied prior
to the escrow release deadline, the escrowed funds plus accrued interest will be
returned to the Eagle purchasers in accordance with the terms of the Eagle
Private Placement. To the extent that the escrowed funds plus accrued interest
are not sufficient to repay the purchase price for all Eagle subscription
receipts, Eagle has agreed to satisfy any shortfall.
As consideration for the services of the Agent in connection
with the Eagle Private Placement, Eagle agreed to pay the Agent a commission
equal to 7% of the gross proceeds from the sale of the Private Placement
Subscription Receipts ($105,350), which shall be released to the Agent upon
satisfaction of the Eagle Escrow Release Conditions.
As additional consideration for the services of the Agent, the
Agent was granted 1,053,500 Eagle Broker Warrants. Each Eagle Broker Warrant
entitles the Agent to purchase one Eagle Common Share at a price of $0.10 per
Eagle Common Share until November 5, 2016.
The Company believes that, with the funds raised in the private
placement, and subject to shareholder approval of the business combination with
Amerix, it has sufficient working capital to allow it to continue through fiscal
2015. Should the business combination with Amerix not be completed this will
cause serious doubt as to the Companys ability to continue as a going concern.
OFF BALANCE SHEET ARRANGEMENTS
As of the date of this filing, the Company does not have any
off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect upon the results of operations or financial condition
of the Company, including, and without limitation, such considerations as
liquidity and capital resources.
TRANSACTIONS WITH RELATED PARTIES
The Company considers key management to include the president,
who has the authority and responsibility for planning, directing, and
controlling the activities of the Company. Total compensation for key management
personnel for the year was $8,333 (2013 - $101,694; 2012 - $75,000).
As at May 31, 2014, the Company owed $21,007 (2013 - $8,837;
2012 - $8,812) in shareholder loans, which bear no interest and are repayable on
demand.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
reported amounts of expenses during the reporting period. Actual outcomes could
differ from these estimates. The financial statements include estimates which,
by their nature, are uncertain. The impacts of such estimates are pervasive
throughout the financial statements, and may require accounting
adjustments based on future occurrences. Revisions to accounting estimates are
recognized in the period in which the estimate is revised and the revision
affects both current and future periods.
CHANGES IN ACCOUNTING POLICIES
The significant accounting policies are outlined in the
financial statements for the years ended May 31, 2014 and 2013, unless otherwise
disclosed.
Future accounting standards
Standards
issued but not yet effective up to the date of issuance of this MD&A are
listed below. This list is of standards and interpretations issued that the
Company reasonably expects to be applicable at a future date. The Company
intends to adopt these standards when they become effective.
The following pronouncements issued by the IASB and
interpretations published by IFRIC will become effective for annual periods
beginning on or after January 1, 2014, with earlier adoption permitted.
IFRS 7 (Amendment): Financial Instruments: Disclosures is
effective for annual periods beginning on or after 1 January 2015 and requires
modification of associated disclosures upon application of IFRS 9 Financial
Instruments: Classification and Measurement.
IFRS 9 Financial Instruments was issued by the IASB in October
2010 and will replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 uses a single approach to determine whether a financial asset is measured
at amortized cost or fair value, replacing the multiple rules in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash flow
characteristics of the financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward
unchanged to IFRS 9. The new standard also requires a single impairment method
to be used, replacing the multiple impairment methods in IAS 39. The effective
date is for annual periods beginning on or after 1 January 2018.
IAS 32 Financial Instruments: Presentation was amended by the
IASB in December 2011. Offsetting Financial Assets and Financial Liabilities
amendment addresses inconsistencies identified in applying some of the
offsetting criteria. The amendment is effective for annual periods beginning in
or after January 1, 2014. Earlier application is permitted.
IAS 36 Impairment of Assets was amended by the IASB in June
2013. Recoverable Amount Disclosures for Non-Financial Assets amendment modifies
certain disclosure requirements about the recoverable amount of impaired assets
if that amount is based on fair value less costs of disposal. The amendment is
effective for annual periods beginning on or after January 1, 2014. Earlier
application is permitted when the entity has already applied IFRS13.
In May 2014, the IASB issued IFRS 15 Revenue from Contracts
with Customers (IFRS 15) which supersedes IAS 11 Construction Contracts, IAS
18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for
the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers,
and SIC 31 Revenue Barter Transactions involving Advertising Services. IFRS
15 establishes a single five-step model for determining the nature, amount,
timing and uncertainty of revenue and cash flows arising from a contract with a
customer. The standard is effective for annual periods beginning on or after
January 1, 2017, with early adoption permitted.
The Company is currently evaluating the impact of the above
mentioned standards on financial statements.
New standards and interpretations issued and adopted
IFRS 13 Fair Value Measurement defines fair value, requires
disclosure about fair value measurements and provides a framework for measuring
fair value when it is required or permitted within IFRS standards. The adoption
of IFRS 13 did not require any adjustment to the valuation techniques used to
measure fair value and did not result in any measurement adjustments as at
January 1, 2013.
FINANCIAL RISK FACTORS
The Companys activities expose it to a variety of financial
risks: credit risk, liquidity risk and market risk including interest rate,
foreign exchange rate, and commodity price risk. Risk management is carried out
by the Company's management team with guidance from the Audit Committee under
policies approved by the Board of Directors. The Board of Directors also provides
regular guidance for overall risk management.
Credit Risk
Credit risk is the risk of loss associated with a
counterpartys inability to fulfill its payment obligations. The maximum credit
exposure at May 31, 2014 is the carrying amount of cash and cash equivalent and
other receivables (excluding HST), with a combined amount of $61,009 (2013 -
$194,746; 2012 - $787,486). All cash and cash equivalents are placed with a
major Canadian financial institution. The majority of other receivables are due
from government authorities.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Companys
executives continually review the liquidity position including cash flow
forecasts to determine the forecast liquidity position and maintain appropriate
liquidity levels.
The Company prepares annual expenditure budgets, which are
regularly monitored and updated as considered necessary. Management reviews to
ensure the Company will have sufficient funding to meet required expenditures.
Surplus cash is invested in guaranteed investment certificates, choosing
maturities which are aligned with expected cash needs.
As at May 31, 2014, the Company had $88,420 (May 31, 2013
$210,686; May 31, 2012 - $151,687) of accounts payable and accrued liabilities
due within 12 months, and $375,000 (May 31, 2013 - $250,000; May 31, 2012 -
$Nil) of notes payable due in 2015.
Market Risk
Interest Rate Risk
The Company is subject to cash flow
interest rate risk due to fluctuations in the prevailing levels of market
interest rates. Notes payable bear a variable interest rate as the payment of
the interest on the notes payable is based on the Companys share price. Due to
the short-term nature of these financial instruments the Company considers this
risk to be immaterial.
Commodity Price Risk
The Company is exposed to commodity
price risk. Commodity price risk is defined as the potential adverse impact on
earnings and economic value due to commodity price movements and volatilities.
The Company closely monitors the price of graphite to determine the appropriate
course of action to be taken by the Company.
Foreign Exchange Currency Risk
The Companys operations are based
principally in Canada, with minimal exposure to foreign exchange risk from the
United States dollar.
OTHER MD&A REQUIREMENTS
|
|
Number |
|
|
|
|
Share capital |
|
of shares |
|
|
$ |
|
Balance, May 31, 2013 |
|
11,001,440 |
|
|
4,789,453 |
|
Issued during the year |
|
8,500
|
|
|
17,000 |
|
Balance May 31, 2014 and
November 25, 2014 |
|
11,009,940 |
|
|
4,806,453 |
|
|
|
Number |
|
|
|
|
|
|
of options |
|
|
|
|
Stock Options |
|
|
|
|
|
|
Balance, May 31, 2013 |
|
300,000 |
|
|
|
|
Issued during the year |
|
100,000 |
|
|
|
|
Balance May 31, 2014 and
November 25, 2014 |
|
400,000 |
|
|
|
|
A total of 300,000 options are exercisable in whole or in part
at a price of $0.10 per share. The options shall only be exercisable for a term
commencing on the date that the Company completes a
going public event and ending on the date that is 24 months following
the going public event.
A total of 100,000 options are exercisable ata price of US$0.10
per share, with an expiry date of May 31, 2016.
|
|
Number |
|
|
|
|
Fully diluted as at May 31, 2014 and
November 25, 2014 |
|
of shares |
|
|
|
|
Share capital |
|
11,009,940 |
|
|
|
|
Options |
|
400,000 |
|
|
|
|
Total |
|
11,409,940 |
|
|
|
|
RISK FACTORS
The Company is in the business of acquiring, exploring,
developing and exploiting natural resource properties, currently in British
Columbia. Due to the nature of the Companys business and the
present stage of exploration and development of its mineral properties the
following risk factors, among others, will apply:
Resource Exploration and Development is Generally a
Speculative Business: Resource exploration and development is a
speculative business and involves a high degree of risk, including, among other
things, unprofitable efforts resulting not only from the failure to discover
mineral deposits but from finding mineral deposits which, though present, are
insufficient in size to return a profit from production. The marketability of
natural resources that may be acquired or discovered by the Company will be
affected by numerous factors beyond the control of the Company. These factors
include market fluctuations, the proximity and capacity of natural resource markets, government
regulations, including regulations relating to prices, taxes, royalties, land
use, importing and exporting of minerals and environmental protection. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in the Company not receiving an adequate return on
invested capital. There are no known reserves on any of the Companys
properties. The vast majority of exploration projects do not result in
the discovery of commercially mineable deposits of ore. Substantial
expenditures are required to establish ore reserves through drilling and
metallurgical and other testing techniques, determine metal content and
metallurgical recovery processes to extract metal from the ore, and construct,
renovate or expand mining and processing facilities. No assurance can be given
that any level of recovery of ore reserves will be realized or that any
identified mineral deposit, even if it is established to contain an estimated
resource, will ever qualify as a commercial mineable ore body which can be
legally and economically exploited. The great majority of exploration projects
do not result in the discovery of commercially mineable deposits of ore.
Fluctuation of Metal Prices: Even if commercial
quantities of mineral deposits are discovered by the Company, there is no
guarantee that a profitable market will exist for the sale of the metals
produced. Factors beyond the control of the Company may affect the marketability
of any substances discovered. The prices of various metals have experienced
significant movement over short periods of time, and are affected by numerous
factors beyond the control of the Company, including international economic and
political trends, expectations of inflation, currency exchange fluctuations,
interest rates and global or regional consumption patterns, speculative
activities and increased production due to improved mining and production
methods. The supply of and demand for metals are affected by various factors,
including political events, economic conditions and production costs in major
producing regions. There can be no assurance that the price of any commodities
will be such that any of the properties in which the Company has, or has the
right to acquire, an interest may be mined at a profit.
Recent market events and conditions: In recent
years the U.S. credit markets experienced serious disruption due to a
deterioration in residential property values, defaults and delinquencies in the
residential mortgage market (particularly, sub-prime and non-prime mortgages)
and a decline in the credit quality of mortgage backed securities. These
problems have led to a slow-down in residential housing market transactions,
declining housing prices, delinquencies in non-mortgage consumer credit and a
general decline in consumer confidence.
These conditions caused a loss of confidence in the broader
U.S. and global credit and financial markets and resulting in the collapse of,
and government intervention in, major banks, financial institutions and insurers
and creating a climate of greater volatility, less liquidity, widening of credit
spreads, a lack of price transparency, increased credit losses and tighter
credit conditions.
Notwithstanding various actions by the U.S. and foreign
governments, concerns about the general condition of the capital markets,
financial instruments, banks, investment banks, insurers and other financial
institutions caused the broader credit markets to further deteriorate and stock
markets to decline substantially. In addition, general economic indicators have
deteriorated, including declining consumer sentiment, increased unemployment and
declining economic growth and uncertainty about corporate earnings.
While these conditions appear to have improved, unprecedented
disruptions in the credit and financial markets have had a significant material
adverse impact on a number of financial institutions and have limited access to
capital and credit for many companies.
These disruptions could, among other things, make it more
difficult for the Company to obtain, or increase its cost of obtaining, capital
and financing for its operations. The Companys access to additional capital may
not be available on terms acceptable to it or at all.
General economic conditions: The recent
unprecedented events in global financial markets have had a profound impact on
the global economy. Many industries are impacted by these market conditions.
Some of the key impacts of the current financial market turmoil include
contraction in credit markets resulting in a widening of credit risk,
devaluations and high volatility in global equity, commodity, foreign exchange
markets, and a lack of market liquidity. A continued or worsened slowdown in the
financial markets or other economic conditions, including but not limited to,
consumer spending, employment rates, business conditions, inflation, fuel and
energy costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect the
Companys growth and profitability. Specifically:
the global credit/liquidity crisis could impact the cost and
availability of financing and the Companys overall liquidity
the
volatility of industrial metal prices may impact the Companys potential future
revenues, profits and cash flow
volatile energy prices, commodity and
consumables prices and currency exchange rates impact potential production
costs
the devaluation and volatility of global stock markets impacts the
valuation of the Companys common shares, which may impact the Companys ability
to raise funds through the issuance of equity securities
These factors could have a material adverse effect on the
Companys financial condition and results of operations.
Share Price Volatility: During the past year,
worldwide securities markets, particularly those in the United States and
Canada, have experienced a high level of price and volume volatility, and the
market price of securities of many companies, particularly those considered
exploration or development stage companies, have experienced unprecedented
declines in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. Most
significantly, the share prices of junior natural resource companies have
experienced an unprecedented decline in value and there has been a significant
decline in the number of buyers willing to purchase such securities. In
addition, significantly higher redemptions by holders of mutual funds has forced
many of such funds to sell such securities at any price. As a consequence,
despite the Companys past success in securing equity financing, market
forces may render it difficult or impossible for the Company to secure places to
purchase new share issues at a price which will not lead to severe dilution to
existing shareholders, or at all.
Therefore, there can be no assurance that significant
fluctuations in the price of the Companys common shares will not occur, or that
such fluctuations will not materially adversely impact on the Companys ability
to raise equity funding without significant dilution to its existing
shareholders, or at all.
Financing Risks: The Company has limited
financial resources, has no source of operating cash flow and has no assurance
that additional funding will be available to it for further exploration and
development of its projects or to fulfill its obligations under any applicable
agreements. Although the Company has been successful in the past in obtaining
financing through the sale of equity securities, there can be no assurance that it will be able to obtain adequate financing in
the future or that the terms of such financing will be favorable. Failure to
obtain such additional financing could result in delay or indefinite
postponement of further exploration and development of its projects with the
possible loss of such properties.
Insufficient Financial Resources: The Company
does not presently have sufficient financial resources to undertake by itself
the acquisition, exploration and development of all of its planned acquisition,
exploration and development programs. Future property acquisitions and the
development of the
Companys properties will therefore depend upon the Companys
ability to obtain financing through the joint venturing of projects, private
placement financing, public financing, short or long term borrowings or other
means. There is no assurance that the Company will be successful in obtaining
the required financing. Failure to raise the required funds could result in the
Company losing, or being required to dispose of, its interest in its
properties.
Dilution to the Companys existing
shareholders: The Company will require additional equity
financing to be raised in the future. The Company may issue securities at less
than favorable terms to raise sufficient capital to fund its business plan. Any
transaction involving the issuance of equity securities or securities
convertible into common shares would result in dilution, possibly substantial,
to present and prospective holders of common shares.
Increased costs: Management anticipates that
costs at the Companys projects will frequently be subject to variation from one
year to the next due to a number of factors, such as the results of ongoing
exploration activities (positive or negative), changes in the nature of
mineralization encountered, and revisions to exploration programs, if any, in
response to the foregoing. In addition, exploration program costs are affected
by the price of commodities such as fuel, rubber and electricity and the
availability (or otherwise) of consultants and drilling contractors. Increases
in the prices of such commodities or a scarcity of consultants or drilling
contractors could render the costs of exploration programs to increase
significantly over those budgeted. A material increase in costs for any
significant exploration programs could have a significant effect on the
Companys operating funds and ability to continue its planned exploration
programs.
Mining Industry is Intensely Competitive:
The Companys business of the acquisition, exploration and development of
mineral properties is intensely competitive. The Company may be at a competitive
disadvantage in acquiring additional mining properties because it must compete
with other individuals and companies, many of which have greater financial
resources, operational experience and technical capabilities than the Company.
Increased competition could adversely affect the Companys ability to attract
necessary capital funding or acquire suitable producing properties or prospects
for mineral exploration in the future.
Permits and Licenses: The operations of the
Company will require licenses and permits from various governmental authorities.
There can be no assurance that the Company will be able to obtain all necessary
licenses and permits that may be required to carry out exploration, development
and mining operations at its projects, on reasonable terms or at all. Delays or
a failure to obtain such licenses and permits, or a failure to comply with the
terms of any such licenses and permits that the Company does obtain could have a
material adverse effect on the Company.
Government Regulation: Any exploration,
development, or mining operations carried on by the Company will be subject to
government legislation, policies and controls relating to prospecting, development, production, environmental protection, mining taxes
and labour standards. In addition, the profitability of any mining prospect is
affected by the market for precious and/or base metals which is influenced by
many factors including changing production costs, the supply and demand for
metals, the rate of inflation, the inventory of metal producing corporations,
the political environment and changes in international investment patterns.
Environmental Restrictions: The activities
of the Company are subject to environmental regulations promulgated by
government agencies in different countries from time to time. Environmental
legislation generally provides for restrictions and prohibitions on spills,
releases or emissions into the air, discharges into water, management of waste,
management of hazardous substances, protection of natural resources, antiquities
and endangered species and reclamation of lands disturbed by mining operations.
Certain types of operations require the submission and approval of environmental
impact assessments. Environmental legislation is evolving in a manner which
means stricter standards, and enforcement. Fines and penalties for noncompliance
are more stringent. Environmental assessments of proposed projects carry a
heightened degree of responsibility for companies and directors, officers and
employees. The cost of compliance with changes in governmental regulations has a
potential to reduce the profitability of operations.
Foreign Countries and Political Risk: All of the
mineral properties held by the Company are located in Canada, where mineral
exploration and mining activities may be affected in varying degrees by changes
in government regulations such as tax laws, business laws, environmental laws
and mining laws, affecting the Companys business in that country. Any changes
in regulations or shifts in political conditions are beyond the control of the
Company and may adversely affect its business, or if significant enough, may
make it impossible to continue to operate in the country. Operations may be
affected in varying degrees by government regulations with respect to
restrictions on production, price controls, foreign exchange restrictions,
export controls, income taxes, expropriation of property, environmental
legislation and mine safety.
Dependence Upon Others and Key Personnel: The
success of the Companys operations will depend upon numerous factors, many of
which are beyond the Companys control, including (i) the ability to design and
carry out appropriate exploration programs on its mineral properties; (ii) the
ability to produce minerals from any mineral deposits that may be located; (iii)
the ability to attract and retain additional key personnel in exploration,
marketing, mine development and finance; and (iv) the ability and the operating
resources to develop and maintain the properties held by the Company. These and
other factors will require the use of outside suppliers as well as the talents
and efforts of the Company and its consultants and employees. There can be no
assurance of success with any or all of these factors on which the Companys
operations will depend, or that the Company will be successful in finding and
retaining the necessary employees, personnel and/or consultants in order to be
able to successfully carry out such activities.
Surface Rights and Access: Although the Company
acquires the rights to some or all of the minerals in the ground subject to the
tenures that it acquires, or has a right to acquire, in most cases it does not
thereby acquire any rights to, or ownership of, the surface to the areas covered
by its mineral tenures. In such cases, applicable mining laws usually provide
for rights of access to the surface for the purpose of carrying on mining
activities, however, the enforcement of such rights through the applicable
courts can be costly and time consuming. In areas where there are no existing
surface rights holders, this does not usually cause a problem, as there are no
impediments to surface access.
However, in areas where there are local populations or land
owners, it is necessary, as a practical matter, to negotiate surface access.
There can be no guarantee that, despite having the right at law to access the
surface and carry on exploration and mining activities, the Company will be able
to negotiate a satisfactory agreement with any such existing
landowners/occupiers for such access, and therefore it may be unable to carry
out mining activities. In addition, in circumstances where such access is
denied, or no agreement can be reached, the Company may need to rely on the
assistance of local officials or the courts in such jurisdiction. The Company
has not, to date, experienced any problems in gaining access to any of its
properties.
Title Matters: Although the Company has taken
steps to verify the title to the mineral properties in which it has or has a
right to acquire an interest in accordance with industry standards for the
current stage of exploration of such properties, these procedures do not
guarantee title (whether of the Company or of any underlying vendor(s) from whom
the Company may be acquiring its interest). Title to mineral properties may be
subject to unregistered prior agreements or transfers, and may also be affected
by undetected defects or the rights of indigenous peoples. The Company has
investigated title to all of its mineral properties and, to the best of its
knowledge, title to all of its properties for which titles have been issued are
in good standing.
Exploration and Mining Risks: Fires, power
outages, labour disruptions, flooding, explosions, cave-ins, landslides and the
inability to obtain suitable or adequate machinery, equipment or labour are
other risks involved in the operation of mines and the conduct of exploration
programs. Substantial expenditures are required to establish reserves through
drilling, to develop metallurgical processes, 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. The economics of developing
mineral properties is affected by many factors including the cost of operations,
variations of the grade of ore mined, fluctuations in the price of gold or other
minerals produced, costs of processing equipment and other factors such as
government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals and environmental protection. In
addition, the grade of mineralization ultimately mined may differ from that
indicated by drilling results and such differences could be material. Short term
factors, such as the need for orderly development of ore bodies or the
processing of new or different grades, may have an adverse effect on mining
operations and on the results of operations. There can be no assurance that
minerals recovered in small scale laboratory tests will be duplicated in large
scale tests under on-site conditions or in production scale operations. Material
changes in geological resources, grades, stripping ratios or recovery rates may
affect the economic viability of projects.
Regulatory Requirements: The activities of
the Company are subject to extensive regulations governing various matters,
including environmental protection, management and use of toxic substances and
explosives, management of natural resources, exploration, development of mines,
production and post-closure reclamation, exports, price controls, taxation,
regulations concerning business dealings with indigenous peoples, labour
standards on occupational health and safety, including mine safety, and historic
and cultural preservation. Failure to comply with applicable laws and
regulations may result in civil or criminal fines or penalties, enforcement
actions thereunder, including orders issued by regulatory or judicial
authorities causing operations to cease or be curtailed, and may include
corrective measures requiring capital expenditures, installation of additional
equipment, or remedial actions, any of which could result in the Company
incurring significant expenditures. The Company may also be required to compensate those suffering loss or damage by reason
of a breach of such laws, regulations or permitting requirements. It is also
possible that future laws and regulations, or more stringent enforcement of
current laws and regulations by governmental authorities, could cause additional
expense, capital expenditures, restrictions on or suspension of the Companys
operations and delays in the exploration and development of the Companys
properties.
Limited Experience with Development-Stage Mining
Operations: The Company has very limited experience in placing mineral
resource properties into production, and its ability to do so will be dependent
upon using the services of appropriately experienced personnel or entering into
agreements with other major resource companies that can provide such expertise.
There can be no assurance that the Company will have available to it the
necessary expertise when and if it places its resource properties into
production.
Uncertainty of Resource Estimates/Reserves:
Unless otherwise indicated, mineralization figures presented in the Companys
filings with securities regulatory authorities, press releases and other public
statements that may be made from time to time are based upon estimates made by
Company personnel and independent geologists. These estimates are imprecise and
depend upon geological interpretation and statistical inferences drawn from
drilling and sampling analysis, which may prove to be unreliable. There can be
no assurance that:
- these estimates will be accurate;
- reserves, resource or other mineralization figures will be accurate; or
- this mineralization could be mined or processed profitably.
Because the Company has not commenced commercial production at
any of its properties, and has not defined or delineated any proven or probable
reserves on any of its properties, mineralization estimates for the Companys
properties may require adjustments or downward revisions based upon further
exploration or development work or actual production experience. In addition,
the grade of ore ultimately mined may differ from that indicated by drilling
results. There can be no assurance that minerals recovered in small-scale tests
will be duplicated in large-scale tests under on-site conditions or in
production scale. The resource estimates contained in the Companys filings with
securities regulatory authorities, press releases and other public statements
that may be made from time to time have been determined and valued based on
assumed future prices, cut-off grades and operating costs that may prove to be
inaccurate.
Extended declines in market prices for graphite may render
portions of the Companys mineralization uneconomic and result in reduced
reported mineralization. Any material reductions in estimates of mineralization,
or of the Companys ability to extract this mineralization, could have a
material adverse effect on the Companys results of operations or financial
condition. The Company has not established the presence of any proven or
probable reserves at any of its mineral properties. There can be no assurance
that subsequent testing or future studies will establish any proven or probable
reserves at the Companys properties. The failure to establish proven or
probable reserves could restrict the Companys ability to successfully implement
its strategies for long-term growth.
No Assurance of Profitability: The Company has no
history of earnings and, due to the nature of its business there can be no
assurance that the Company will ever be profitable. The Company has not paid
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 from the sale of its common shares or, possibly, from the sale or optioning of a portion of its
interest in its mineral properties. 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
mineable deposit exists. While the Company may generate additional working
capital through further equity offerings or through the sale or possible
syndication of its properties, there can be no assurance that any such funds
will be available on favorable terms, or at all. At present, it is impossible to
determine what amounts of additional funds, if any, may be required. Failure to
raise such additional capital could put the continued viability of the Company
at risk.
Uninsured or Uninsurable Risks: Exploration,
development and mining operations involve various hazards, including
environmental hazards, industrial accidents, metallurgical and other processing
problems, unusual or unexpected rock formations, structural cave-ins or slides,
flooding, fires, metal losses and periodic interruptions due to inclement or
hazardous weather conditions. These risks could result in damage to or
destruction of mineral properties, facilities or other property, personal
injury, environmental damage, delays in operations, increased cost of
operations, monetary losses and possible legal liability. The Company may not be
able to obtain insurance to cover these risks at economically feasible premiums
or at all. The Company may elect not to insure where premium costs are
disproportionate to the Companys perception of the relevant risks. The payment
of such insurance premiums and of such liabilities would reduce the funds
available for exploration and production activities.
Conflict of Interests: Certain of the
directors and officers of the Company may, from time to time, become directors
or officers of, or have significant shareholdings in, other mineral resource
companies and, to the extent that such other companies may participate in
ventures in which the Company may participate or may wish to participate, the
directors and officers of the Company may have a conflict of interest in
negotiating and concluding terms respecting the extent of such participation.
Such other companies may also compete with the Company for the acquisition of
mineral property rights.
In the event that any such conflict of interest arises, a
director or officer who has such a conflict will disclose the conflict to a
meeting of the directors of the Company and, if the conflict involves a
director, the director will abstain from voting for or against the approval of
such a participation or such terms. In appropriate cases, the Company will
establish a special committee of independent directors to review a matter in
which several directors, or management, may have a conflict. From time to time,
several companies may participate in the acquisition, exploration and
development of natural resource properties thereby allowing their participation
in larger programs, permitting involvement in a greater number of programs and
reducing financial exposure in respect of any one program.
It may also occur that a particular company will assign all or
a portion of its interest in a particular program to another of these companies
due to the financial position of the company making the assignment. The
directors and officers of the Company are required to act honestly and in good
faith, with a view to the best interests of the Company.
In determining whether or not the Company will participate in a
particular program and the interest therein to be acquired by it, the directors
will primarily consider the potential benefits to the Company, the degree of
risk to which the Company may be exposed and its financial position at that
time.
COMMITMENTS
Advances under graphite sales contract
Under the
Companys supply agreement with a third party, the Company is to supply 3,075
metric tonnes of graphite by December 31, 2013. During the year ended May 31,
2014, the customer agreed to extend the terms of the supply agreement subject to
certain amendments. The amended production commitment involves the delivery of
1,620 metric tonnes of graphite between January 1, 2014 and June 30, 2016 (See
Subsequent Events below).
Royalty agreement
The Company must pay royalties of
2.5% of net smelter returns from the sale of all minerals and 2.5% of the net
proceeds from the sale of all by-products to Latitude. Latitude is a related
party of the Corporation due to a common director and Latitudes shareholdings
in the Company. In the event the Company has a go-public event prior to June 17,
2015 the Latitude royalty agreement will be terminated with zero amount owing.
The Company has an on-going 0.25% royalty on net smelter
returns from the sale of all minerals and 0.25% of the net proceeds from the
sale of all by-products with the holders of the promissory notes.
Decommissioning obligation
It is the Companys
intent to protect the land on which it operates in accordance with best
practices of the mining industry and to comply with all applicable laws
governing protection of the land. As such, the Company recognizes a provision
related to its constructive and legal obligation in British Columbia to restore
the properties. The cost of this obligation is determined based on the expected
future level of activity and costs associated with decommissioning the mines and
restoring the properties. The provision is calculated as the sum of undiscounted
future expected cash flows related to ground disturbances in the Company's
5-year mine plan of $41,134, undiscounted expected lump sum costs of
decommissioning mining infrastructure of $25,750, and the present value of
expected annual monitoring and engineering costs post-closure of $66,667. The
present value of post-closure costs are estimated using a formula mandated by
the government of British Columbia, currently equivalent to $2,000 per year in
perpetuity, discounted at a risk free rate of 3% per annum. The sum has been
rounded up to the nearest $5,000. As at May 31, 2014, the Company recorded a
decommissioning obligation for mine rehabilitation of $135,000 (May 31, 2013 -
$135,000; May 31, 2012 - $135,000).
SUBSEQUENT EVENTS
On November 19, 2014, the party to the customer supply
agreement granted an extension to the commitment for obtaining minimum financing
of $3,000,000 until January 31, 2015. On November 19, 2014, the customer
confirmed their consent to the issuance of promissory notes, and their consent
to the amalgamation with Amerix. The Company also agreed to an assignment
letter, the terms of which confirm the customer's first ranking security
interest and charge in and to all assets and undertaking of the Company. The
customer agreed to a letter of intent, under which the parties expressed their
intent to negotiate in good faith an expansion of the customer sales contract by
February 15, 2015. The letter of intent includes non-binding commitments to
increased volumes of graphite, an extension of the term of the supply agreement,
and certain adjustments to the pricing formulae, plus a binding commitment to
place the customer in the same or better position as would have been the case
had the Company commenced production in 2012.
All other material subsequent events have been disclosed in the
Liquidity and Capital Resources section above.
EAGLE GRAPHITE CORPORATION
MANAGEMENTS DISCUSSION
AND ANALYSIS
For the three months ended August 31, 2014 and
2013
INTRODUCTION
This Managements Discussion and Analysis (MD&A) is
prepared as of November 25, 2014 and should be read in conjunction with the
unaudited condensed interim financial statements of Eagle Graphite Corporation
(Eagle Graphite or the Company) for the three months ended August 31, 2014
and 2013, which have been prepared in accordance with International Financial
Reporting Standards (IFRS). This MD&A includes certain statements that may be
deemed "forward-looking statements". All statements in this discussion, other
than statements of historical fact, that address future exploration activities
and events or developments that the Company expects, are forward-looking
statements. Although the Company believes the expectations expressed in such
forward-looking statements are based on reasonable assumptions, such statements
are not guarantees of future performance and actual results or developments may
differ materially from those in the forward-looking statements. All amounts are
in Canadian dollars.
All of the scientific and technical information in this
MD&A has been prepared or reviewed by Edward J. Nunn, P. Eng. Mr. Nunn is a
qualified person within the meaning of National Instrument 43-101.
Cautionary Note Regarding Forward-Looking
Statements
Certain statements contained in the sections Mineral
Exploration Properties, Company Outlook and Liquidity and Capital Resources
of this MD&A constitute forward-looking statements. These statements relate
to future events or the Companys future performance, business prospects or
opportunities. All statements other than statements of historical fact may be
forward-looking statements. Forward-looking statements are often, but not
always, identified by the use of words such as seek, anticipate, plan,
continue, estimate, expect, may, will, project, predict,
potential, targeting, intend, could, might, should, believe and
similar expressions. Information concerning the interpretation of drill results,
mineral resource and reserve estimates and capital cost estimates may also be
deemed as forward-looking statements as such information constitutes a
prediction of what mineralization might be found to be present and how much
capital will be required if and when a project is actually developed. These
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results or events to differ materially from those anticipated
in such forward-looking statements. The Company believes that the expectations
reflected in those forward-looking statements are reasonable, but no assurance
can be given that these expectations will prove to be correct and such
forward-looking statements included in this MD&A should not be unduly relied
upon. These statements speak only as of the date of this MD&A. Actual
results and developments are likely to differ, and may differ materially, from
those expressed or implied by the forward-looking statements contained in this
MD&A. Such statements are based on a number of assumptions which may prove
to be incorrect, including, but not limited to, assumptions about:
- general business and economic conditions;
- the supply and demand for, deliveries of, and the level and volatility of
prices of graphite;
- the availability of financing for the Companys development project on
reasonable terms;
-
the ability to procure equipment and operating supplies in sufficient quantities and on a timely basis;
-
the ability to attract and retain skilled staff;
-
market competition;
-
the accuracy of our resource estimate (including, with respect to size, grade and recoverability) and the geological, operational and price assumptions on which it is based; and/or
-
tax benefits and tax rates.
These forward-looking statements involve risks and uncertainties relating to, among other things, changes in commodity prices, access to skilled mining development and mill production personnel, results of exploration and development activities, the
Company’s limited experience with production and development stage mining operations, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government approvals, actual performance of
facilities, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but are not limited to, the risk factors incorporated by reference herein. See “Risk Factors”. The
Company cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on the Company's forward-looking statements should carefully consider the above factors as well as the uncertainties they
represent and the risk they entail. The Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, accept as otherwise required by applicable law. The Company
also cautions readers not to place undue reliance on these forward-looking statements. Moreover, these forward-looking statements may not be suitable for establishing strategic priorities and objectives, future strategies or actions, financial
objectives and projections other than those mentioned above.
OVERVIEW
Eagle Graphite is a graphite exploration and evaluation company located in British Columbia, Canada. The Company is a private company existing under the Canada Business Corporations Act and does not trade on any stock exchange. The head office of
the Company is located at 6420 Eagles Drive, Courtenay, British Columbia, V9J 1V4 and the registered office is located at 2100-40 King Street West, Toronto, ON, M5H 3C2.
The Company is in the business of mineral exploration and is actively engaged in the acquisition, exploration and development of graphite properties in British Columbia. The Company owns a graphite quarry and processing plant which has historically
operated at a throughput rate of 20 tonnes of feed per hour, a rate roughly equivalent to an annual output of 4,000 tonnes of high carbon natural flake graphite. Substantially all of the efforts of the Company are devoted to these business
activities. To date the Company has not earned significant pre-production revenue and is considered to be in the exploration stage.
MINERAL EXPLORATION PROPERTIES
In 2006, Eagle Graphite acquired the Black Crystal graphite quarry and processing plant, located 3 km south of Valhalla Wilderness Park on the eastern slope of the Monashee mountains. Since the purchase, Eagle Graphite has invested in retooling the
operation.
The active 100-hectare open cast quarry area is surrounded by
an additional 2,900 hectares (7,200 acres) of undeveloped mineral claims. The
processing plant, using locally generated hydroelectricity, incorporates a
closed system recirculating and filtered water supply and uses low impact
purification chemicals such as pine oil. Graphitic feed is drawn from the
quarry using excavation equipment and carried by dump truck to the processing
plant. The feed consists of loose sandy material, requiring no blasting.
As one of only two producing flake graphite mines in North
America, and strategically located close to the US city of Spokane, Washington
and the Canadian port of Vancouver, British Columbia, Eagle Graphite offers
efficient and economical shipping of high grade material to destinations
worldwide.
As at August 31, 2014, the Company owned 11 (May 31, 2014 11)
mineral tenures covering an area of approximately 3,400 (May 31, 2014 3,400)
hectares of land near Nelson, British Columbia. Acquisition costs of the
properties were $241,016 (May 31, 2014 $241,016). During the year ended May
31, 2014, twenty-one (21) of the Companys non-core mineral tenures covering an
area of approximately 10,986 hectares were allowed to elapse. The lapsed tenures
do not contain any of the Company's established mineral resource estimates, nor
did the Company have any near term plans to carry out exploration activities
that would justify the maintenance costs associated with these tenures. The
Company received a refund related to a mining exploration tax credit of $163,608
during the year ended May 31, 2014.
Company Outlook and Exploration Project
Plans
Eagle expects to distribute graphite and by-products mined from
the Black Crystal Project by truck to refractories companies and golf courses,
respectively. Eagle does not have any material revenue over the next 12 months
Eagle anticipates exploring and developing the Black Crystal Property. Eagle
anticipates using quarrying and flotation methods to produce graphite.
Production of graphite will be done by Eagle using its leased property and plant
pursuant to the terms of its nine legacy mineral claims and two mining leases.
The two mineral leases expire on June 25, 2032, with an option to renew for an
additional 30 years. The nine mineral claims expire between December 28, 2014
and November 11, 2020. Eagle anticipates renewing the mineral claims in the
ordinary course prior to or upon expiry of the respective mineral claims. The
annual payment terms to maintain the mineral leases and mineral claims are
subject to a payment schedule which begins at a cost of $5 per hectare and
increases up to $20 per hectare. Eagles existing mineral leases and mineral
claims total approximately 3,400 hectares, therefore the anticipated maximum
annual cost of for Eagles current mineral claims and mineral leases is
approximately $70,000. Eagles mineral claims and mining leases are in good
standing as of the date of this report. The Company intends to develop the Black
Crystal project and estimates it will require approximately $262,000 to fund the
Phase 1 exploration work program recommended in the current National Instrument
43-101 compliant Technical Report.
Eagles management and employees have specialized skills and
knowledge particular to the graphite mining business which are suitable for
Eagles current business purposes and are comparable to other graphite companies
at the same stage as Eagle. Eagle uses chemical reagents, such as pine oil, and
bulk bags that are readily available and can be purchased from a number of
wholesalers at standard market rates. Eagles business expenses marginally
increase in the winter due to inclement weather in the Slocan Valley, British Columbia. Over the course of the past
fiscal year Eagle had seven employees on average.
Upon completion of the development of the Black Crystal
Project, Eagle anticipates selling graphite globally and selling by-products
within a 200 kilometer range from the Black Crystal Project. Eagle anticipates
that graphite purchasers may become increasingly sensitive to the potential lack
of North American graphite supply and the historic reliance on Chinese graphite
producers.
The graphite industry is competitive with a number of companies
such as Imerys S.A., Qingdao Hensen Graphite Co., Ltd., Nacional de Grafite
Ltda. supplying the graphite market. Eagle believes that while graphite pricing
is competitive, Eagle has certain product quality advantages over a number of
its competitors. There is the potential for new competition in the industry over
the long-term from companies such as Northern Graphite Corporation, Mason
Graphite Inc. and Focus Graphite Inc.
The following table provides details of the exploration
expenditures for the three months ended August 31, 2014 and 2013:
|
|
Three Months ended August 31, |
|
|
|
2014 |
|
|
2013 |
|
Exploration and evaluation
expenditures |
|
|
|
|
|
|
Labour and wages |
$ |
32,614 |
|
$ |
141,962 |
|
Subcontracts |
|
28,299 |
|
|
3,299 |
|
Amortization |
|
8,311 |
|
|
8,311 |
|
Other direct costs |
|
13,609 |
|
|
26,267 |
|
Repairs and
maintenance |
|
- |
|
|
9,316 |
|
Permits and licenses |
|
14,021 |
|
|
6,000 |
|
Sample sales, net
of costs |
|
(2,719 |
) |
|
(5,046 |
) |
|
$ |
94,135 |
|
$ |
190,109 |
|
SELECTED ANNUAL INFORMATION
The following table summarizes selected financial data for the
Company for each of the last three fiscal years. The information set forth below
should be read in conjunction with the May 31, 2014 and 2013 audited
consolidated financial statements, prepared in accordance with International
Financial Reporting Standards (IFRS), and their related notes.
|
|
Years Ended |
|
|
|
May 31, 2014 |
|
|
May 31, 2013 |
|
|
May 31, 2012 (1) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Revenues |
|
Nil |
|
|
Nil |
|
|
Nil |
|
Loss and comprehensive loss |
|
(533,387 |
) |
|
(2,028,820 |
) |
|
(1,433,398 |
) |
Loss per share |
|
(0.05 |
) |
|
(0.18 |
) |
|
(0.15 |
) |
Total assets |
|
681,733 |
|
|
992,710 |
|
|
1,191,390 |
|
Working capital/(deficiency) |
|
(1,908,666 |
) |
|
(1,654,987 |
) |
|
489,101 |
|
Current liabilities |
|
2,005,543 |
|
|
1,990,639 |
|
|
160,499 |
|
Total long term liabilities |
|
135,000 |
|
|
135,000 |
|
|
135,000 |
|
Cash dividends |
|
Nil |
|
|
Nil |
|
|
Nil |
|
(1) - Unaudited
SUMMARY OF QUARTERLY RESULTS
A summary of quarterly results has not been provided since
Eagle, as a private company, has not historically prepared quarterly financial
statements.
RESULTS OF OPERATIONS
Statements of Loss and Comprehensive Loss
|
|
For the quarters ended August 31, |
|
|
|
2014 |
|
|
2013 |
|
Expenses |
|
|
|
|
|
|
Exploration and
evaluation |
$ |
94,135 |
|
$ |
190,109 |
|
Advertising |
|
259 |
|
|
- |
|
Travel |
|
3,009 |
|
|
8,011 |
|
Office and general |
|
23,468 |
|
|
45,519 |
|
Amortization |
|
9,669 |
|
|
9,739 |
|
Interest expense (income) |
|
624 |
|
|
(1,840 |
) |
|
|
|
|
|
|
|
Loss and comprehensive loss
for the period |
$ |
131,164 |
|
$ |
251,538 |
|
|
|
|
|
|
|
|
Basic and diluted loss per
share |
$ |
(0.01 |
) |
$ |
(0.02 |
) |
The Company incurred a loss of $131,164 for the three months
ended August 31, 2014 (2013 - $251,538). Exploration and evaluation expenditures
amounted to $94,135 (2013 - $190,109) as the Company scaled back its exploration
and development operations to preserve capital. Travel of $3,009 (2013 - $8,011)
was lower in the current period due to lower travel requirements to support
exploration and development operations. Office and general expense of $23,468
(2013 - $45,519) was lower due to reductions in staff and salaries to preserve
capital, partially offset by insurance and property tax costs. A detailed
breakdown of office and general follows:
|
|
For the three months ended
August 31, |
|
|
|
2014 |
|
|
2013 |
|
Office and general |
|
|
|
|
|
|
Wages and salaries |
$ |
- |
|
$ |
42,995 |
|
Office and administration |
|
117 |
|
|
2,524 |
|
Insurance |
|
11,163 |
|
|
- |
|
Property tax |
|
12,186 |
|
|
- |
|
|
|
|
|
|
|
|
Total |
$ |
23,466 |
|
$ |
45,519 |
|
LIQUIDITY AND CAPITAL RESOURCES
As at August 31, 2014, the Company had cash and cash
equivalents of $53,988 (May 31, 2014 - $57,811), total current assets of $95,176
(May 31, 2014 - $96,877), and total current liabilities of $2,117,026 (May 31,
2014 - $2,005,543) including $1,521,116 (May 31, 2014 - $1,521,116) received as
an advance under a
graphite sales contract, and notes payable of $475,000 (May 31, 2014 - $375,000) resulting in a working capital deficiency of $2,021,850 (May 31, 2014 working capital deficiency – $1,908,666). During the three months ended
August 31, 2014 the Company’s average monthly cash burn rate, excluding exploration expenditures, amortization, and foreign exchange, was approximately $9,000, comparable to the prior year monthly cash burn rate of approximately
$10,500 reflect the impact of ongoing cost cutting measures. The Company has also reduced exploration and development work at the Black Graphite quarry and processing plant. The Company’s future exploration and development programs will be
a function of the Company’s ability to raise additional capital in the future.
As a junior exploration stage company, Eagle Graphite has traditionally relied on equity financings, promissory notes, and graphite sales contract advances to fund exploration and development programs and general working capital requirements.
The Company’s ability to raise additional funds and its future performance are largely tied to the health of the financial markets and investor interest in the industrial minerals industry. Financial markets are currently volatile, and are
likely to remain so throughout 2014, and 2015 reflecting ongoing concerns about the stability of the global economy, sovereign debt levels, global growth prospects and many other factors that might impact the Company’s ability to raise
additional funds.
In September 2013 the Company received a prepayment of $1,552,000 USD for delivery of 3,075 tonnes of graphite by December 31, 2013, in accordance with a customer supply agreement. The Company has assigned to the counterparty a first ranking
security interest and charge in and to all assets and undertaking of the Company. Under the agreement, the Company will refund any outstanding prepayments by January 31, 2014, unless the parties come to an agreement to extend the delivery period for
the graphite to be shipped. If the Company is unable to refund any outstanding prepayment with finished graphite or monetary amounts, the counterparty will be entitled to enforce its security over the assets of the Company. At any time, the Company
may repay any outstanding balance, plus interest in the amount of 15% per annum, calculated on a pro-rata basis from the date of prepayment.
On January 31, 2014, the customer agreed to extend the terms of the supply agreement subject to certain amendments. The amended production commitment involves the delivery of 1,620 metric tonnes of graphite between January 1, 2014 and December 31,
2015. The supply agreement was further amended on May 30, 2014 whereby the parties agreed to extend the production commitment to June 30, 2016. The Company also agreed to secure a commitment for financing of at least $3,000,000 no later than
August 31, 2014 (see Subsequent Event disclosure below). Should the Company fail to meet its production commitment by July 31, 2016; or the Company fails to obtain adequate financing; or if the agreement is terminated prior to July 31, 2016, the
Company shall immediately refund the balance of the advance at that date. As part of this amendment, the Company also issued an option to the counterparty to acquire up to 100,000 common shares of the Company at a price of US$0.10 per share,
exercisable any time on or before May 31, 2016. The stock options were valued at $190,506 using the Black-Scholes option-pricing model with the following assumptions: expected life of 2 years, risk-free rate of 1.03%, expected dividend yield of
0%, and expected volatility of 100%.
On June 22, 2014 the Company issued a total of $100,000 in promissory notes, and on October 22, 2014 issued a further $350,000 in promissory notes.
On July 6, 2014, Amerix Precious Metals Corporation (“Amerix”) and Eagle entered into a Letter of Intent to complete an Acquisition (“Acquisition”), which was superseded by the Amalgamation Agreement, dated November 5, 2014.
The Acquisition will constitute a reverse takeover transaction within the
meaning of Exchange Policy 5.2 – Change of Business and Reverse Takeovers. When completed, Amerix will become the resulting issuer, and will carry on the business of Eagle, being the exploration and development of the Black Crystal
Property and other prospective graphite properties in British Columbia. It is anticipated that, on or prior to completion of the Acquisition, Amerix (“Resulting Issuer”) will change its name to “Eagle Graphite Corporation”,
or such other name as agreed upon by Eagle and
Amerix and as is permitted by applicable law and acceptable to the Exchange.
The Company is also seeking a private placement (“Private Placement”) of $7,000,000 financing (the “Financing”) in conjunction with the Acquisition at a price of $0.10 per unit, post-Acquisition. Each unit will
entitle the holder to one common share of the Company and one-half common share purchase warrant, which will be exercisable for $0.15, for a period of 60 months following the closing of the Acquisition. $1,000,000 of the Financing will be in
the form of flow-through shares.
Eagle has raised bridge financing by issuing notes (“Eagle Notes”) in the gross amount of $825,000.
Approximately $375,000 was issued on May 22, 2014, $100,000 on June 22, 2014 and $350,000 on October 22, 2014. Of this amount, as at October 31, 2014, approximately $350,000 is available to Eagle. Each $25,000 principal amount of
the Eagle Notes is automatically convertible into $28,000 of units of Eagle on a post-stock split basis at a price of approximately $0.0893 per unit (the “Eagle Note Units”) immediately prior to the completion of the Acquisition.
Each Eagle Note Unit is comprised of one Eagle common share and one-half of one Eagle warrant. The 9,240,000 Eagle common shares and 4,620,000 Eagle warrants issued on conversion of the Eagle Notes in connection with the Acquisition will be
exchanged on a 1:1 basis for 9,240,00 Resulting Issuer common shares and 4,620,000 Resulting Issuer warrants. Unless otherwise converted into Eagle Note Units upon satisfaction of the Eagle escrow release conditions, each Eagle Note is due on June
22, 2015.
On November 5, 2014, Eagle completed the first tranche of the Private Placement, pursuant to which Eagle issued 15,050,000 Eagle subscription receipts at a price of $0.10 per Eagle subscription receipt for gross proceeds of $1,505,000, which
proceeds have been placed in escrow pending satisfaction of the escrow release conditions. Upon satisfaction of the escrow release conditions and immediately prior to the closing, the Eagle subscription receipts will automatically be exercised,
without payment of any additional consideration and with no further action on the part of the holders thereof, for one Eagle Unit. Each Eagle Unit will be comprised of one Eagle common share and one-half of one Eagle warrant.
If the Eagle escrow release conditions are not satisfied prior to the escrow release deadline, the escrowed funds plus accrued interest will be returned to the Eagle purchasers in accordance with the terms of the Eagle Private Placement. To the
extent that the escrowed funds plus accrued interest are not sufficient to repay the purchase price for all Eagle subscription receipts, Eagle has agreed to satisfy any shortfall.
As consideration for the services of the Agent in connection with the Eagle Private Placement, Eagle agreed to pay the Agent a commission equal to 7% of the gross proceeds from the sale of the Private Placement Subscription Receipts ($105,350),
which shall be released to the Agent upon satisfaction of the Eagle Escrow Release Conditions.
As additional consideration for the services of the Agent, the Agent was granted 1,053,500 Eagle Broker Warrants. Each Eagle Broker Warrant entitles the Agent to purchase one Eagle Common Share at a price of $0.10 per Eagle Common Share until
November 5, 2016.
The Company believes that, with the funds raised in the private placement, and subject to shareholder approval of the business combination with Amerix, it has sufficient working capital to allow it to continue through fiscal 2015. Should the
business combination with Amerix not be completed this will cause serious doubt as to the Company’s ability to continue as a going concern.
OFF BALANCE SHEET ARRANGEMENTS
As of the date of this filing, the Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect upon the results of operations or financial condition of the Company, including, and
without limitation, such considerations as liquidity and capital resources.
TRANSACTIONS WITH RELATED PARTIES
The Company considers key management to include the president, who has the authority and responsibility for planning, directing, and controlling the activities of the Company. Total compensation for key management personnel for the three months
ended August 31, 2014 was $25,000 (2013 - $4,167).
As at August 31, 2014, the Company owed $21,007 (May 31, 2014 - $21,007) in shareholder loans, which bear no interest and are repayable on demand.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the
reporting period. Actual outcomes could differ from these estimates. The financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require
accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.
CHANGES IN ACCOUNTING POLICIES
The significant accounting policies are outlined in the audited financial statements for the years ended May 31, 2014 and 2013, unless otherwise disclosed.
Future accounting standards
Standards issued but not yet effective up to the date of issuance of this MD&A are listed below. This list is of standards and interpretations issued that the Company reasonably expects to be applicable at a future date. The Company intends to
adopt these standards when they become effective.
The following pronouncements issued by the IASB and interpretations published by IFRIC will become effective for annual periods beginning on or after January 1, 2014, with earlier adoption permitted.
IFRS 7 (Amendment): Financial Instruments: Disclosures is effective for annual periods beginning on or after 1 January 2015 and requires modification of associated disclosures upon application of IFRS 9 Financial Instruments: Classification and
Measurement.
IFRS 9 Financial Instruments was issued by the IASB in October 2010 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or
fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most
of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in
IAS 39. The effective date is for annual periods beginning on or after 1 January 2018.
In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers (“IFRS 15”) which supersedes IAS 11 – Construction Contracts, IAS 18 – Revenue, IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 –
Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers, and SIC 31 – Revenue – Barter Transactions involving Advertising Services. IFRS 15 establishes a single five-step model for determining
the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The standard is effective for annual periods beginning on or after January 1, 2017, with early adoption permitted.
The Company is currently evaluating the impact of the above mentioned standards on financial statements.
New standards and interpretations issued and adopted
IAS 32 Financial Instruments: Presentation was amended by the IASB in December 2011. Offsetting Financial Assets and Financial Liabilities amendment addresses inconsistencies identified in applying some of the offsetting criteria. The amendment is
effective for annual periods beginning in or after January 1, 2014. There was no impact on the Company’s financial statements due to the adoption of this standard.
IAS 36 Impairment of Assets was amended by the IASB in June 2013. Recoverable Amount Disclosures for Non-Financial Assets amendment modifies certain disclosure requirements about the recoverable amount of impaired assets if that amount is based on
fair value less costs of disposal. The amendment is effective for annual periods beginning on or after January 1, 2014. There was no impact on the Company’s financial statements due to the adoption of this standard.
FINANCIAL RISK FACTORS
The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk including interest rate, foreign exchange rate, and commodity price risk. Risk management is carried out by the Company's
management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations.
The maximum credit exposure at August 31, 2014 is the carrying amount of cash and cash equivalent and other receivables (excluding HST), with a combined amount of $57,186 (May 31, 2014 - $61,009). All cash and cash equivalents are placed
with a major Canadian financial institution. The majority of other receivables are due from government authorities.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Companys
executives continually review the liquidity position including cash flow
forecasts to determine the forecast liquidity position and maintain appropriate
liquidity levels.
The Company prepares annual expenditure budgets, which are
regularly monitored and updated as considered necessary. Management reviews to
ensure the Company will have sufficient funding to meet required expenditures.
Surplus cash is invested in guaranteed investment certificates, choosing
maturities which are aligned with expected cash needs.
As at August 31, 2014, the Company had $99,903 (May 31, 2014
$88,420) of accounts payable and accrued liabilities due within 12 months, and
$475,000 (May 31, 2014 - $375,000) of notes payable due in 2015.
Market Risk
Interest Rate Risk
The Company is subject to cash flow
interest rate risk due to fluctuations in the prevailing levels of market
interest rates. Notes payable bear a variable interest rate as the payment of
the interest on the notes payable is based on the Companys share price. Due to
the short-term nature of these financial instruments the Company considers this
risk to be immaterial.
Commodity Price Risk
The Company is exposed to commodity
price risk. Commodity price risk is defined as the potential adverse impact on
earnings and economic value due to commodity price movements and volatilities.
The Company closely monitors the price of graphite to determine the appropriate
course of action to be taken by the Company.
Foreign Exchange Currency Risk
The Companys operations are based
principally in Canada, with minimal exposure to foreign exchange risk from the
United States dollar.
OTHER MD&A REQUIREMENTS
|
|
|
Number |
|
|
|
|
|
Share capital |
|
of
shares |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2013 and
August 31, 2013 |
|
11,001,440 |
|
|
4,789,453 |
|
|
|
|
|
|
|
|
|
|
Issued during the period |
|
8,500 |
|
|
17,000 |
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2014 and
August 31, 2014 |
|
11,009,940 |
|
|
4,806,453 |
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
of
options |
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2013 and
August 31, 2014 |
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued during the period |
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2014 and
August 31, 2014 |
|
400,000 |
|
|
|
|
A total of 300,000 options are exercisable in whole or in part
at a price of $0.10 per share. The options shall only be exercisable for a term
commencing on the date that the Company completes a going public event and
ending on the date that is 24 months following the going public event.
A total of 100,000 options are exercisable at a price of
US$0.10 per share, with an expiry date of May 31, 2016.
|
|
|
Number |
|
|
|
|
Fully diluted as
at August 31, 2014 and November 25, 2014 |
|
of shares |
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
11,009,940 |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
11,409,940 |
|
|
|
RISK FACTORS
The Company is in the business of acquiring, exploring,
developing and exploiting natural resource properties, currently in British
Columbia. Due to the nature of the Companys business and the present stage of
exploration and development of its mineral properties the following risk
factors, among others, will apply:
Resource Exploration and Development is Generally a
Speculative Business: Resource exploration and development is a
speculative business and involves a high degree of risk, including, among other
things, unprofitable efforts resulting not only from the failure to discover
mineral deposits but from finding mineral deposits which, though present, are
insufficient in size to return a profit from production. The marketability of
natural resources that may be acquired or discovered by the Company will be
affected by numerous factors beyond the control of the Company. These factors
include market fluctuations, the
proximity and capacity of natural resource markets, government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors
cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital. There are no known reserves on any of the Company’s properties. The vast majority of
exploration projects do not result in the discovery of commercially mineable deposits of ore. Substantial expenditures are required to establish ore reserves through drilling and metallurgical and other testing techniques, determine metal
content and metallurgical recovery processes to extract metal from the ore, and construct, renovate or expand mining and processing facilities. No assurance can be given that any level of recovery of ore reserves will be realized or that any
identified mineral deposit, even if it is established to contain an estimated resource, will ever qualify as a commercial mineable ore body which can be legally and economically exploited. The great majority of exploration projects do not result in
the discovery of commercially mineable deposits of ore.
Fluctuation of Metal Prices: Even if commercial quantities of mineral deposits are discovered by the Company, there is no guarantee that a profitable market will exist for the sale of the metals produced. Factors beyond the control of
the Company may affect the marketability of any substances discovered. The prices of various metals have experienced significant movement over short periods of time, and are affected by numerous factors beyond the control of the Company, including
international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production
methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production costs in major producing regions. There can be no assurance that the price of any commodities will be such
that any of the properties in which the Company has, or has the right to acquire, an interest may be mined at a profit.
Recent market events and conditions: In recent years the U.S. credit markets experienced serious disruption due to a deterioration in residential property values, defaults and delinquencies in the residential mortgage market
(particularly, sub-prime and non-prime mortgages) and a decline in the credit quality of mortgage backed securities. These problems have led to a slow-down in residential housing market transactions, declining housing prices, delinquencies in
non-mortgage consumer credit and a general decline in consumer confidence.
These conditions caused a loss of confidence in the broader U.S. and global credit and financial markets and resulting in the collapse of, and government intervention in, major banks, financial institutions and insurers and creating a climate of
greater volatility, less liquidity, widening of credit spreads, a lack of price transparency, increased credit losses and tighter credit conditions.
Notwithstanding various actions by the U.S. and foreign governments, concerns about the general condition of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader credit
markets to further deteriorate and stock markets to decline substantially. In addition, general economic indicators have deteriorated, including declining consumer sentiment, increased unemployment and declining economic growth and uncertainty about
corporate earnings.
While these conditions appear to have improved, unprecedented disruptions in the credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many
companies.
These disruptions could, among other things, make it more
difficult for the Company to obtain, or increase its cost of obtaining, capital
and financing for its operations. The Companys access to additional capital may
not be available on terms acceptable to it or at all.
General economic conditions: The recent
unprecedented events in global financial markets have had a profound impact on
the global economy. Many industries are impacted by these market conditions.
Some of the key impacts of the current financial market turmoil include
contraction in credit markets resulting in a widening of credit risk,
devaluations and high volatility in global equity, commodity, foreign exchange
markets, and a lack of market liquidity. A continued or worsened slowdown in the
financial markets or other economic conditions, including but not limited to,
consumer spending, employment rates, business conditions, inflation, fuel and
energy costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect the
Companys growth and profitability. Specifically:
the global credit/liquidity crisis could impact the cost and
availability of financing and the Companys overall liquidity
the
volatility of industrial metal prices may impact the Companys potential future
revenues, profits and cash flow
volatile energy prices, commodity and
consumables prices and currency exchange rates impact potential production
costs
the devaluation and volatility of global stock markets impacts the
valuation of the Companys common shares, which may impact the Companys ability
to raise funds through the issuance of equity securities
These factors could have a material adverse effect on the
Companys financial condition and results of operations.
Share Price Volatility: During the past year,
worldwide securities markets, particularly those in the United States and
Canada, have experienced a high level of price and volume volatility, and the
market price of securities of many companies, particularly those considered
exploration or development stage companies, have experienced unprecedented
declines in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. Most
significantly, the share prices of junior natural resource companies have
experienced an unprecedented decline in value and there has been a significant
decline in the number of buyers willing to purchase such securities. In
addition, significantly higher redemptions by holders of mutual funds has forced
many of such funds to sell such securities at any price. As a consequence,
despite the Companys past success in securing equity financing, market
forces may render it difficult or impossible for the Company to secure places to
purchase new share issues at a price which will not lead to severe dilution to
existing shareholders, or at all.
Therefore, there can be no assurance that significant
fluctuations in the price of the Companys common shares will not occur, or that
such fluctuations will not materially adversely impact on the Companys ability
to raise equity funding without significant dilution to its existing
shareholders, or at all.
Financing Risks: The Company has limited
financial resources, has no source of operating cash flow and has no assurance
that additional funding will be available to it for further exploration and
development of its projects or to fulfill its obligations under any applicable
agreements. Although the Company has been successful in the past in obtaining
financing through the sale of equity securities, there can be no
assurance that it will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and
development of its projects with the possible loss of such properties.
Insufficient Financial Resources: The Company does not presently have sufficient financial resources to undertake by itself the acquisition, exploration and development of all of its planned acquisition, exploration and development
programs. Future property acquisitions and the development of the
Company’s properties will therefore depend upon the Company’s ability to obtain financing through the joint venturing of projects, private placement financing, public financing, short or long term borrowings or other means. There is no
assurance that the Company will be successful in obtaining the required financing. Failure to raise the required funds could result in the Company losing, or being required to dispose of, its interest in its properties.
Dilution to the Company’s existing shareholders: The Company will require additional equity financing to be raised in the future. The Company may issue securities at less than favorable terms to raise sufficient capital to fund
its business plan. Any transaction involving the issuance of equity securities or securities convertible into common shares would result in dilution, possibly substantial, to present and prospective holders of common shares.
Increased costs: Management anticipates that costs at the Company’s projects will frequently be subject to variation from one year to the next due to a number of factors, such as the results of ongoing exploration activities
(positive or negative), changes in the nature of mineralization encountered, and revisions to exploration programs, if any, in response to the foregoing. In addition, exploration program costs are affected by the price of commodities such as fuel,
rubber and electricity and the availability (or otherwise) of consultants and drilling contractors. Increases in the prices of such commodities or a scarcity of consultants or drilling contractors could render the costs of exploration programs to
increase significantly over those budgeted. A material increase in costs for any significant exploration programs could have a significant effect on the Company’s operating funds and ability to continue its planned exploration programs.
Mining Industry is Intensely Competitive: The Company’s business of the acquisition, exploration and development of mineral properties is intensely competitive. The Company may be at a competitive disadvantage in acquiring
additional mining properties because it must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than the Company. Increased competition could adversely
affect the Company’s ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.
Permits and Licenses: The operations of the Company will require licenses and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may
be required to carry out exploration, development and mining operations at its projects, on reasonable terms or at all. Delays or a failure to obtain such licenses and permits, or a failure to comply with the terms of any such licenses and permits
that the Company does obtain could have a material adverse effect on the Company.
Government Regulation: Any exploration, development, or mining operations carried on by the Company will be subject to government legislation, policies and controls relating to prospecting,
development, production, environmental protection, mining taxes and labour standards. In addition, the profitability of any mining prospect is affected by the market for precious and/or base metals which is influenced by many factors including
changing production costs, the supply and demand for metals, the rate of inflation, the inventory of metal producing corporations, the political environment and changes in international investment patterns.
Environmental Restrictions: The activities of the Company are subject to environmental regulations promulgated by government agencies in different countries from time to time. Environmental legislation generally provides for
restrictions and prohibitions on spills, releases or emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands
disturbed by mining operations. Certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards, and enforcement. Fines and
penalties for noncompliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental
regulations has a potential to reduce the profitability of operations.
Foreign Countries and Political Risk: All of the mineral properties held by the Company are located in Canada, where mineral exploration and mining activities may be affected in varying degrees by changes in government regulations such
as tax laws, business laws, environmental laws and mining laws, affecting the Company’s business in that country. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its
business, or if significant enough, may make it impossible to continue to operate in the country. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, foreign exchange
restrictions, export controls, income taxes, expropriation of property, environmental legislation and mine safety.
Dependence Upon Others and Key Personnel: The success of the Company’s operations will depend upon numerous factors, many of which are beyond the Company’s control, including (i) the ability to design and carry out
appropriate exploration programs on its mineral properties; (ii) the ability to produce minerals from any mineral deposits that may be located; (iii) the ability to attract and retain additional key personnel in exploration, marketing, mine
development and finance; and (iv) the ability and the operating resources to develop and maintain the properties held by the Company. These and other factors will require the use of outside suppliers as well as the talents and efforts of the Company
and its consultants and employees. There can be no assurance of success with any or all of these factors on which the Company’s operations will depend, or that the Company will be successful in finding and retaining the necessary employees,
personnel and/or consultants in order to be able to successfully carry out such activities.
Surface Rights and Access: Although the Company acquires the rights to some or all of the minerals in the ground subject to the tenures that it acquires, or has a right to acquire, in most cases it does not thereby acquire any rights
to, or ownership of, the surface to the areas covered by its mineral tenures. In such cases, applicable mining laws usually provide for rights of access to the surface for the purpose of carrying on mining activities, however, the enforcement of
such rights through the applicable courts can be costly and time consuming. In areas where there are no existing surface rights holders, this does not usually cause a problem, as there are no impediments to surface access.
However, in areas where there are local populations or land owners, it is necessary, as a practical matter, to negotiate surface access. There can be no guarantee that, despite having the right at law to access the surface and carry on exploration
and mining activities, the Company will be able to negotiate a satisfactory agreement with any such existing landowners/occupiers for such access, and therefore it may be unable to carry out mining activities. In addition, in circumstances where
such access is denied, or no agreement can be reached, the Company may need to rely on the assistance of local officials or the courts in such jurisdiction. The Company has not, to date, experienced any problems in gaining access to any of its
properties.
Title Matters: Although the Company has taken steps to verify the title to the mineral properties in which it has or has a right to acquire an interest in accordance with industry standards for the current stage of exploration of such
properties, these procedures do not guarantee title (whether of the Company or of any underlying vendor(s) from whom the Company may be acquiring its interest). Title to mineral properties may be subject to unregistered prior agreements or
transfers, and may also be affected by undetected defects or the rights of indigenous peoples. The Company has investigated title to all of its mineral properties and, to the best of its knowledge, title to all of its properties for which titles
have been issued are in good standing.
Exploration and Mining Risks: Fires, power outages, labour disruptions, flooding, explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in the
operation of mines and the conduct of exploration programs. Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes, 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. The economics of developing mineral properties is affected by many factors including the cost of operations, variations of the grade of ore mined, fluctuations in the price of gold or
other minerals produced, costs of processing equipment and other factors such as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. In
addition, the grade of mineralization ultimately mined may differ from that indicated by drilling results and such differences could be material. Short term factors, such as the need for orderly development of ore bodies or the processing of new or
different grades, may have an adverse effect on mining operations and on the results of operations. There can be no assurance that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site conditions or
in production scale operations. Material changes in geological resources, grades, stripping ratios or recovery rates may affect the economic viability of projects.
Regulatory Requirements: The activities of the Company are subject to extensive regulations governing various matters, including environmental protection, management and use of toxic substances and explosives, management of
natural resources, exploration, development of mines, production and post-closure reclamation, exports, price controls, taxation, regulations concerning business dealings with indigenous peoples, labour standards on occupational health and safety,
including mine safety, and historic and cultural preservation. Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties, enforcement actions thereunder, including orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions, any of which could result in the Company incurring
significant expenditures. The Company may also be
required to compensate those suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations by
governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspension of the Company’s operations and delays in the exploration and development of the Company’s properties.
Limited Experience with Development-Stage Mining Operations: The Company has very limited experience in placing mineral resource properties into production, and its ability to do so will be dependent upon using the services of
appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance that the Company will have available to it the necessary expertise when and if it places
its resource properties into production.
Uncertainty of Resource Estimates/Reserves: Unless otherwise indicated, mineralization figures presented in the Company’s filings with securities regulatory authorities, press releases and other public statements that may be made
from time to time are based upon estimates made by Company personnel and independent geologists. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may
prove to be unreliable. There can be no assurance that:
• these estimates will be accurate;
• reserves, resource or other mineralization figures will be accurate; or
• this mineralization could be mined or processed profitably.
Because the Company has not commenced commercial production at any of its properties, and has not defined or delineated any proven or probable reserves on any of its properties, mineralization estimates for the Company’s properties may require
adjustments or downward revisions based upon further exploration or development work or actual production experience. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. There can be no assurance that
minerals recovered in small-scale tests will be duplicated in large-scale tests under on-site conditions or in production scale. The resource estimates contained in the Company’s filings with securities regulatory authorities, press releases
and other public statements that may be made from time to time have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate.
Extended declines in market prices for graphite may render portions of the Company’s mineralization uneconomic and result in reduced reported mineralization. Any material reductions in estimates of mineralization, or of the Company’s
ability to extract this mineralization, could have a material adverse effect on the Company’s results of operations or financial condition. The Company has not established the presence of any proven or probable reserves at any of its
mineral properties. There can be no assurance that subsequent testing or future studies will establish any proven or probable reserves at the Company’s properties. The failure to establish proven or probable reserves could
restrict the Company’s ability to successfully implement its strategies for long-term growth.
No Assurance of Profitability: The Company has no history of earnings and, due to the nature of its business there can be no assurance that the Company will ever be profitable. The Company has not paid 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 from the sale of its common shares or,
possibly, from the sale or optioning of a portion of its interest in its mineral properties. 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 mineable deposit exists. While the Company may generate additional working capital through further equity offerings or through the sale or possible syndication of its properties, there can be no assurance that
any such funds will be available on favorable terms, or at all. At present, it is impossible to determine what amounts of additional funds, if any, may be required. Failure to raise such additional capital could put the continued viability of the
Company at risk.
Uninsured or Uninsurable Risks: Exploration, development and mining operations involve various hazards, including environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected rock
formations, structural cave-ins or slides, flooding, fires, metal losses and periodic interruptions due to inclement or hazardous weather conditions. These risks could result in damage to or destruction of mineral properties, facilities or other
property, personal injury, environmental damage, delays in operations, increased cost of operations, monetary losses and possible legal liability. The Company may not be able to obtain insurance to cover these risks at economically feasible premiums
or at all. The Company may elect not to insure where premium costs are disproportionate to the Company’s perception of the relevant risks. The payment of such insurance premiums and of such liabilities would reduce the funds available for
exploration and production activities.
Conflict of Interests: Certain of the directors and officers of the Company may, from time to time, become directors or officers of, or have significant shareholdings in, other mineral resource companies and, to the extent that
such other companies may participate in ventures in which the Company may participate or may wish to participate, the directors and officers of the Company may have a conflict of interest in negotiating and concluding terms respecting the extent of
such participation. Such other companies may also compete with the Company for the acquisition of mineral property rights.
In the event that any such conflict of interest arises, a director or officer who has such a conflict will disclose the conflict to a meeting of the directors of the Company and, if the conflict involves a director, the director will abstain from
voting for or against the approval of such a participation or such terms. In appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or management, may have a
conflict. From time to time, several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing their participation in larger programs, permitting involvement in a greater number of
programs and reducing financial exposure in respect of any one program.
It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. The directors and officers of the
Company are required to act honestly and in good faith, with a view to the best interests of the Company.
In determining whether or not the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Company, the degree of risk to which the Company
may be exposed and its financial position at that time.
COMMITMENTS
Advances under graphite sales contract
Under the
Companys supply agreement with a third party, the Company is to supply 3,075
metric tonnes of graphite by December 31, 2013. During the year ended May 31,
2014, the customer agreed to extend the terms of the supply agreement subject to
certain amendments. The amended production commitment involves the delivery of
1,620 metric tonnes of graphite between January 1, 2014 and June 30, 2016 (See
Subsequent Events below).
Royalty agreement
The Company must pay royalties of
2.5% of net smelter returns from the sale of all minerals and 2.5% of the net
proceeds from the sale of all by-products to Latitude. Latitude is a related
party of the Corporation due to a common director and Latitudes
shareholdings in the Company. In the event the Company has a go-public event
prior to June 17, 2015 the Latitude royalty agreement will be terminated with
zero amount owing.
The Company has an on-going 0.25% royalty on net smelter
returns from the sale of all minerals and 0.25% of the net proceeds from the
sale of all by-products with the holders of the promissory notes.
Decommissioning obligation
It is the Companys
intent to protect the land on which it operates in accordance with best
practices of the mining industry and to comply with all applicable laws
governing protection of the land. As such, the Company recognizes a provision
related to its constructive and legal obligation in British Columbia to restore
the properties. The cost of this obligation is determined based on the expected
future level of activity and costs associated with decommissioning the mines and
restoring the properties. The provision is calculated as the sum of undiscounted
future expected cash flows related to ground disturbances in the Company's
5-year mine plan of $41,134, undiscounted expected lump sum costs of
decommissioning mining infrastructure of $25,750, and the present value of
expected annual monitoring and engineering costs post-closure of $66,667. The
present value of post-closure costs are estimated using a formula mandated by
the government of British Columbia, currently equivalent to $2,000 per year in
perpetuity, discounted at a risk free rate of 3% per annum. The sum has been
rounded up to the nearest $5,000. As at August 31, 2014, the Company recorded a
decommissioning obligation for mine rehabilitation of $135,000 (May 31, 2014 -
$135,000).
SUBSEQUENT EVENTS
On November 19, 2014, the party to the customer supply
agreement granted an extension to the commitment for obtaining minimum financing
of $3,000,000 until January 31, 2015. On November 19, 2014, the customer
confirmed their consent to the issuance of promissory notes, and their consent
to the amalgamation with Amerix Precious Metals Corporation. The Company also
agreed to an assignment letter, the terms of which confirm the customer's first
ranking security interest and charge in and to all assets and undertaking of the
Company. The customer agreed to a letter of intent, under which the parties
expressed their intent to negotiate in good faith an expansion of the customer
sales contract by February 15, 2015. The letter of intent includes non-binding
commitments to increased volumes of graphite, an extension of the term of the
supply agreement, and certain adjustments to the pricing formulae, plus a
binding commitment to place the customer in the same or better position as would
have been the case had the Company commenced production in 2012.
All other material subsequent events have been disclosed in the Liquidity and Capital Resources section above.
EXHIBIT B
AMERIX FINANCIAL STATEMENTS AND MD&A
Audited Consolidated Financial Statements for the Years Ended
July 31, 2014 and 2013
Audited Consolidated Financial Statements for the Years Ended
July 31, 2013 and 2012
Management Discussion and Analysis for the Year Ended July 31,
2014
B-1
|
AMERIX PRECIOUS METALS CORPORATION
|
(A Development Stage Company)
|
CONSOLIDATED FINANCIAL STATEMENTS
|
(EXPRESSED IN CANADIAN DOLLARS)
|
FOR THE YEARS ENDED JULY 31, 2014 AND
2013 |
|
MANAGEMENT'S RESPONSIBILITY FOR
CONSOLIDATED
FINANCIAL REPORTING
The accompanying audited annual consolidated financial
statements of Amerix Precious Metals Corporation [the "Company"] are the
responsibility of the management and Board of Directors of the Company.
The audited annual consolidated financial statements have been
prepared by management, on behalf of the Board of Directors, in accordance with
the accounting policies disclosed in the notes to the audited annual
consolidated financial statements. Where necessary, management has made informed
judgments and estimates in accounting for transactions which were not complete
at the end of the reporting period. In the opinion of management, the audited
annual consolidated financial statements have been prepared within acceptable
limits of materiality and are in compliance with all applicable International
Financial Reporting Standards.
Management has established systems of internal control over the
financial reporting process, which are designed to provide reasonable assurance
that relevant and reliable financial information is produced.
The Board of Directors is responsible for reviewing and
approving the audited annual consolidated financial statements together with
other financial information of the Company and for ensuring that management
fulfills its financial reporting responsibility. An Audit Committee assists the
Board of Directors in fulfilling this responsibility. The Audit Committee meets
with management to review the financial reporting process and the audited annual
consolidated financial statements together with other financial information of
the Company. The Audit Committee reports its findings to the Board of Directors
for its consideration in approving the audited annual consolidated financial
statements together with other financial information of the Company for issuance
to the shareholders.
Management recognizes its responsibility for conducting the
Companys affairs in compliance with established financial standards, and
applicable laws and regulations, and for maintaining proper standards of conduct
for its activities.
(signed) Steven Brunelle |
(signed) Daniel Hamilton |
Steven Brunelle |
Daniel Hamilton |
President and Chief Executive Officer |
Chief Financial Officer |
|
|
Toronto, Canada |
|
November 19, 2014 |
|
Independent Auditor's Report
To the Shareholders of Amerix Precious Metals Corporation
We have audited the accompanying consolidated financial
statements of Amerix Precious Metals Corporation, which comprise the
consolidated statements of financial position as at July 31, 2014 and 2013, and
the consolidated statements of loss and comprehensive loss, changes in
shareholders' equity (deficiency), and cash flows for the years then ended, and
a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards and for such internal control as
management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
Auditor's Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
|
ACCOUNTING CONSULTING TAX 701
EVANS AVENUE, 8TH FLOOR, TORONTO ON, M9C 1A3 P:
416.626.6000 F: 416.626.8650 MNP.ca |
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Amerix Precious
Metals Corporation as at July 31, 2014 and 2013, and its financial performance
and its cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 to
the consolidated financial statements which highlights the existence of a
material uncertainty relating to conditions that cast significant doubt on
Amerix Precious Metals Corporation's ability to continue as a going concern.
|
|
|
Chartered Professional Accountants
|
|
Licensed Public Accountants
|
Toronto, Ontario
November 19, 2014
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage Company)
Consolidated
Statements of Financial Position
(Expressed in Canadian Dollars)
|
|
July
31, |
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash |
$ |
7,789 |
|
$ |
350,099 |
|
Other receivables (Note 6) |
|
2,245 |
|
|
33,946 |
|
Prepaid
expenses |
|
1,500 |
|
|
22,509 |
|
|
|
|
|
|
|
|
|
$ |
11,534 |
|
$ |
406,554 |
|
|
|
|
|
|
|
|
EQUITY (DEFICIENCY) AND LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
528,326 |
|
$ |
257,396 |
|
|
|
|
|
|
|
|
Equity (Deficiency) |
|
|
|
|
|
|
Share capital (Note 7(b)) |
|
23,775,457 |
|
|
23,775,457 |
|
Reserves |
|
1,366,179 |
|
|
2,740,373 |
|
Accumulated
deficit |
|
(25,658,428 |
) |
|
(26,366,672 |
) |
|
|
|
|
|
|
|
|
|
(516,792 |
) |
|
149,158 |
|
|
|
|
|
|
|
|
|
$ |
11,534 |
|
$ |
406,554 |
|
Nature of Business and Going Concern (Note 1)
Commitments and Contingencies (Note 15)
Approved by the Board:
"Steve Brunelle", Director
|
"Robert Crombie", Director
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
1 |
|
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage Company)
Consolidated
Statements of Loss and Comprehensive Loss
(Expressed in Canadian
Dollars)
Years Ended July 31, |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Exploration and evaluation expenditures (Note 5 & 13) |
$ |
376,163 |
|
$ |
1,586,176 |
|
General and administrative
(Notes 10 & 13) |
|
289,787 |
|
|
592,189 |
|
|
|
|
|
|
|
|
Loss before interest income |
|
(665,950 |
) |
|
(2,178,365 |
) |
Interest Income |
|
- |
|
|
2,741 |
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
$ |
(665,950 |
) |
$ |
(2,175,624 |
) |
|
|
|
|
|
|
|
Basic and diluted loss per common share (Note 11) |
$ |
(0.01 |
) |
$ |
(0.03 |
) |
|
|
|
|
|
|
|
Weighted average common shares outstanding (Note 11)
|
|
82,454,934 |
|
|
77,701,624 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
2 |
|
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage
Company)
Consolidated Statements of
Changes in Shareholders' Equity (Deficiency)
(Expressed in Canadian Dollars)
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Settled Share- |
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
based Payments |
|
|
Accumulated |
|
|
|
|
|
|
Share Capital |
|
|
Reserve |
|
|
Reserve |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2012
|
$ |
22,373,248 |
|
$ |
1,693,621 |
|
$ |
1,278,251 |
|
$ |
(25,019,976 |
) |
$ |
325,144
|
|
Private placements |
|
2,239,380 |
|
|
- |
|
|
- |
|
|
- |
|
|
2,239,380 |
|
Fair value of warrants issued |
|
(594,426 |
) |
|
594,426 |
|
|
- |
|
|
- |
|
|
- |
|
Fair value of broker warrants issued |
|
(103,105 |
) |
|
103,105 |
|
|
- |
|
|
- |
|
|
- |
|
Share issuance cost |
|
(161,040 |
) |
|
(95,452 |
) |
|
- |
|
|
- |
|
|
(256,492 |
) |
Share-based compensation |
|
- |
|
|
- |
|
|
5,750 |
|
|
- |
|
|
5,750 |
|
Exercise of options |
|
21,400 |
|
|
- |
|
|
(10,400 |
) |
|
- |
|
|
11,000 |
|
Expiration of options |
|
- |
|
|
- |
|
|
(318,725 |
) |
|
318,725 |
|
|
- |
|
Expiration of warrants |
|
- |
|
|
(510,203 |
) |
|
- |
|
|
510,203 |
|
|
- |
|
Net
loss and comprehensive loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
(2,175,624 |
) |
|
(2,175,624 |
) |
Balance, July 31, 2013
|
|
23,775,457 |
|
|
1,785,497 |
|
|
954,876 |
|
|
(26,366,672 |
) |
|
149,158 |
|
Expiration of options |
|
- |
|
|
- |
|
|
(190,776 |
) |
|
190,776 |
|
|
- |
|
Expiration of warrants |
|
- |
|
|
(1,183,418 |
) |
|
- |
|
|
1,183,418 |
|
|
- |
|
Net
loss and comprehensive loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
(665,950 |
) |
|
(665,950 |
) |
Balance, July 31, 2014 |
$ |
23,775,457 |
|
$ |
602,079 |
|
$ |
764,100 |
|
$ |
(25,658,428 |
) |
$ |
(516,792 |
) |
The accompanying notes are an integral part of these
consolidated financial statements.
|
3 |
|
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage Company)
Consolidated
Statements of Cash Flows
(Expressed in Canadian Dollars)
Years Ended July 31, |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
Net loss for the year |
$ |
(665,950 |
) |
$ |
(2,175,624 |
) |
Items not affecting cash: |
|
|
|
|
|
|
Share-based compensation |
|
- |
|
|
5,750 |
|
Unrealized loss (gain) on
foreign exchange |
|
15,578 |
|
|
(7,881 |
) |
|
|
(650,372 |
) |
|
(2,177,755 |
) |
Change in non-cash operating
working capital: |
|
|
|
|
|
|
Decrease (increase) in other
receivables and prepaid expenses |
|
52,710 |
|
|
(17,378 |
) |
Increase (decrease) in accounts
payable and accrued liabilities |
|
270,930 |
|
|
(209,850 |
) |
|
|
(326,732 |
) |
|
(2,404,983 |
) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital issued, net of share issue costs
|
|
- |
|
|
1,982,888 |
|
Cash received from exercise of options |
|
- |
|
|
11,000 |
|
|
|
-
|
|
|
1,993,888 |
|
|
|
|
|
|
|
|
Change in cash |
|
(326,732 |
) |
|
(411,095 |
) |
Cash, beginning of the year |
|
350,099 |
|
|
753,313 |
|
Effect of
exchange rate changes on cash held in foreign currencies |
|
(15,578 |
) |
|
7,881
|
|
|
|
|
|
|
|
|
Cash, end of
the year |
$ |
7,789 |
|
$ |
350,099 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
4 |
|
AMERIX PRECIOUS METALS CORPORATION
|
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
1. NATURE OF
BUSINESS AND GOING CONCERN
Amerix Precious Metals Corporation (the "Company" or "Amerix"),
a publicly traded company listed on the TSX Venture Exchange and the Frankfurt
Stock Exchange, is involved in the acquisition, exploration and development of
mineral properties. The Company was originally incorporated under the Company
Act of British Columbia and completed its continuance in the Province of Ontario
effective May 31, 2004. The Company has not earned any income. The primary
office of the Company is located at 40 University Avenue, Suite 606, Toronto,
Ontario, M5J 1T1, Canada.
The accompanying consolidated financial statements have been
prepared on the basis of a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. The
Company is currently in the exploration stage and has not commenced commercial
operations. As at July 31, 2014, the Company has an accumulated deficit of
$25,658,428 and has not yet generated positive cash flows from operations.
In assessing whether the going concern assumption is
appropriate management takes into account all available information about the
foreseeable future, which is at least, but not limited to, twelve months from
the end of the reporting period. The Companys ability to continue operations
and fund its mining interest expenditures is dependent on managements ability
to secure additional financing; this casts significant doubt about the Companys
ability to continue as a going concern. Management is actively pursuing such
additional sources of financing, and while it has been successful in doing so in
the past, there can be no assurance it will be able to do so in the future. The
consolidated financial statements do not give effect to the required adjustments
to the carrying amounts and classifications of assets and liabilities should the
Company be unable to continue as a going concern.
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
(a)
Statement of compliance
The Company applies International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB") and
interpretations issued by IFRS Interpretations Committee ("IFRIC").
The policies applied in these audited consolidated financial
statements are based on IFRS issued and outstanding as of November 19, 2014, the
date the Board of Directors approved the statements.
|
5 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Basis of consolidation
These consolidated financial statements incorporate the
financial statements of the Company and its subsidiaries. All intercompany
transactions, balances, income and expenses are eliminated upon consolidation.
The following companies have been consolidated within the
consolidated financial statements:
Company |
Registered |
Principal activity |
Brazourocay Corporation |
Cayman Islands |
Holding company |
S.A. Ventures II Limited |
Cayman Islands |
Holding company |
Mineração Vila Porto Rico Ltda. |
Brazil, South America |
Exploration company
|
(c) Functional and reporting currency
The functional and reporting currency of the Company and the
Company's foreign subsidiaries, as determined by management, is the Canadian
Dollar. For the purpose of the consolidated financial statements, the results
and financial position are expressed in Canadian Dollars.
Transactions in currencies other than the functional currency
are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation of monetary
assets and liabilities denominated in foreign currencies at the period end
exchange rates are recognized in profit and loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated.
(d) Financial instruments
The Companys financial instruments consist of the following:
Financial assets:
|
Classification: |
Cash |
At fair value through profit and loss ("FVTPL") |
Financial
liabilities: |
Classification: |
Accounts payable and accrued liabilities |
Other financial liabilities |
FVTPL
This category comprises assets acquired or
incurred for the purpose of selling or repurchasing them in the near future. The
Company measures financial assets at FVTPL at fair value, recognizing any gains
or losses arising from this measurement in profit or loss.
|
6 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Financial instruments (continued)
Other financial liabilities
Other financial
liabilities are recognized initially at fair value net of any directly
attributable transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortized cost using the effective
interest method. The effective interest method is a method of calculating the
amortized cost of a financial instrument and of allocating interest and any
transaction costs over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments through the expected
life of the financial instrument or (where appropriate) to the net carrying
amount on initial recognition. Other financial liabilities are derecognized when
the obligations are discharged, cancelled or expired.
Impairment of financial assets:
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are impaired when there is
objective evidence that, as a result of one or more events that occurred after
the initial recognition of the financial assets, the estimated future cash flows
of the financial assets have been negatively impacted. Evidence of impairment
could include:
significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
the likelihood that the borrower will enter bankruptcy or financial
re-organization.
The carrying amount of financial assets is reduced by any
impairment loss directly for all financial assets with the exception of amounts
receivable, where the carrying amount is reduced through the use of an allowance
account. When an account receivable is considered uncollectible, it is written
off against the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, the previously recognized impairment loss
is reversed through profit or loss to the extent that the carrying amount of the
financial asset at the date the impairment is reversed does not exceed what the
amortized cost would have been had the impairment not been recognized.
Financial instruments recorded at fair value:
Financial instruments recorded at fair value on the
consolidated statements of financial position are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
|
Level 1 - |
valuation based on quoted prices (unadjusted) in active
markets for identical assets or liabilities; |
|
7 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Financial instruments (continued)
|
Level 2 - |
valuation techniques based on inputs other than quoted
prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices);
and |
|
Level 3 - |
valuation techniques using inputs for the asset or
liability that are not based on observable market data (unobservable
inputs). |
As at July 31, 2014 and July 31, 2013, cash is measured at fair
value and classified within Level 1 of the fair value hierarchy. The fair value
of all the Companys other financial instruments approximates the carrying
value, due to their short-term nature
(e) Impairment of non-financial assets
At the end of each reporting period, the Company reviews the
carrying amounts of its non-financial assets with finite lives to determine
whether there is any indication that those assets are impaired. Where such an
indication exists, the recoverable amount of the asset is estimated. For the
purpose of measuring recoverable amounts, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units or CGUs). The recoverable amount is the higher of an assets fair value
less costs to sell and value in use (being the present value of the expected
future cash flows of the relevant asset or CGU). An impairment loss is
recognized for the amount by which the assets carrying amount exceeds its
recoverable amount.
(f) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly
liquid short-term guaranteed investment certificates with original maturities at
the date of purchase of three months or less.
(g) Exploration and evaluation expenditures
The Company expenses exploration and evaluation expenditures as
incurred in mineral properties not commercially viable and financially feasible.
Exploration and evaluation expenditures include property option payments and
evaluation activities.
Once a project has been established as commercially viable and
technically feasible, related development expenditures are capitalized. This
includes costs incurred in preparing the site for mining operations.
Capitalization ceases when the mine is capable of commercial
production, with the exception of development costs that give rise to a future
benefit.
Exploration and evaluation expenditures are capitalized if the
Company can demonstrate that these expenditures meet the criteria of an
identifiable intangible asset. To date, no such exploration and evaluation
expenditures have been identified and capitalized.
|
8 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Provisions
A provision is recognized when the Company has a present legal
or constructive obligation as a result of a past event, it is probable that an
outflow of economic benefits will be required to settle the obligation, and the
amount of the obligation can be reliably estimated. If the effect is material,
provisions are determined by discounting the expected future cash flows to
present value.
(i) Share-based payment transactions
The fair value of share options granted to employees is
recognized as an expense over the vesting period using the graded vesting method
with a corresponding increase in equity. An individual is classified as an
employee when the individual is an employee for legal or tax purposes (direct
employee) or provides services similar to those performed by a direct employee,
including directors of the Company. The fair value is measured at the grant date
and recognized over the period during which the options vest. The fair value of
the options granted is measured using the Black-Scholes option-pricing model,
taking into account the terms and conditions upon which the options were
granted. At the end of each reporting period, the amount recognized as an
expense is adjusted to reflect the actual number of share options that are
expected to vest. Stock option expense incorporates an expected forfeiture rate.
(j) Income taxes
Income tax expense consists of current and deferred tax
expense. Current and deferred tax is recognized in profit or loss except to the
extent that it relates to items recognized directly in equity or other
comprehensive income.
Current tax is recognized and measured at the amount expected
to be recovered from or payable to the taxation authorities based on the income
tax rates enacted or substantively enacted at the end of the reporting period
and includes any adjustment to taxes payable in respect of previous years.
Deferred tax is recognized on any temporary differences between
the carrying amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation of taxable
earnings. Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply in the period when the asset is realized and the liability
is settled. The effect of a change in the enacted or substantively enacted tax
rates is recognized in net earnings and comprehensive income or in equity
depending on the item to which the adjustment relates.
Deferred tax assets are recognized to the extent future
recovery is probable. At each reporting period end, deferred tax assets are
reduced to the extent that it is no longer probable that sufficient taxable
earnings will be available to allow all or part of the asset to be recovered.
|
9 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Restoration, rehabilitation and environmental
obligations
A legal or constructive obligation to incur restoration,
rehabilitation and environmental costs may arise when environmental disturbance
is caused by the exploration, development or ongoing production of a mineral
property interest. Such costs are discounted to their net present value and are
provided for and capitalized to the carrying amount of the asset, as soon as the
obligation to incur such costs arises. Discount rates using a pretax rate that
reflects the time value of money are used to calculate the net present value.
These costs are charged against profit or loss over the economic life of the
related asset, through amortization using either a unit-of-production or the
straight-line method as appropriate. The related liability is adjusted for each
period for the unwinding of the discount rate and for changes to the current
market-based discount rate, amount or timing of the underlying cash flows needed
to settle the obligation.
The Company had no material restoration, rehabilitation and
environmental costs as at July 31, 2014 and July 31, 2013 as the disturbance to
date is minimal.
(l) Loss per share
The Company presents basic and diluted loss per share data for
its common shares, calculated by dividing the loss attributable to common
shareholders of the Company by the weighted average number of common shares
outstanding during the period. The treasury stock method is used to arrive at
the diluted loss per share, which is determined by adjusting the loss
attributable to common shareholders and the weighted average number of common
shares outstanding for the effects of all warrants and options outstanding that
may add to the total number of common shares. The Company's diluted loss per
share does not include the effect of stock options and warrants as they are
anti-dilutive.
(m) Significant accounting judgments and estimates
The preparation of these consolidated financial statements
requires management to make certain estimates, judgments and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of expenses during the reporting
period. Actual outcomes could differ from these estimates. These consolidated
financial statements include estimates that, by their nature, are uncertain. The
impacts of such estimates are pervasive throughout the consolidated financial
statements, and may require accounting adjustments based on future occurrences.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised and also in future periods if the revision affects both
current and future periods. These estimates are based on historical experience,
current and future economic conditions and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
(n) New accounting standards and interpretations
Certain pronouncements were issued by the IASB or the IFRIC
that are mandatory for future accounting periods. Many are not applicable to or
do not have a significant impact on Amerix and have been excluded from the list
below. The following have not yet been adopted and are being evaluated to
determine their impact on Amerix.
(i) IFRS 9 Financial instruments (IFRS 9) was issued by the
IASB in October 2010 and will replace IAS 39 Financial Instruments: Recognition
and Measurement (IAS 39). IFRS 9 uses a single approach to determine
|
10 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(n) New accounting standards and interpretations (continued)
whether a financial asset is measured at amortized cost or fair
value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based
on how an entity manages its financial instruments in the context of its
business model and the contractual cash flow characteristics of the financial
assets. Most of the requirements in IAS 39 for classification and measurement of
financial liabilities were carried forward unchanged to IFRS 9. The new standard
also requires a single impairment method to be used, replacing the multiple
impairment methods in IAS 39. The standard is effective for annual periods
beginning on or after January 1, 2018. The Company has yet to evaluate the
impact of this new standard.
(o) Changes in accounting policies
The Company has adopted the following new standards, along with
any consequential amendments, effective January 1, 2013. These changes were made
in accordance with the applicable transitional provisions.
(i) IFRS 10 Consolidated financial statements (IFRS 10) was
issued by the IASB in May 2011. IFRS 10 is a new standard which identifies the
concept of control as the determining factor in assessing whether an entity
should be included in the consolidated financial statements of the parent
company. Control is comprised of three elements: power over an investee;
exposure to variable returns from an investee; and the ability to use power to
affect the reporting entitys returns. The Company adopted this standard as at
August 1, 2013 and the adoption has had no material impact on the Companys
financial position or performance.
(ii) IFRS 11 Joint arrangements (IFRS 11) was issued by the
IASB in May 2011. IFRS 11 is a new standard which focuses on classifying joint
arrangements by their rights and obligations rather than their legal form.
Entities are classified into two groups: parties having rights to the assets and
obligations for the liabilities of an arrangement, and rights to the net assets
of an arrangement. Entities in the former case account for assets, liabilities,
revenues and expenses in accordance with the arrangement, whereas entities in
the latter case account for the arrangement using the equity method. The Company
adopted this standard as at August 1, 2013 and the adoption has had no material
impact on the Companys financial position or performance.
(iii) IFRS 12 Disclosure of interests in other entities
(IFRS 12) was issued by the IASB in May 2011. IFRS 12 is a new standard which
provides disclosure requirements for entities reporting interests in other
entities, including joint arrangements, special purpose vehicles, and off
balance sheet vehicles. The Company adopted this standard as at August 1, 2013
and the adoption has had no material impact on the Companys financial position
or performance.
(iv) IFRS 13 Fair value measurement (IFRS 13) was issued by
the IASB in May 2011. IFRS 13 is a new standard which provides a precise
definition of fair value and a single source of fair value measurement
considerations for use across IFRSs. The key points of IFRS 13 are as follows:
|
fair value is measured using the price in a principal
market for the asset or liability, or in the absence of a principal
market, the most advantageous market; |
|
|
|
financial assets and liabilities with offsetting
positions in market risks or counterparty credit risks can be measured on
the basis of an entitys net risk exposure; |
|
11 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
(o) Changes in accounting policies (continued)
|
disclosure regarding the fair value hierarchy has been
moved from IFRS 7 to IFRS 13, and further guidance has been added to the
determination of classes of assets and liabilities; |
|
|
|
a quantitative sensitivity analysis must be provided for
financial instruments measured at fair value; |
|
|
|
a narrative must be provided discussing the sensitivity
of fair value measurements categorized under Level 3 of the fair value
hierarchy to significant unobservable inputs; and |
|
|
|
information must be provided on an entitys valuation
processes for fair value measurements categorized under Level 3 of the
fair value hierarchy. |
The Company adopted this standard as at August 1, 2013 and the
adoption has had no material impact on the Companys financial position or
performance.
3. CAPITAL
MANAGEMENT
The Company manages its capital with the following objectives:
(i) |
To ensure sufficient financial flexibility to achieve the
ongoing business objectives including funding of future growth
opportunities, and pursuit of accretive acquisitions; and |
|
|
(ii) |
To maximize shareholder return through enhancing the
share value. |
The Company monitors its capital structure and makes
adjustments according to market conditions in an effort to meet its objectives
given the current outlook of the business and industry in general. The Company
may manage its capital structure by issuing new shares, repurchasing outstanding
shares, adjusting capital spending, or disposing of assets. The capital
structure is reviewed by Management and the Board of Directors on an ongoing
basis.
The Company considers its capital to be equity, comprising
share capital, reserves and accumulated deficit which at July 31, 2014 totaled a
deficiency of $516,792 (July 31, 2013 equity of $149,158).
The Company manages capital through its financial and
operational forecasting processes. The Company reviews its working capital and
forecasts its future cash flows based on operating expenditures, and other
investing and financing activities. The forecast is regularly updated based on
activities related to its mineral properties. Selected information is frequently
provided to the Board of Directors of the Company. The Company's capital
management objectives, policies and processes have remained unchanged during the
year ended July 31, 2014.
The Company is not subject to any capital requirements imposed
by a regulator or lending institution.
4. FINANCIAL RISK
FACTORS
The Companys activities expose it to a variety of financial
risks: credit risk, liquidity risk and market risk including interest rate,
commodity price and foreign exchange rate risk. Risk management is carried out
by the Company's management team with guidance from the Audit Committee under
policies approved by the Board of Directors. The Board of Directors also
provides regular guidance for overall risk management.
|
12 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
4. FINANCIAL RISK
FACTORS (continued)
Credit Risk
Credit risk is the risk of loss associated with a
counterpartys inability to fulfill its payment obligations. The Company's
credit risk is primarily attributable to cash. Cash is held with reputable
financial institutions which are closely monitored by management. Management
believes that the credit risk concentration with respect to financial
instruments included in cash is minimal.
Liquidity Risk
The Company's approach to managing liquidity risk is to ensure
that it will have sufficient liquidity to meet liabilities when due. As at July
31, 2014, the Company had a working capital deficit of $516,792 (July 31, 2013
working capital balance of $149,158). All of the Company's financial liabilities
have contractual maturities of less than 60 days and are subject to normal trade
terms.
Market Risk
Interest Rate Risk
Interest
rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market interest rates. The Company
has minimal cash balances.
Commodity Price Risk
The
Company is exposed to commodity price risk. Commodity price risk is defined as
the potential adverse impact on earnings and economic value due to commodity
price movements and volatilities. The Company closely monitors commodity price
risk as it relates to precious metals to determine the appropriate course of
action to be taken by the Company.
Foreign Currency Risk
The
Company's reporting and functional currency is the Canadian dollar and major
purchases are transacted in Canadian dollars, US dollars and Brazilian Reals.
The Company funds major exploration expenses in Brazil. Accordingly, it
maintains Brazilian Real bank accounts in Brazil. Management does not hedge its
foreign exchange risk.
Sensitivity Analysis
The Company has, for accounting purposes, designated its cash
as FVTPL ("fair value through profit and loss"), which is measured at fair
value. Accounts payable and accrued liabilities are classified for accounting
purposes as other financial liabilities, which are measured at amortized cost
which also approximates fair value.
|
13 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
4. FINANCIAL RISK
FACTORS (continued)
Based on management's knowledge and experience of the financial
markets, the Company believes the following movements are "reasonably possible"
over a twelve month period:
(i) |
The Company is exposed to foreign currency risk on
fluctuations related to cash, and accounts payable and accrued liabilities
that are denominated in US dollars and Brazilian Reals. As at July 31,
2014, sensitivity to a plus or minus 5% change in the foreign exchange
rate would affect net loss and comprehensive loss by approximately $11,000
with all other variables held constant. |
|
|
(ii) |
Commodity price risk could adversely affect the Company.
In particular, the Companys future profitability and viability of
development depends upon the world market price of precious metals.
Precious metal prices have fluctuated widely in recent years. There is no
assurance that, even if commercial quantities of precious metals may be
produced in the future, a profitable market will exist for them. A decline
in the market price of precious metals will also require the Company to
reduce its mineral resources, which could have a material and adverse
effect on the Companys value. As of July 31, 2014, the Company was not a
precious metals producer. As a result, commodity price risk may affect the
completion of future equity transactions such as equity offerings and the
exercise of stock options and warrants. This may also affect the Company's
liquidity and its ability to meet its ongoing
obligations. |
5. EXPLORATION AND
EVALUATION EXPENDITURES ON MINERAL PROPERTIES
The exploration and evaluation expenditures on the mineral
properties to date are as follows:
|
|
Limão |
|
|
Ouro Roxo |
|
|
|
|
|
|
Property |
|
|
Property |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
$ |
3,971,685 |
|
$ |
13,483,261 |
|
$ |
17,454,946 |
|
Expenditures during the year |
|
1,586,176 |
|
|
- |
|
|
1,586,176 |
|
Balance, July 31, 2013 |
|
5,557,861 |
|
|
13,483,261 |
|
|
19,041,122 |
|
Expenditures during the year |
|
376,163 |
|
|
- |
|
|
376,163 |
|
Balance, July 31, 2014 |
$ |
5,934,024 |
|
$ |
13,483,261 |
|
$ |
19,417,285 |
|
Limão Property
The Company acquired the principal mineral rights to the Limão
property from Matapi Exploração Mineral Ltda. (Matapi). Matapi retained a 2%
Net Smelter Roayalty (NSR) in respect of the Limão property which may be
bought out by the Company at is sole discretion for payment of approximately
$479,000 (1,000,000 Brazilian Reais (BR$)). Matapi may receive an additional
127,750 common shares of Amerix if a technical report acceptable to the TSX
Venture Exchange evidencing the existence of at least 1,000,000 ounces of gold
(probable reserve) is delivered in respect of the Limão property (See note 15).
|
14 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
5. EXPLORATION AND
EVALUATION EXPENDITURES ON MINERAL PROPERTIES (continued)
Limão Property (continued)
On May 14, 2012, the Company entered into an agreement (the
Agreement), whereby Amerix has optioned adjacent exploration properties (2
property groups) immediately to the west of the Companys Limão Property. The
terms of the Agreement allow for staged payments to the local vendors consisting
of cash (BR$1,000,000) and Amerix common shares (650,000 shares) over 4 years
followed by success payments of BR$500,000 for positive Feasibility Studies at
either of the properties. In the event of a production decision at either of the
properties, a payment of BR$1,000,000 will be payable upon reaching commercial
production. In addition a 1% Net Gold Sales Royalty will be payable to the
vendors.
The Company completed its due diligence on the optioned
exploration properties and made an initial option payment of BR$100,000 to the
local vendors on October 30, 2012. Future option payments are conditional upon
transfer of title to the exploration properties to Amerix. Due to delays
relating to the proposed new mining code, the Departamento Naçional da
PruduçãoMineralhas temporarily suspended the granting and transfer of titles and
as a result the vendors have been unable to transfer the property titles to
MVPR. The Companys second option payment is comprised of BR$100,000 and 100,000
common shares and was due in April 2013. The payments due in April 2013 and all
subsequent option payments have been deferred until title to the properties has
been transferred.
Ouro Roxo Property
The Company retains a 2.5% NSR on the Ouro Roxo Property,
located in the Tapajós region of Brazil, based on an agreement entered into in
2009 with the holder of the mineral exploitation rights to the Ouro Roxo
Property.
As a result of an earlier agreement entered into with Matapi,
the Company has existing obligations to Matapi as follows:
(i) |
a 2.0% NSR to Matapi, with a buyout of US$200,000 for
each one-quarter of the NSR (0.5%) which may be paid down, in whole or in
part, at any time by the Company; and |
|
|
(ii) |
The issue of 322,083 common shares of the Company,
issuable to Matapi upon receipt by the Company of an independent study
that confirms a mineable reserve (in the probable category or better) of
at least 2,000,000 ounces of gold on this
property. |
Due to ongoing problems encountered by the holder of the
mineral exploitation rights, commercial production has not yet been achieved at
the Ouro Roxo property. The Company does not anticipate receiving any royalty
income within the next twelve months.
|
15 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
6. OTHER
RECEIVABLES
|
|
As
at July 31, 2014 |
|
|
As
at July 31, 2013 |
|
Sales tax receivable -
(Canada) |
$ |
2,245 |
|
$ |
33,871 |
|
Other receivable |
|
- |
|
|
75
|
|
|
$ |
2,245 |
|
$ |
33,946 |
|
7. SHARE
CAPITAL
(a) AUTHORIZED
Unlimited |
Common shares |
Unlimited |
First preference shares |
Unlimited |
Second preference shares
|
(b) ISSUED
|
|
Common Shares |
|
|
Amount |
|
Balance, July 31, 2012 |
|
63,693,434 |
|
$ |
22,373,248 |
|
Private placement i) |
|
18,661,500 |
|
|
2,239,380 |
|
Fair value of warrants issued
i) |
|
- |
|
|
(594,426 |
) |
Fair value of broker warrants issued i) |
|
- |
|
|
(103,105 |
) |
Share issuance costs i) |
|
- |
|
|
(161,040 |
) |
Exercise of options ii) |
|
100,000 |
|
|
21,400 |
|
Balance, July 31, 2013 and July 31, 2014 |
|
82,454,934 |
|
$ |
23,775,457 |
|
i) On October 30, 2012, the Company closed a fully marketed
private placement (the Offering) led by Canaccord Genuity Corp. (the Agent).
The Company issued a total of 18,661,500 units (the Units) at a price of $0.12
per Unit for gross proceeds of $2,239,380. Each Unit consisted of one common
share (a Common Share) and one half of one common share purchase warrant (a
Warrant). Each whole warrant entitles the holder to purchase one common share
at a price of $0.18 for up to 24 months. The fair value of the Warrants at the
date of grant was $594,426. This amount was estimated using the Black-Scholes
pricing model based on the following assumptions: dividend yield of 0%;
risk-free interest rate of 1.08%; expected life of two years; and volatility of
172.88% .
In connection with the Offering, the Company incurred total
share issuance costs of $256,492 including a cash commission paid to the Agent
in an amount of $145,560, equal to 6.5% of the gross proceeds of the Offering
and the Company also issued to the Agent 1,212,998 compensation options (the
"Broker Warrants") equal to 6.5% of the number of Units sold in the Offering,
with each such compensation option exercisable to acquire one Unit of the
Company until October 30, 2014 at $0.12 per Unit. The fair value of the Broker
Warrants at the date of
|
16 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
7. SHARE CAPITAL
(continued)
(b) ISSUED
(continued) the grant was $103,105. This amount was estimated using the
Black-Scholes pricing model based on the following assumptions: dividend yield
of 0%; risk-free interest rate of 1.08%; expected life of two years; and
volatility of 172.88% . Of the total share issuance costs of $256,492, $161,040
was allocated to share capital and the remaining was allocated to the Warrants.
ii) In January, 2013, 100,000 stock options were exercised for
proceeds of $11,000. The value attributed to the options on their issue date was
$10,400 and this amount has been re-allocated from Equity Settled Share-Based
Payments Reserve to Share Capital.
8. Warrants
The following table reflects the continuity of warrants:
|
|
Number of |
|
|
Weighted Average |
|
|
|
|
|
|
Warrants |
|
|
Exercise Price ($) |
|
|
Fair
Value ($) |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
|
12,746,883 |
|
|
0.32 |
|
|
1,693,621 |
|
Granted (Note 7(b)(i)) |
|
10,543,748 |
|
|
0.17 |
|
|
602,079 |
|
Expired |
|
(3,646,883 |
) |
|
0.29 |
|
|
(510,203 |
) |
Balance, July 31, 2013 |
|
19,643,748 |
|
|
0.25 |
|
|
1,785,497 |
|
Expired |
|
(9,100,000 |
) |
|
0.33 |
|
|
(1,183,418 |
) |
Balance, July 31,
2014 |
|
10,543,748 |
|
|
0.17
|
|
|
602,079 |
|
As of July 31, 2014, the following warrants were outstanding:
|
Number of |
Exercise |
|
Fair Value ($)
|
Warrants |
Price ($) |
Date
of Expiry |
498,974 |
9,330,750 |
0.18 |
October 30, 2014 |
103,105 |
1,212,998 |
0.12
|
October 30, 2014 |
602,079 |
10,543,748 |
|
|
All warrants were expired without being exercised on October
30, 2014.
9. STOCK OPTIONS
AND STOCK-BASED COMPENSATION
The Company has a Stock Option Plan (the "Plan") under which it
is authorized to grant options to purchase up to 10% of the outstanding common
shares of the Company to directors, senior officers, employees and/or
consultants of the Company. As at J u l y 31, 2014, there were 82,454,934 common
shares of the Company outstanding (10% - 8,245,493). The terms of the awards
under the Plan are determined by the Board of Directors.
|
17 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
9. STOCK OPTIONS
AND STOCK-BASED COMPENSATION (continued)
The following table reflects the continuity of stock options:
|
|
Number of Stock |
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price ($) |
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
|
5,924,994 |
|
|
0.30 |
|
Granted (1) |
|
50,000 |
|
|
0.12 |
|
Expired |
|
(1,199,996 |
) |
|
0.39 |
|
Exercised (Note 7(b)(ii)) |
|
(100,000 |
) |
|
0.11
|
|
Balance, July 31, 2013 |
|
4,674,998 |
|
|
0.27 |
|
Expired |
|
(1,141,666 |
) |
|
0.26
|
|
Balance, July 31, 2014 |
|
3,533,332 |
|
|
0.28 |
|
(1) On October 1, 2012, the Company granted a total of 50,000
incentive stock options to an employee of the Company pursuant to the Company's
stock option plan, exercisable at $0.12 for a period of five years and vesting
immediately. The 50,000 options were assigned a value of $5,750 using the
Black-Scholes pricing model based on the following assumptions: dividend yield
of 0%; risk-free interest rate of 1.22%; expected life of 5 years; and
volatility of 184%. During the year ended July 31, 2014, $Nil (2013 - $5,750)
was recorded as stock-based compensation in the consolidated statement of loss
and comprehensive loss.
The weighted average remaining contractual life and weighted
average exercise price of options outstanding and exercisable as at July 31,
2014 as follows:
Options Outstanding and Exercisable
Expiry Date |
|
Number Outstanding and Exercisable |
|
|
Weighted Average Exercise Price ($) |
|
|
Weighted Average Remaining Contractual Life
(years) |
|
March 7, 2015 |
|
1,208,332 |
|
|
0.30 |
|
|
0.60 |
|
January 25, 2016 |
|
1,000,000 |
|
|
0.38 |
|
|
1.49 |
|
July 19, 2016 |
|
1,000,000 |
|
|
0.22 |
|
|
1.97 |
|
January 17, 2017 |
|
275,000 |
|
|
0.11 |
|
|
2.47 |
|
October 1, 2017 |
|
50,000 |
|
|
0.12 |
|
|
3.17 |
|
|
|
3,533,332 |
|
|
0.28
|
|
|
1.42
|
|
|
18 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
10. GENERAL AND
ADMINISTRATIVE
|
|
Years Ended |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Professional fees |
$ |
112,547 |
|
$ |
131,369 |
|
Management fees (Note 13) |
|
56,000 |
|
|
284,167 |
|
Rent |
|
35,428 |
|
|
39,000 |
|
General and administrative |
|
34,793 |
|
|
57,355 |
|
Shareholder relations and filing fees |
|
26,763 |
|
|
54,375 |
|
Loss (gain) on foreign exchange |
|
15,578 |
|
|
(7,881 |
) |
Travel and promotion |
|
8,678 |
|
|
28,054 |
|
Stock-based
compensation (Note 9) |
|
- |
|
|
5,750 |
|
|
|
|
|
|
|
|
|
$ |
289,787 |
|
$ |
592,189 |
|
11. LOSS PER SHARE
The calculation of basic and diluted loss per share for the
year ended July 31, 2014 was based on the loss attributable to common
shareholders of $665,950 (year ended July 31, 2013 - $2,175,624) and the
weighted average number of common shares outstanding of 82,454,934 (year ended
July 31, 2013 77,701,624).
12. INCOME TAXES
The reconciliation of the combined Canadian federal and
provincial statutory income tax rate of 26.5% (2013 26.5%) effective tax rate
is as follows:
|
|
Years ended |
|
|
|
July 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Net loss before recovery of income taxes |
$ |
665,950 |
|
$ |
2,175,624 |
|
Expected income tax recovery |
|
(176,480 |
) |
|
(576,540 |
) |
Difference in foreign tax
rates |
|
(22,140 |
) |
|
(97,290 |
) |
Tax rate changes and other adjustments |
|
(27,320 |
) |
|
- |
|
Non-deductible expenses |
|
129,900 |
|
|
67,030 |
|
Expiry of warrants |
|
156,800 |
|
|
67,600 |
|
Expiry of non-capital losses |
|
36,530 |
|
|
|
|
Change in tax benefits not recognized |
|
(97,290 |
) |
|
539,200 |
|
|
|
|
|
|
|
|
Income tax
recovery reflected in the consolidated statement of operations |
$ |
- |
|
$ |
- |
|
|
19 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
12. INCOME TAXES
(continued)
Unrecognized deferred tax assets
Deferred taxes are provided as a result of temporary
differences that arise due to the differences between the income tax values and
the carrying amount of assets and liabilities. Deferred tax assets have not been
recognized in respect of the following deductible temporary differences:
|
|
Years Ended |
|
|
|
July 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Share issuance costs |
$ |
307,140 |
|
$ |
396,400 |
|
Non-capital losses carried forward |
|
5,451,800 |
|
|
5,724,820 |
|
Brazil non-capital losses |
|
87,490 |
|
|
91,290 |
|
Other deductible
temporary differences |
|
106,640 |
|
|
106,640 |
|
|
|
|
|
|
|
|
|
$ |
5,953,070 |
|
$ |
6,319,150 |
|
The Canadian non-capital loss carry forwards expire as noted in
the table below. Brazil non-capital losses may be carried forward indefinitely
and may be used to offset up to 30% of a Companys taxable income in a tax
period. Share issue and financing costs will be fully amortized in 2017. The
remaining deductible temporary differences may be carried forward indefinitely.
Deferred tax assets have not been recognized in respect of these items because
it is not probable that future taxable profit will be available against which
the group can utilize the benefits therefrom.
The Companys Canadian non-capital tax losses expire as
follows:
2015 |
$ |
323,930
|
|
2026 |
|
574,310 |
|
2027 |
|
561,450 |
|
2028 |
|
771,020 |
|
2029 |
|
646,210 |
|
2030 |
|
700,830 |
|
2031 |
|
747,480 |
|
2032 |
|
641,270 |
|
2033 |
|
485,300 |
|
|
|
|
|
|
$ |
5,451,800 |
|
|
20 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
13. RELATED
PARTY TRANSACTIONS
Related parties include the Board of Directors, close family
members and enterprises that are controlled by these individuals as well as
certain persons performing similar functions.
The Company considers its key management to be its Chairman,
President and Chief Executive Officer, Chief Financial Officer, and General
Manager of MVPR. The remuneration of key management of the Company for the years
ended July 31, 2014 and 2013 was as follows:
|
|
Years Ended |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Management fees |
$ |
56,000 |
|
$ |
284,167 |
|
Exploration and evaluation expenditures |
|
96,603 |
|
|
78,157 |
|
|
|
|
|
|
|
|
|
$ |
152,603 |
|
$ |
362,324 |
|
14. SEGMENTED INFORMATION
The Company operates one operating segment, that being the
exploration and development of mineral properties. No revenue has been generated
by these properties. A summary of assets by geographic area is as follows:
|
|
July 31, 2014 |
|
|
|
Canada |
|
|
Brazil |
|
|
Consolidated |
|
Current assets |
$ |
11,534 |
|
$ |
- |
|
$ |
11,534 |
|
|
|
July
31, 2013 |
|
|
|
Canada |
|
|
Brazil |
|
|
Consolidated |
|
Current assets |
$ |
397,449 |
|
$ |
9,105 |
|
$ |
406,554 |
|
|
21 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
15. COMMITMENTS AND
CONTINGENCIES
(a) Limão Property
(i) Pursuant to the option agreement with Matapi for the
assignment of the Limão mineral rights , Matapi retained a 2% Net Smelter
Royalty (NSR) in respect of the Limão property which may be bought out by the
Company at is sole discretion for payment of approximately $479,000
(BR$1,000,000). Matapi may receive an additional 127,750 common shares of Amerix
if a technical report acceptable to the TSX Venture Exchange evidencing the
existence of at least 1,000,000 ounces of gold (probable reserve) is delivered
in respect of the Limão property.
(ii) As a result of the Agreement entered into on May 14, 2012
the Company is required to make future option payments of cash (BR$900,000) and
Amerix common shares (550,000 shares) over a four year period ending in April
2016, followed by success payments of BR$500,000 for positive feasibility
studies at either of the optioned properties. The first option payment of
BR$100,000 and 100,000 common shares was due in April 2013. In the event of a
production decision at either of the properties, a payment of BR$1,000,000 will
be payable upon reaching commercial production. In addition of 1% Net Gold Sales
Royalty will be payable to the vendors. Due to delays relating to the proposed
new Brazilian mining code, the DNPM has temporarily suspended the granting and
transfer of titles and as a result the vendors have been unable to transfer the
property titles to MVPR. The option payments due in April 2013, and all
subsequent option payments, have been deferred until title to the properties has
been transferred.
All commitments and contingent commitments under all Limão
agreements are required at the option of the Company. Should the Company choose
to not make such payments, any interest in the properties or the mineral rights
would revert back to the vendor.
The Company has submitted to the DNPM in September 2014, a
report of its exploration work, to renew the Limao principal concessions for a
second 3 year exploration period. The Company is awaiting the acknowledgement
from the DNPM of the renewal.
(b) Ouro Roxo Property
The Company has existing obligations to Matapi relating to the
Ouro Roxo properties as follows:
(i) A 2.0% NSR to Matapi, with a buyout of US$200,000 for each
one-quarter of the NSR (0.5%) which may be paid down, in whole or in part, at
any time by the Company; and
(ii) The issue of 322,083 common shares of the Company,
issuable to Matapi upon receipt by the Company of an independent study that
confirms a mineable reserve (in the probable category or better) of at least
2,000,000 ounces of gold on this property.
(c) Operating lease obligation
Effective December 1, 2013 the Company entered into a new lease
agreement for office space with annual lease payments of approximately $18,000,
expiring on July 30, 2016.
|
22 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
15. COMMITMENTS AND
CONTINGENCIES (continued)
(d) Eagle Graphite Corporation proposed transaction
On November 5, 2014 the Company announced that it closed a
private placement (the Amerix Offering) of subscription receipts (the
Subscription Receipts), led by Canaccord Genuity Corp. (the Agent). The
Company also entered into a definitive amalgamation agreement (the Definitive
Agreement) with Eagle Graphite Corporation (Eagle) dated November 5, 2014 in
respect of a proposed merger of Amerix and Eagle (the Transaction), pursuant
to which 9073329 Canada Inc., a wholly-owned newly incorporated subsidiary of
Amerix (Amerix Subco), and Eagle will amalgamate and the outstanding
securities of Eagle will be exchanged, on a one-for-one basis, for securities of
the Company (as constituted post-Transaction, the Company is herein sometimes
referred to as the Resulting Issuer).
In connection with the Transaction, on November 5, 2014, Eagle
closed a private placement (the Eagle Offering) for proceeds of $1,505,000.
The Amerix Offering, the Eagle Offering and the Definitive Agreement are each
discussed in greater detail below.
The Amerix Offering
The Company issued a total of 10,930,000 Subscription Receipts
at a price of $0.10 per Subscription Receipt (the Issue Price) for
gross proceeds of $1,093,000. The Subscription Receipts were issued in
connection with the Transaction, as set forth pursuant to the terms and
conditions of the Definitive Agreement.
In accordance with the terms of the Subscription Receipts, the
Definitive Agreement, and other documentation in relation to the Amerix
Offering, the gross proceeds of the Amerix Offering (the Escrowed Funds) will
be held in escrow on behalf of the holders of the Subscription Receipts pending
the satisfaction of the escrow release conditions (the Escrow Release
Conditions). Upon satisfaction of the Escrow Release Conditions, each
Subscription Receipt will be automatically exercisable into one share of the
Resulting Issuer (each, a Resulting Issuer Share) which will qualify as a
flow-through share within the meaning of the Income Tax Act (Canada),
and the Escrowed Funds shall be released to the Resulting Issuer from escrow.
The Escrow Release Conditions for the Amerix Offering will
include the completion of the Transaction, which itself is subject to a number
of conditions, including the receipt of conditional approval for trading on the
TSX Venture Exchange (the TSXV) in respect of the Resulting Issuer Shares
ultimately underlying the Subscription Receipts. Assuming satisfaction of the
Escrow Release Conditions, the proceeds of the Amerix Offering will be used for
exploration expenditures by the Resulting Issuer, which will constitute Canadian
exploration expenses (within the meaning of the Income Tax Act (Canada))
and will be renounced in respect of the Companys 2014 taxation year.
In the event that the Escrow Release Conditions are not
satisfied on or before 5:00 p.m. (Toronto time) on December 31, 2014 (the
Escrow Deadline), the unexercised Subscription Receipts will immediately
become null, void and of no further force or effect and, as soon as reasonably
possible, and in any event within five (5) business days following the Escrow
Deadline, the Escrowed Funds shall be distributed to the holders of Subscription
Receipts such that each purchaser will receive an amount equal to the aggregate
Issue Price for such purchasers unexercised Subscription Receipts without
interest or deduction.
In consideration for its services, the Agent received a cash
commission equal to 7% of the gross proceeds of the Amerix Offering, as well as
broker warrants to purchase an aggregate of 765,100 Resulting Issuer Shares,
|
23 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
15. COMMITMENTS AND
CONTINGENCIES (continued)
(d) Eagle Graphite Corporation proposed transaction
(continued)
representing 7% of the number of Subscription Receipts issued
pursuant to the Amerix Offering, at the Issue Price for a period of 24 months
from closing of the Amerix Offering.
The Escrowed Funds will be held by Equity Financial Trust
Company (the Escrow Agent).
In connection with the Transaction, Amerix will, effective
immediately prior to the completion of the Transaction, consolidate its
outstanding common shares on the basis of one (1) new share for twenty (20) old
shares (the Consolidation). For greater clarity, the Resulting Issuer Shares
issuable upon exercise of the Subscription Receipts are the post-Consolidation
shares of Amerix.
The Eagle Offering
In connection with the Transaction and concurrent with the
Amerix Offering, Eagle has completed a best efforts private placement offering
(the Eagle Offering) of 15,050,000 subscription receipts of Eagle (the Eagle
Subscription Receipts) at a price of $0.10 per Eagle Subscription Receipt for
gross proceeds of $1,505,000. Each Eagle Subscription Receipt is exercisable
into one unit of Eagle (each, a Unit) upon the satisfaction of the escrow
release conditions applicable to the Units (the Eagle Escrow Release
Conditions).
The Eagle Escrow Release Conditions include (a) the
satisfaction or waiver of all conditions precedent to the Transaction in
accordance with the terms of the Definitive Agreement; (b) the receipt of
conditional approval for the Transaction from the TSXV, including the listing of
the Resulting Issuer Shares issued and issuable under the Eagle Offering; (c)
Eagle not being in breach or default of any of its covenants or obligations
under the agency agreement entered into in connection with the Eagle Offering in
any material respect except those breaches or defaults that have been cured by
Eagle or waived by the Agent; (d) the Transaction being completed (other than
the amalgamation taking effect) on substantially the terms which the Agent
approved prior to the closing of the Eagle Offering (unless otherwise agreed by
the Agent); and (e) no material change having occurred in respect of Eagle or
the Resulting Issuer.
Each Unit consists of one common share of Eagle (each, an
Eagle Share) and one-half of one common share purchase warrant (each whole
warrant, an Eagle Warrant). Each Eagle Warrant is exercisable by the holder
thereof to acquire one Eagle Share at a price of $0.15 per share for a period of
60 months following the exercise of the Eagle Subscription Receipts. The Eagle
Shares and Eagle Warrants will be exchanged on a one-for-one basis for Resulting
Issuer Shares and common share purchase warrants of the Resulting Issuer,
respectively, on the same economic terms, upon the completion of the
Transaction. The net proceeds of the Eagle Offering are anticipated to be used
for ongoing exploration and development of Eagles Black Crystal graphite
project and for working capital and general corporate purposes.
In connection with the Transaction, Eagle will, effective
immediately prior to the completion of the Transaction, split its outstanding
common shares on the basis of one (1) old share for twenty (20) new shares (the
Stock Split). For greater clarity, the Eagle Shares partially underlying the
Units issuable upon exercise of the Eagle Subscription Receipts are the
post-Stock Split shares of Eagle.
The proceeds of the Eagle Offering are in addition to bridge
financing previously secured by Eagle in the form of promissory notes with an
aggregate principal value of $700,000 (the Notes). The Notes are due June 22,
2015,
|
24 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
15. COMMITMENTS AND
CONTINGENCIES (continued)
(d) Eagle Graphite Corporation proposed transaction
(continued) and are automatically convertible into up to 7,840,000 Eagle
Shares and up to 3,920,000 Eagle Warrants immediately prior to the closing of
the Transaction.
The Definitive Agreement
On November 5, 2014, the Company, Eagle, and Amerix Subco
entered into the Definitive Agreement. Subject to regulatory and other approvals
which may be required and the satisfaction of other conditions contained in the
Definitive Agreement, the merger will occur via a reverse takeover under the
policies of the TSXV. Pursuant to the terms of the Definitive Agreement, Amerix
Subco will amalgamate with Eagle, and all outstanding securities of Eagle will
be exchanged, on a one-for-one basis, for securities of the Resulting Issuer.
Any outstanding convertible securities of Eagle, including the Eagle Warrants,
will be exchanged for convertible securities of the Resulting Issuer on similar
economic terms. As the Transaction requires the approval of the shareholders of
Amerix, the Company has called a special meeting of shareholders to be held on
December 17, 2014. In connection with the meeting, Amerix will mail an
information circular to its shareholders describing the Transaction, Eagle and
other information prescribed under applicable securities laws and TSXV policies.
Capital Structure of the Resulting Issuer
Amerix currently has 82,454,934 common shares issued and
outstanding on a pre-Consolidation basis (approximately 4,122,746 common shares
on a post-Consolidation basis). Eagle is expected to have approximately
11,409,940 common shares issued and outstanding on a pre-Stock Split basis
(approximately 228,198,800 Eagle Shares on a post-Stock Split basis). Eagle is
currently controlled by Latitude Minerals Inc. (Latitude), a corporation
incorporated under the Business Corporations Act (British Columbia),
which holds approximately 91% of the outstanding shares of Eagle. Latitude is in
turn controlled by the President of Eagle (as to approximately 63%).
Upon completion of the Transaction, former shareholders of
Eagle will receive, for each Eagle Share held, one (1) Resulting Issuer Share.
Assuming satisfaction of the Escrow Release Conditions and the completion of the
Amerix Offering and the Eagle Offering for aggregate gross proceeds of up to
$1,100,000 and up to $2,000,000, respectively, upon the completion of the
Transaction, as of the date hereof there would be approximately 263,321,546
Resulting Issuer Shares issued and outstanding, and that:
|
(a) |
the former shareholders of Eagle will hold an aggregate
of approximately 228,198,800 Resulting Issuer Shares representing
approximately 88.3% of the issued and outstanding Resulting Issuer
Shares; |
|
|
|
|
(b) |
the current shareholders of Amerix will hold an aggregate
of approximately 4,122,746 Resulting Issuer Shares representing
approximately 1.6% of the outstanding Resulting Issuer Shares; |
|
|
|
|
(c) |
purchasers under the Amerix Offering will hold an
aggregate of approximately 11,000,000 Resulting Issuer Shares representing
approximately 4.3% of the outstanding Resulting Issuer Shares;
and |
|
25 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2014 and 2013 |
(Expressed in Canadian Dollars) |
|
15. COMMITMENTS AND
CONTINGENCIES (continued)
(d) Eagle Graphite Corporation proposed transaction
(continued)
|
(d) |
purchasers under the Eagle Offering will hold an
aggregate of approximately 15,000,000 Resulting Issuer Shares representing
approximately 5.8% of the outstanding Resulting Issuer
Shares. |
The number of Resulting Issuer Shares, and the percentages
listed above, is subject to change depending on the actual gross proceeds of the
Amerix Offering, the Eagle Offering and any shares issuable upon conversion of
Eagle convertible securities prior to the date of completion of the
Transaction.
Closing Conditions
Completion of the Transaction is subject to a number of
conditions, including but not limited to the satisfaction of Amerix and Eagle in
respect of the due diligence investigations to be undertaken by each party, the
receipt of approval of the directors of each of Amerix and Eagle, the approval
of the shareholders of Eagle, the receipt of approval of the shareholders of
Amerix, and the receipt of all necessary approvals of all regulatory bodies
having jurisdiction in connection with the Transaction, including the TSXV. The
Transaction cannot close until the required conditions are satisfied or waived,
and there can be no assurance that the Transaction will be completed as proposed
or at all.
|
26 |
|
|
AMERIX PRECIOUS METALS CORPORATION
|
(A Development Stage Company)
|
CONSOLIDATED FINANCIAL STATEMENTS
|
(EXPRESSED IN CANADIAN DOLLARS)
|
YEARS ENDED JULY 31, 2013 AND 2012
|
|
MANAGEMENT'S RESPONSIBILITY FOR
CONSOLIDATED
FINANCIAL REPORTING
The accompanying audited annual consolidated financial
statements of Amerix Precious Metals Corporation [the "Company"] are the
responsibility of the management and Board of Directors of the Company.
The audited annual consolidated financial statements have been
prepared by management, on behalf of the Board of Directors, in accordance with
the accounting policies disclosed in the notes to the audited annual
consolidated financial statements. Where necessary, management has made informed
judgments and estimates in accounting for transactions which were not complete
at the statement of financial position date. In the opinion of management, the
audited annual consolidated financial statements have been prepared within
acceptable limits of materiality and are in compliance with all applicable
International Financial Reporting Standards.
Management has established systems of internal control over the
financial reporting process, which are designed to provide reasonable assurance
that relevant and reliable financial information is produced.
The Board of Directors is responsible for reviewing and
approving the audited annual consolidated financial statements together with
other financial information of the Company and for ensuring that management
fulfills its financial reporting responsibility. An Audit Committee assists the
Board of Directors in fulfilling this responsibility. The Audit Committee meets
with management to review the financial reporting process and the audited annual
consolidated financial statements together with other financial information of
the Company. The Audit Committee reports its findings to the Board of Directors
for its consideration in approving the audited annual consolidated financial
statements together with other financial information of the Company for issuance
to the shareholders.
Management recognizes its responsibility for conducting the
Companys affairs in compliance with established financial standards, and
applicable laws and regulations, and for maintaining proper standards of conduct
for its activities.
(signed) Steven Brunelle |
(signed) Daniel Hamilton |
Steven Brunelle |
Daniel Hamilton |
President and Chief Executive Officer |
Chief Financial Officer |
|
|
Toronto, Canada |
|
November 25, 2013 |
|
Independent Auditor's Report
To the Shareholders of Amerix Precious Metals Corporation
We have audited the accompanying consolidated financial
statements of Amerix Precious Metals Corporation, which comprise the
consolidated statement of financial position as at July 31, 2013, and the
consolidated statements of loss and comprehensive loss, changes in shareholders'
equity, and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards and for such internal control as
management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
Auditor's Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We conducted our audit in
accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Amerix Precious
Metals Corporation as at July 31, 2013, and its financial performance and its
cash flows for the year then ended in accordance with International Financial
Reporting Standards.
|
ACCOUNTING CONSULTING TAX 701
EVANS AVENUE, 8TH FLOOR, TORONTO ON, M9C 1A3 P:
416.626.6000 F: 416.626.8650 MNP.ca |
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 in
the consolidated financial statements which describes uncertainty about the
Company's ability to continue as a going concern.
Other matter
The consolidated financial statements as at July 31, 2012 and
for the year then ended were audited by MSCM LLP of Toronto, Canada, prior to
its merger with MNP LLP. MSCM LLP expressed an unmodified opinion on those
statements on November 23, 2012.
|
|
|
Chartered Professional Accountants |
|
Licensed Public Accountants
|
Toronto, Canada
November 25, 2013
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage Company)
Consolidated
Statements of Financial Position
(Expressed in Canadian Dollars)
|
|
July
31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents (Note 6) |
$ |
350,099 |
|
$ |
753,313 |
|
Other receivables (Note 7) |
|
33,946 |
|
|
21,422 |
|
Prepaid
expenses |
|
22,509 |
|
|
17,655 |
|
|
|
|
|
|
|
|
|
$ |
406,554 |
|
$ |
792,390 |
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
257,396 |
|
$ |
467,246 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Share capital (Note 8(b)) |
|
23,775,457 |
|
|
22,373,248 |
|
Reserves |
|
2,740,373 |
|
|
2,971,872 |
|
Accumulated
deficit |
|
(26,366,672 |
) |
|
(25,019,976 |
) |
|
|
|
|
|
|
|
|
|
149,158 |
|
|
325,144 |
|
|
|
|
|
|
|
|
|
$ |
406,554 |
|
$ |
792,390 |
|
Nature of Business and Going Concern (Note 1)
Commitments and Contingencies (Note 16)
Approved by the Board:
"Steve Brunelle", Director
|
"Robert Crombie", Director
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
1 |
|
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage Company)
Consolidated
Statements of Loss and Comprehensive Loss
(Expressed in Canadian
Dollars)
Years Ended July 31, |
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Exploration and evaluation expenditures (Note 5) |
$ |
1,586,176 |
|
$ |
2,257,145 |
|
General and administrative (Note 11) |
|
592,189 |
|
|
708,902 |
|
|
|
|
|
|
|
|
Loss before interest income |
|
(2,178,365 |
) |
|
(2,966,047 |
) |
Interest Income
|
|
2,741 |
|
|
18,185 |
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
$ |
(2,175,624 |
) |
$ |
(2,947,862 |
) |
|
|
|
|
|
|
|
Basic and diluted loss per common share (Note 12)
|
$ |
(0.03 |
) |
$ |
(0.05 |
) |
|
|
|
|
|
|
|
Weighted average common shares outstanding (Note 12)
|
|
77,701,624 |
|
|
63,693,434 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
2 |
|
AMERIX PRECIOUS METALS CORPORATION
|
(A Development Stage Company) |
Consolidated Statements of Changes in Shareholders'
Equity |
(Expressed in
Canadian Dollars) |
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Settled |
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
Share-based |
|
|
Accumulated |
|
|
|
|
|
|
Share Capital |
|
|
Reserve |
|
|
Payments Reserve |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2011 |
$ |
22,373,248 |
|
$ |
1,876,166 |
|
$ |
1,524,492 |
|
$ |
(22,584,200 |
) |
$ |
3,189,706 |
|
Share-based compensation |
|
- |
|
|
- |
|
|
83,300 |
|
|
- |
|
|
83,300 |
|
Expiraton of options |
|
- |
|
|
- |
|
|
(329,541 |
) |
|
329,541 |
|
|
- |
|
Expiration of warrants |
|
- |
|
|
(182,545 |
) |
|
- |
|
|
182,545 |
|
|
- |
|
Net loss and comprehensive loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
(2,947,862 |
) |
|
(2,947,862 |
) |
Balance, July, 31, 2012 |
|
22,373,248 |
|
|
1,693,621 |
|
|
1,278,251 |
|
|
(25,019,976 |
) |
|
325,144 |
|
Private placements |
|
2,239,380 |
|
|
- |
|
|
- |
|
|
- |
|
|
2,239,380 |
|
Fair value of warrants issued |
|
(594,426 |
) |
|
594,426 |
|
|
- |
|
|
- |
|
|
- |
|
Fair value of broker warrants issued |
|
(103,105 |
) |
|
103,105 |
|
|
- |
|
|
- |
|
|
- |
|
Share issuance costs |
|
(161,040 |
) |
|
(95,452 |
) |
|
- |
|
|
- |
|
|
(256,492 |
) |
Share-based compensation |
|
- |
|
|
- |
|
|
5,750 |
|
|
- |
|
|
5,750 |
|
Expiration of options |
|
- |
|
|
- |
|
|
(318,725 |
) |
|
318,725 |
|
|
- |
|
Exercise of options |
|
21,400 |
|
|
- |
|
|
(10,400 |
) |
|
- |
|
|
11,000 |
|
Expiration of warrants |
|
- |
|
|
(510,203 |
) |
|
- |
|
|
510,203 |
|
|
- |
|
Net loss and comprehensive loss for the year |
|
- |
|
|
- |
|
|
- |
|
|
(2,175,624 |
) |
|
(2,175,624 |
) |
Balance, July
31, 2013 |
$ |
23,775,457 |
|
$ |
1,785,497 |
|
$ |
954,876 |
|
$ |
(26,366,672 |
) |
$ |
149,158 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
3 |
|
AMERIX PRECIOUS METALS CORPORATION
(A Development Stage Company)
Consolidated
Statements of Cash Flows
(Expressed in Canadian Dollars)
Years Ended July 31, |
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
Net loss for the year |
$ |
(2,175,624 |
) |
$ |
(2,947,862 |
) |
Items not affecting cash: |
|
|
|
|
|
|
Share-based compensation |
|
5,750 |
|
|
83,300 |
|
Unrealized (gain) loss on
foreign exchange |
|
(7,881 |
) |
|
21,389 |
|
|
|
(2,177,755 |
) |
|
(2,843,173 |
) |
Change in non-cash operating
working capital: |
|
|
|
|
|
|
(Increase) decrease in other
receivables and prepaid expenses |
|
(17,378 |
) |
|
11,715 |
|
(Decrease) increase in accounts
payable and accrued liabilities |
|
(209,850 |
) |
|
292,237 |
|
|
|
(2,404,983 |
) |
|
(2,539,221 |
) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Share capital issued, net of
share issue costs |
|
1,982,888 |
|
|
- |
|
Cash
received from exercise of options |
|
11,000 |
|
|
- |
|
|
|
1,993,888 |
|
|
- |
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(411,095 |
) |
|
(2,539,221 |
) |
Cash and cash equivalents, beginning of the year |
|
753,313 |
|
|
3,313,923 |
|
Effect of exchange rate changes on cash
held |
|
|
|
|
|
|
in
foreign currencies |
|
7,881 |
|
|
(21,389 |
) |
|
|
|
|
|
|
|
Cash and cash
equivalents, end of the year |
$ |
350,099 |
|
$ |
753,313 |
|
|
|
|
|
|
|
|
Cash and cash equivalents consist of: |
|
|
|
|
|
|
Cash |
$ |
350,099 |
|
$ |
248,333 |
|
Cash
equivalents |
|
-
|
|
|
504,980 |
|
|
$ |
350,099 |
|
$ |
753,313 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
|
4 |
|
AMERIX PRECIOUS METALS CORPORATION
|
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
1. NATURE OF
BUSINESS AND GOING CONCERN
Amerix Precious Metals Corporation (the "Company" or "Amerix"),
a publicly traded company listed on the TSX Venture Exchange and the Frankfurt
Stock Exchange, is involved in the acquisition, exploration and development of
mineral properties. The Company was originally incorporated under the Company
Act of British Columbia and completed its continuance in the Province of Ontario
effective May 31, 2004. The Company has not earned any income. The primary
office of the Company is located at 40 University Avenue, Suite 710, Toronto,
Ontario, M5J 1T1, Canada.
The accompanying consolidated financial statements have been
prepared on the basis of a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. The
Company is currently in the exploration stage and has not commenced commercial
operations. As at July 31, 2013, the Company has an accumulated deficit of
$26,366,672 and has not yet generated positive cash flows from operations.
In assessing whether the going concern assumption is
appropriate management takes into account all available information about the
foreseeable future, which is at least, but not limited to, twelve months from
the end of the reporting period. The Companys ability to continue operations
and fund its mining interest expenditures is dependent on managements ability
to secure additional financing; this casts significant doubt about the Companys
ability to continue as a going concern. Management is actively pursuing such
additional sources of financing, and while it has been successful in doing so in
the past, there can be no assurance it will be able to do so in the future. The
consolidated financial statements do not give effect to the required adjustments
to the carrying amounts and classifications of assets and liabilities should the
Company be unable to continue as a going concern.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
The Company applies International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB") and
interpretations issued by the International Financial Reporting Interpretation
Committee ("IFRIC").
The policies applied in these audited consolidated financial
statements are based on IFRS issued and outstanding as of November 25, 2013, the
date the Board of Directors approved the statements.
(b) Basis of consolidation
These consolidated financial statements incorporate the
financial statements of the Company and its subsidiaries. All intercompany
transactions, balances, income and expenses are eliminated upon consolidation.
The following companies have been consolidated within the
consolidated financial statements:
Company |
Registered |
Principal activity |
Brazourocay Corporation |
Cayman Islands |
Holding company |
S.A. Ventures I Limited |
Cayman Islands |
Holding company |
S.A. Ventures II Limited |
Cayman Islands |
Holding company |
Mineração Vila Porto Rico Ltda. |
Brazil, South America |
Exploration company |
|
5 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Functional and reporting currency
The functional and reporting currency of the Company and the
Company's foreign subsidiaries, as determined by management, is the Canadian
Dollar. For the purpose of the consolidated financial statements, the results
and financial position are expressed in Canadian Dollars.
Transactions in currencies other than the functional currency
are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation of monetary
assets and liabilities denominated in foreign currencies at the period end
exchange rates are recognized in profit and loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated.
(d) Financial instruments
The Companys financial instruments consist of the following:
Financial assets:
|
Classification: |
Cash and cash equivalents |
At fair value through profit and loss ("FVTPL") |
Other receivables
|
Loans
and receivables |
|
|
Financial
liabilities: |
Classification: |
Accounts payable
and accrued liabilities |
Other
financial liabilities |
FVTPL
This category comprises assets acquired or
incurred for the purpose of selling or repurchasing it in the near future. The
Company measures financial assets at FVTPL at fair value, recognizing any gains
or losses arising from this measurement in the statement of loss and
comprehensive loss.
Loans and receivables
Loans and receivables
are financial assets with fixed or determinable payments that are not quoted in
an active market. Such assets are initially recognized at fair value plus any
directly attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortized cost using the effective
interest method, less any impairment losses.
Other financial liabilities
Other financial
liabilities are recognized initially at fair value net of any directly
attributable transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortized cost using the effective
interest method. The effective interest method is a method of calculating the
amortized cost of a financial instrument and of allocating interest and any
transaction costs over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments through the expected
life of the financial instrument or (where appropriate) to the net carrying
amount on initial recognition. Other financial liabilities are derecognized when
the obligations are discharged, cancelled or expired.
|
6 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Financial instruments (continued)
Impairment of financial assets:
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are impaired when there is
objective evidence that, as a result of one or more events that occurred after
the initial recognition of the financial assets, the estimated future cash flows
of the financial assets have been negatively impacted. Evidence of impairment
could include:
|
significant financial difficulty
of the issuer or counterparty; or |
|
default or delinquency in
interest or principal payments; or |
|
the likelihood that the borrower
will enter bankruptcy or financial re-organization. |
The carrying amount of financial assets is reduced by any
impairment loss directly for all financial assets with the exception of amounts
receivable, where the carrying amount is reduced through the use of an allowance
account. When an account receivable is considered uncollectible, it is written
off against the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, the previously recognized impairment loss
is reversed through the statement of loss and comprehensive loss to the extent
that the carrying amount of the financial asset at the date the impairment is
reversed does not exceed what the amortized cost would have been had the
impairment not been recognized.
Financial instruments recorded at fair value:
Financial instruments recorded at fair value on the
consolidated statements of financial position are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
|
Level 1 - |
valuation based on quoted prices (unadjusted) in active
markets for identical assets or liabilities; |
|
Level 2 - |
valuation techniques based on inputs other than quoted
prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices);
and |
|
Level 3 - |
valuation techniques using inputs for the asset or
liability that are not based on observable market data (unobservable
inputs). |
As at July 31, 2013 and July 31, 2012, the fair value of all
the Companys financial instruments approximates the carrying value, due to
their short-term nature
|
7 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Impairment of non-financial assets
At the end of each reporting period, the Company reviews the
carrying amounts of its non-financial assets with finite lives to determine
whether there is any indication that those assets are impaired. Where such an
indication exists, the recoverable amount of the asset is estimated. For the
purpose of measuring recoverable amounts, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units or CGUs). The recoverable amount is the higher of an assets fair value
less costs to sell and value in use (being the present value of the expected
future cash flows of the relevant asset or CGU). An impairment loss is
recognized for the amount by which the assets carrying amount exceeds its
recoverable amount.
(f) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly
liquid short-term guaranteed investment certificates with original maturities at
the date of purchase of three months or less.
(g) Exploration and evaluation expenditures
The Company expenses exploration and evaluation expenditures as
incurred in mineral properties not commercially viable and financially feasible.
Exploration and evaluation expenditures include property option payments and
evaluation activities.
Once a project has been established as commercially viable and
technically feasible, related development expenditures are capitalized. This
includes costs incurred in preparing the site for mining operations.
Capitalization ceases when the mine is capable of commercial
production, with the exception of development costs that give rise to a future
benefit.
Exploration and evaluation expenditures are capitalized if the
Company can demonstrate that these expenditures meet the criteria of an
identifiable intangible asset. To date, no such exploration and evaluation
expenditures have been identified and capitalized.
(h) Provisions
A provision is recognized when the Company has a present legal
or constructive obligation as a result of a past event, it is probable that an
outflow of economic benefits will be required to settle the obligation, and the
amount of the obligation can be reliably estimated. If the effect is material,
provisions are determined by discounting the expected future cash flows to
present value.
(i) Share-based payment transactions
The fair value of share options granted to employees is
recognized as an expense over the vesting period using the graded vesting method
with a corresponding increase in equity. An individual is classified as an
employee when the individual is an employee for legal or tax purposes (direct
employee) or provides services similar to those performed by a direct employee,
including directors of the Company.
|
8 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Share-based payment transactions (continued)
The fair value is measured at the grant date and recognized
over the period during which the options vest. The fair value of the options
granted is measured using the Black-Scholes option-pricing model, taking into
account the terms and conditions upon which the options were granted. At the end
of each reporting period, the amount recognized as an expense is adjusted to
reflect the actual number of share options that are expected to vest. Stock
option expense incorporates an expected forfeiture rate.
(j) Income taxes
Income tax comprises current and deferred tax. Income tax is
recognized in the statement of loss and comprehensive loss except to the extent
that it relates to items recognized directly in equity, in which case the income
tax is also recognized directly in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted, at the end of
the reporting period, and any adjustment to tax payable in respect of previous
years.
In general, deferred tax is recognized in respect of temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. Deferred tax is determined on a
non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the statement of financial position date and are
expected to apply when the deferred tax asset or liability is settled. Deferred
tax assets are recognized to the extent that it is probable that the assets can
be recovered.
Deferred tax is provided on temporary differences arising on
investments in subsidiaries and associates, except, in the case of subsidiaries,
where the timing of the reversal of the temporary difference is controlled by
the Company and it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax assets and liabilities are presented as
non-current.
(k) Restoration, rehabilitation and environmental
obligations
A legal or constructive obligation to incur restoration,
rehabilitation and environmental costs may arise when environmental disturbance
is caused by the exploration, development or ongoing production of a mineral
property interest. Such costs are discounted to their net present value and are
provided for and capitalized to the carrying amount of the asset, as soon as the
obligation to incur such costs arises. Discount rates using a pretax rate that
reflects the time value of money are used to calculate the net present value.
These costs are charged against profit or loss over the economic life of the
related asset, through amortization using either a unit-of-production or the
straight-line method as appropriate. The related liability is adjusted for each
period for the unwinding of the discount rate and for changes to the current
market-based discount rate, amount or timing of the underlying cash flows needed
to settle the obligation.
The Company had no material restoration, rehabilitation and
environmental costs as at July 31, 2013 and July 31, 2012 as the disturbance to
date is minimal.
|
9 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Loss per share
The Company presents basic and diluted loss per share data for
its common shares, calculated by dividing loss attributable to common
shareholders of the Company by the weighted average number of common shares
outstanding during the period. The treasury stock method is used to arrive at
the diluted loss per share, which determined by adjusting the loss attributable
to common shareholders and the weighted average number common shares outstanding
for the effects of all warrants and options outstanding that may add to the
total number of common shares. The Company's diluted loss per share does not
include the effect of stock options and warrants as they are anti-dilutive.
(m) Significant accounting judgments and estimates
The preparation of these consolidated financial statements
requires management to make certain estimates, judgments and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of expenses during the reporting
period. Actual outcomes could differ from these estimates. These consolidated
financial statements include estimates that, by their nature, are uncertain The
impacts of such estimates are pervasive throughout the consolidated financial
statements, and may require accounting adjustments based on future occurrences.
Revisions to accounting estimates are recognized in period in which the estimate
is revised and future periods if the revision affects both current and future
periods These estimates are based on historical experience, current and future
economic conditions and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
(n) New accounting standards and interpretations
Certain pronouncements were issued by the IASB or the IFRIC
that are mandatory for future accounting periods Many are not applicable to or
do not have a significant impact on Amerix and have been excluded from the table
below. The following have not yet been adopted and are being evaluated to
determine their impact on Amerix.
(i) IFRS 9 Financial instruments (IFRS 9) was issued by the
IASB in October 2010 and will replace IAS Financial Instruments: Recognition and
Measurement (IAS 39). IFRS 9 uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value, replacing the
multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity
manages its financial instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. Most of the
requirements in IAS 39 classification and measurement of financial liabilities
were carried forward unchanged to IFRS 9. The new standard also requires a
single impairment method to be used, replacing the multiple impairment methods
in IAS 39. The IASB has not yet determined an effective date for this standard.
(ii) IFRS 10 Consolidated financial statements (IFRS 10)
was issued by the IASB in May 2011. IFRS 10 is new standard which identifies the
concept of control as the determining factor in assessing whether an entity
should be included in the consolidated financial statements of the parent
company. Control is comprised of three elements: power over an investee;
exposure to variable returns from an investee; and the ability to use power
affect the reporting entitys returns. IFRS 10 is effective for annual periods
beginning on or after January 1, 2013 Earlier adoption is permitted.
|
10 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(n) New accounting standards and interpretations (continued)
(iii) IFRS 11 Joint arrangements (IFRS 11) was issued by
the IASB in May 2011. IFRS 11 is a new standard which focuses on classifying
joint arrangements by their rights and obligations rather than their legal form.
Entities are classified into two groups: parties having rights to the assets and
obligations for the liabilities of an arrangement, and rights to the net assets
of an arrangement. Entities in the former case account for assets, liabilities,
revenues and expenses in accordance with the arrangement, whereas entities in
the latter case account for the arrangement using the equity method. IFRS 11 is
effective for annual periods beginning on or after January 1, 2013. Earlier
application is permitted.
(iv) IFRS 12 Disclosure of interests in other entities (IFRS
12) was issued by the IASB in May 2011. IFRS 12 is a new standard which
provides disclosure requirements for entities reporting interests in other
entities, including joint arrangements, special purpose vehicles, and off
balance sheet vehicles. IFRS 12 is effective for annual periods beginning on or
after January 1, 2013. Earlier application is permitted.
(v) IFRS 13 Fair value measurement (IFRS 13) was issued by
the IASB in May 2011. IFRS 13 is a new standard which provides a precise
definition of fair value and a single source of fair value measurement
considerations for use across IFRSs. The key points of IFRS 13 are as follows:
|
fair value is measured using the price in a principal
market for the asset or liability, or in the absence of a principal
market, the most advantageous market; |
|
financial assets and liabilities with offsetting
positions in market risks or counterparty credit risks can be measured on
the basis of an entitys net risk exposure; |
|
disclosure regarding the fair value hierarchy has been
moved from IFRS 7 to IFRS 13, and further guidance has been added to the
determination of classes of assets and liabilities; |
|
a quantitative sensitivity analysis must be provided for
financial instruments measured at fair value; |
|
a narrative must be provided discussing the sensitivity
of fair value measurements categorized under Level 3 of the fair value
hierarchy to significant unobservable inputs; and |
|
information must be provided on an entitys valuation
processes for fair value measurements categorized under Level 3 of the
fair value hierarchy. |
IFRS 13 is effective for annual periods beginning on or after
January 1, 2013. Earlier application is permitted.
(vi) IAS 1 Presentation of financial statements (IAS 1) was
amended by the IASB in June 2011 in order to align the presentation of items in
other comprehensive income with US GAAP standards. Items in other comprehensive
income will be required to be presented in two categories: items that might be
reclassified into profit or loss and those that will not be reclassified. The
flexibility to present a statement of comprehensive income as one statement or
two separate statements of profit and loss and other comprehensive income
remains unchanged. The amendments to IAS 1 are effective for annual periods
beginning on or after July 1, 2012.
The adoption of this standard has had no impact on the
Companys financial position or performance.
|
11 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
3. CAPITAL
MANAGEMENT
The Company manages its capital with the following objectives:
(i) |
To ensure sufficient financial flexibility to achieve the
ongoing business objectives including funding of future growth
opportunities, and pursuit of accretive acquisitions; and |
(ii) |
To maximize shareholder return through enhancing the
share value. |
The Company monitors its capital structure and makes
adjustments according to market conditions in an effort to meet its objectives
given the current outlook of the business and industry in general. The Company
may manage its capital structure by issuing new shares, repurchasing outstanding
shares, adjusting capital spending, or disposing of assets. The capital
structure is reviewed by Management and the Board of Directors on an ongoing
basis.
The Company considers its capital to be equity, comprising
share capital, reserves and accumulated deficit which at July 31, 2013 totaled
$149,158 (July 31, 2012 - $325,144).
The Company manages capital through its financial and
operational forecasting processes. The Company reviews its working capital and
forecasts its future cash flows based on operating expenditures, and other
investing and financing activities. The forecast is regularly updated based on
activities related to its mineral properties. Selected information is frequently
provided to the Board of Directors of the Company. The Company's capital
management objectives, policies and processes have remained unchanged during the
year ended July 31, 2013.
The Company is not subject to any capital requirements imposed
by a regulator or lending institution.
4. FINANCIAL
RISK FACTORS
The Companys activities expose it to a variety of financial
risks: credit risk, liquidity risk and market risk including interest rate,
commodity price and foreign exchange rate risk.
Risk management is carried out by the Company's management team
with guidance from the Audit Committee under policies approved by the Board of
Directors. The Board of Directors also provides regular guidance for overall
risk management.
Credit Risk
Credit risk is the risk of loss associated with a
counterpartys inability to fulfill its payment obligations. The Company's
credit risk is primarily attributable to cash, cash equivalents and other
receivables. Cash and cash equivalents are held with reputable financial
institutions which are closely monitored by management. Management believes that
the credit risk concentration with respect to financial instruments included in
cash and cash equivalents is minimal.
Liquidity Risk
The Company's approach to managing liquidity risk is to ensure
that it will have sufficient liquidity to meet liabilities when due. As at July
31, 2013, the Company had working capital of $149,158 (July 31, 2012 - $325,144)
(Note1). All of the Company's financial liabilities have contractual maturities
of less than 60 days and are subject to normal trade terms.
|
12 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
4. FINANCIAL
RISK FACTORS (Continued)
Market Risk
Interest Rate Risk
Interest
rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market interest rates. The Company
has minimal cash balances.
Commodity Price Risk
The
Company is exposed to commodity price risk. Commodity price risk is defined as
the potential adverse impact on earnings and economic value due to commodity
price movements and volatilities. The Company closely monitors commodity price
risk as it relates to precious metals to determine the appropriate course of
action to be taken by the Company.
Foreign Currency Risk
The
Company's reporting and functional currency is the Canadian dollar and major
purchases are transacted in Canadian dollars, US dollars and Brazilian Reals.
The Company funds major exploration expenses in Brazil. Accordingly, it
maintains Brazilian Real bank accounts in Brazil. Management does not hedge its
foreign exchange risk.
Sensitivity Analysis
The Company has, for accounting purposes, designated its cash
and cash equivalents as FVTPL ("fair value through profit and loss"), which is
measured at fair value. Other receivables are classified for accounting purposes
as loans and receivables, which are measured at amortized cost which equals fair
value. Accounts payable and accrued liabilities are classified for accounting
purposes as other financial liabilities, which are measured at amortized cost
which also equals fair value.
Based on management's knowledge and experience of the financial
markets, the Company believes the following movements are "reasonably possible"
over a twelve month period:
(i) |
The Company is exposed to interest rate risk on
fluctuations in interest rate on its cash equivalents. An interest rate
fluctuation of 1% would not have resulted in significant fluctuation in
the interest income earned during the year ended July 31, 2013. |
|
|
(ii) |
The Company is exposed to foreign currency risk on
fluctuations related to cash, and accounts payable and accrued liabilities
that are denominated in US dollars and Brazilian Reals. As at July 31,
2013, sensitivity to a plus or minus 5% change in the foreign exchange
rate would affect net loss and comprehensive loss by approximately $10,000
with all other variables held constant. |
|
13 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
4. FINANCIAL
RISK FACTORS (Continued) Sensitivity Analysis (continued)
(iii) |
Commodity price risk could adversely affect the Company.
In particular, the Companys future profitability and viability of
development depends upon the world market price of precious metals.
Precious metal prices have fluctuated widely in recent years. There is no
assurance that, even if commercial quantities of precious metals may be
produced in the future, a profitable market will exist for them. A decline
in the market price of precious metals will also require the Company to
reduce its mineral resources, which could have a material and adverse
effect on the Companys value. As of July 31, 2013, the Company was not a
precious metals producer. As a result, commodity price risk may affect the
completion of future equity transactions such as equity offerings and the
exercise of stock options and warrants. This may also affect the Company's
liquidity and its ability to meet its ongoing
obligations. |
5.
EXPLORATION AND EVALUATION EXPENDITURES ON MINERAL PROPERTIES
The exploration and evaluation expenditures on the mineral
properties to date are as follows:
|
|
Limão |
|
|
Ouro Roxo |
|
|
|
|
|
|
Property |
|
|
Property |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2011 |
$ |
1,714,540 |
|
$ |
13,483,261 |
|
$ |
15,197,801 |
|
Expenditures
during the year |
|
2,257,145 |
|
|
- |
|
|
2,257,145 |
|
Balance, July 31, 2013 |
$ |
3,971,685 |
|
$ |
13,483,261 |
|
$ |
17,454,946 |
|
Expenditures
during the year |
|
1,586,176 |
|
|
- |
|
|
1,586,176 |
|
Balance, July 31, 2013 |
$ |
5,557,861 |
|
$ |
13,483,261 |
|
$ |
19,041,122 |
|
Limão Property
On July 12, 2007 the Company finalized the option agreement
with respect to the transfer of the mineral rights of its Limão property located
in north-central Brazil.
Pursuant to the option agreement for the assignment of mineral
rights among Amerix, Matapi Exploração Mineral Ltda. ("Matapi") and the
Company's wholly-owned Brazilian subsidiary Mineração Vila Porto Rico Ltda.
(MVPR), Matapi formally assigned the mineral rights in respect of the Limão
property to MVPR in consideration for an aggregate of 133,333 common shares of
Amerix (of which 66,667 common shares were issued) and approximately $331,000
payable over three years (of which approximately $59,000 was paid during fiscal
2008). In addition, Matapi retained a 2% Net Smelter Royalty ("NSR") in respect
of the Limão property which may be bought out by the Company at its sole
discretion for payment of approximately $447,900 (1,000,000 Brazilian Reais
("BR$")). Matapi may receive an additional 127,750 common shares of Amerix if a
technical report acceptable to the TSX Venture Exchange evidencing the existence
of at least 1,000,000 ounces of gold (probable reserve) is delivered in respect
of the Limão property (See Note 16).
|
14 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
5.
EXPLORATION AND EVALUATION EXPENDITURES ON MINERAL PROPERTIES (continued)
Limão Property (continued)
On October 15, 2009, the Company amended certain terms of the
Limão option agreement with Matapi and on October 19, 2010 and April 29, 2011,
additional amendments were made. The amended terms required Amerix to make the
following payments to Matapi:
|
- |
Payment of BR$85,000 on or about October 16, 2009 (paid)
|
|
- |
Payment of BR$100,000 and 33,333 shares of Amerix on
April 30, 2010 (paid and issued) |
|
- |
Payment of BR$140,000 on April 30, 2011 (paid on May 6,
2011) |
|
- |
Payment of BR$192,682 (145,000 BR$ adjusted for
inflation; paid on October 20, 2011) and 33,333 shares of Amerix on April
30, 2011 (issued). |
In addition, the Company agreed to spend the following on
exploration work on the Limão property:
|
- |
US$500,000 within one year ended
December 20, 2011 (spent) |
|
- |
US$500,000 within one year ended
December 20, 2012 (spent). |
On May 14, 2012, the Company entered into an agreement (the
Agreement), whereby Amerix has optioned adjacent exploration properties (2
property groups) immediately to the west of the Companys Limão Property. The
terms of the Agreement allow for staged payments to the local vendors consisting
of cash (BR$1,000,000) and Amerix common shares (650,000 shares) over 4 years
followed by success payments of BR$500,000 for positive Feasibility Studies at
either of the properties. In the event of a production decision at either of the
properties, a payment of BR$1,000,000 will be payable upon reaching commercial
production. In addition a 1% Net Gold Sales Royalty will be payable to the
vendors.
The Company completed its due diligence on the optioned
exploration properties and made an option payment of BR$100,000 to the local
vendors on October 30, 2012. The Company's next option payment is comprised of
BR$100,000 and 100,000 common shares and was due in April 2013. This payment is
conditional upon transfer of title to the exploration properties to Amerix. Due
to delays relating to the proposed new mining code, the
DepartamentoNaçionaldaPruduçãoMineral(DNPM) has temporarily suspended the
granting and transfer of titles and as a result the vendors have been unable to
transfer the property titles to MVPR. The payments due in April 2013 have been
deferred until title to the properties has been transferred.
Ouro Roxo Property
The Company retains a 2.5% NSR on the Ouro Roxo Property,
located in the Tapajós region of Brazil, based on an agreement entered into in
2009 with the Brazilian Consortium that holds the mineral exploitation rights to
the Ouro Roxo Property.
As a result of an earlier agreement entered into with Matapi,
the Company has existing obligations to Matapi as follows:
(i) |
a 2.0% NSR to Matapi, with a buyout of US$200,000 for
each one-quarter of the NSR (0.5%) which may be paid down, in whole or in
part, at any time by the Company; and |
|
15 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
5.
EXPLORATION AND EVALUATION EXPENDITURES ON MINERAL PROPERTIES (continued)
Ouro Roxo Property (continued)
(ii) |
t he issue of 322,083 common shares of the Company,
issuable to Matapi upon receipt by the Company of an independent study
that confirms a mineable reserve (in the probable category or better) of
at least 2,000,000 ounces of gold on this
property. |
Due to ongoing problems encountered by the Brazilian
Consortium, commercial production has not yet been achieved at the Ouro Roxo
property. The Company does not anticipate receiving any royalty income within
the next twelve months.
6. CASH AND
CASH EQUIVALENTS
|
|
As
at July 31, |
|
|
As
at July 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
Cash |
$ |
350,099 |
|
$ |
248,333 |
|
Short-term investment |
|
- |
|
|
504,980 |
|
|
|
|
|
|
|
|
|
$ |
350,099 |
|
$ |
753,313 |
|
Short-term investment consisted of a variable rate cashable
Guaranteed Investment Certificate.
7. OTHER
RECEIVABLES
|
|
As
at July 31, |
|
|
As
at July 31, |
|
|
|
2013 |
|
|
2012 |
|
Sales tax receivable -
(Canada) |
$ |
33,871 |
|
$ |
20,902 |
|
Other receivable |
|
75
|
|
|
520
|
|
|
$ |
33,946 |
|
$ |
21,422 |
|
|
16 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
8. SHARE
CAPITAL
(a) AUTHORIZED
Unlimited |
Common shares |
Unlimited |
First preference shares |
Unlimited |
Second preference shares
|
(b) ISSUED
|
|
Common Shares |
|
|
Amount |
|
Balance, July 31, 2011 and
July 31, 2012 |
|
63,693,434 |
|
$ |
22,373,248 |
|
Private placement i) |
|
18,661,500 |
|
|
2,239,380 |
|
Fair value of warrants issued
i) |
|
- |
|
|
(594,426 |
) |
Fair value of broker warrants issued i) |
|
- |
|
|
(103,105 |
) |
Share issuance costs i) |
|
- |
|
|
(161,040 |
) |
Exercise of options ii) |
|
100,000 |
|
|
21,400 |
|
Balance, July 31, 2013 |
|
82,454,934 |
|
$ |
23,775,457 |
|
i) On October 30, 2012, the Company closed a fully marketed
private placement (the Offering) led by Canaccord Genuity Corp. (the Agent).
The Company issued a total of 18,661,500 units (the Units) at a price of $0.12
per Unit for gross proceeds of $2,239,380. Each Unit consisted of one common
share (a Common Share) and one half of one common share purchase warrant (a
Warrant). Each whole warrant entitles the holder to purchase one common share
at a price of $0.18 for up to 24 months. The fair value of the Warrants at the
date of grant was $594,426. This amount was estimated using the Black-Scholes
pricing model based on the following assumptions: dividend yield of 0%;
risk-free interest rate of 1.08%; expected life of two years; and volatility of
172.88% .
In connection with the Offering, the Company incurred a total
share issuance costs of $256,492 including a cash commission paid to the Agent
in an amount of $145,560, equal to 6.5% of the gross proceeds of the Offering
and the Company also issued to the Agent 1,212,998 compensation options (the
"Broker Warrants") equal to 6.5% of the number of Units sold in the Offering,
with each such compensation option exercisable to acquire one Unit of the
Company until October 30, 2014 at $0.12 per Unit. The fair value of the Broker
Warrants at the date of the grant was $103,105. This amount was estimated using
the Black-Scholes pricing model based on the following assumptions: dividend
yield of 0%; risk-free interest rate of 1.08%; expected life of two years; and
volatility of 172.88% . Of the total share issuance costs of $256,492, $161,040
was allocated to share capital and the remaining was allocated to the Warrants.
ii) In January, 2013, 100,000 stock options were exercised for
proceeds of $11,000. The value attributed to the options on their issue date was
$10,400 and this amount has been re-allocated from Equity Settled Share-Based
Payments Reserve to Share Capital.
|
17 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
9.
WARRANTS
The following table reflects the continuity of warrants:
|
|
Number of |
|
|
Weighted Average |
|
|
|
|
|
|
Warrants |
|
|
Exercise Price ($) |
|
|
Fair
Value ($) |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2011 |
|
14,178,759 |
|
|
0.31 |
|
|
1,876,166 |
|
Expired |
|
(1,431,876 |
) |
|
0.29
|
|
|
(182,545 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
|
12,746,883 |
|
|
0.32 |
|
|
1,693,621 |
|
Granted (Note 8(b)i)) |
|
10,543,748 |
|
|
0.17 |
|
|
602,079 |
|
Expired |
|
(3,646,883 |
) |
|
0.29
|
|
|
(510,203 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2013 |
|
19,643,748 |
|
|
0.25
|
|
|
1,785,497 |
|
As of July 31, 2013, the following warrants were
outstanding:
|
|
Number of |
|
|
Exercise |
|
|
|
Fair Value
($) |
|
Warrants |
|
|
Price ($) |
|
Date of Expiry |
|
|
|
|
|
|
|
|
|
|
1,183,418 |
|
9,100,000 |
|
|
0.33 |
|
December 22, 2013
|
|
498,974 |
|
9,330,750 |
|
|
0.18 |
|
October 30, 2014 |
|
103,105 |
|
1,212,998 |
|
|
0.12 |
|
October 30, 2014 |
|
|
|
|
|
|
|
|
|
|
1,785,497 |
|
19,643,748 |
|
|
|
|
|
|
10. STOCK OPTIONS
AND STOCK-BASED COMPENSATION
The Company has a Stock Option Plan (the "Plan") under which it
is authorized to grant options to purchase up to 10% of the outstanding common
shares of the Company to directors, senior officers, employees and/or
consultants of the Company. As at J u l y 31, 2013, there were 82,454,934 common
shares of the Company outstanding (10% - 8,245,493). The terms of the awards
under the Plan are determined by the Board of Directors.
|
18 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
10. STOCK OPTIONS
AND STOCK-BASED COMPENSATION (continued)
The following table reflects the continuity of stock options:
|
|
Number of Stock |
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price ($) |
|
|
|
|
|
|
|
|
Balance, July 31, 2011 |
|
5,191,660 |
|
|
0.34 |
|
Granted (1)(2) |
|
850,000 |
|
|
0.13 |
|
Expired |
|
(116,666 |
) |
|
0.81 |
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
|
5,924,994 |
|
|
0.30 |
|
Granted (3) |
|
50,000 |
|
|
0.12 |
|
Expired |
|
(1,199,996 |
) |
|
0.39 |
|
Exercised |
|
(100,000 |
) |
|
0.11
|
|
|
|
|
|
|
|
|
Balance, July 31, 2013 |
|
4,674,998 |
|
|
0.28
|
|
(1) On January 18, 2012, the Company granted 500,000 options to
directors, officers, employees and consultants, exercisable at $0.11 for a
period of five years. The 500,000 options were assigned a value of $52,500 using
the Black-Scholes pricing model based on the following assumptions: dividend
yield of 0%; risk-free interest rate of 1.30%; expected life of 5 years; and
volatility of 174%. During the year ended July 31, 2012, $52,500 was recorded as
stock-based compensation in the consolidated statement of loss and comprehensive
loss.
(2) On June 19, 2012, the Company granted a total of 350,000
incentive stock options to an officer of the Company and consultants, pursuant
to the Company's stock option plan, exercisable at $0.16 for a period of one
year. The options are exercisable for one year at a price of $0.16 per share and
vest immediately. The 350,000 options were assigned a value of $30,800 using the
Black-Scholes pricing model based on the following assumptions: dividend yield
of 0%; risk-free interest rate of 1.05%; expected life of 1 year ; and
volatility of 149%. During the year ended July 31, 2012, $30,800 was recorded as
stock-based compensation in the consolidated statement of loss and comprehensive
loss.
(3) On October 1, 2012, the Company granted a total of 50,000
incentive stock options to an employee of the Company pursuant to the Company's
stock option plan, exercisable at $0.12 for a period of five years and vesting
immediately. The 50,000 options were assigned a value of $5,750 using the
Black-Scholes pricing model based on the following assumptions: dividend yield
of 0%; risk-free interest rate of 1.22%; expected life of 5 years; and
volatility of 184%. During the year ended July 31, 2013, $5,750 (2012 - $83,300)
was recorded as stock-based compensation in the consolidated statement of loss
and comprehensive loss.
|
19 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
10. STOCK OPTIONS
AND STOCK-BASED COMPENSATION (continued)
The weighted average remaining contractual life and weighted
average exercise price of options outstanding and exercisable as at July 31,
2013 are as follows:
|
|
Options Outstanding |
|
|
|
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
Average |
|
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Number |
|
|
Exercise |
|
Expiry Date |
|
Outstanding |
|
|
Price ($) |
|
|
Life (years) |
|
|
Exercisable |
|
|
Price ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 7, 2015 |
|
1,999,998 |
|
|
0.30 |
|
|
1.60 |
|
|
1,999,998 |
|
|
0.30 |
|
January 25, 2016 |
|
1,000,000 |
|
|
0.38 |
|
|
2.49 |
|
|
1,000,000 |
|
|
0.38 |
|
July 19, 2016 |
|
1,225,000 |
|
|
0.22 |
|
|
2.97 |
|
|
1,225,000 |
|
|
0.22 |
|
January 17, 2017 |
|
400,000 |
|
|
0.11 |
|
|
3.47 |
|
|
400,000 |
|
|
0.11 |
|
October 1, 2017 |
|
50,000 |
|
|
0.12 |
|
|
4.17 |
|
|
50,000 |
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,674,998 |
|
|
0.28 |
|
|
2.34 |
|
|
4,674,998 |
|
|
0.28 |
|
11. GENERAL AND
ADMINISTRATIVE
|
|
Years Ended |
|
|
|
July 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
Management fees (Note 14) |
$ |
284,167 |
|
$ |
270,000 |
|
Professional fees |
|
131,369 |
|
|
131,488 |
|
General and administrative |
|
57,355 |
|
|
48,359 |
|
Shareholder relations and filing fees |
|
54,375 |
|
|
61,724 |
|
Rent |
|
39,000 |
|
|
37,500 |
|
Travel and promotion |
|
28,054 |
|
|
55,142 |
|
Stock-based compensation (Note 10) |
|
5,750 |
|
|
83,300 |
|
(Gain) loss on
foreign exchange |
|
(7,881 |
) |
|
21,389 |
|
|
|
|
|
|
|
|
|
$ |
592,189 |
|
$ |
708,902 |
|
|
20 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
12. LOSS PER
SHARE
The calculation of basic and diluted loss per share for the
year ended July 31, 2013 was based on the loss attributable to common
shareholders of $2,175,624 (year ended July 31, 2012 - $2,947,862) the weighted
average number of common shares outstanding of 77,701,624 (year ended July 31,
2012 63,693,434).
Diluted loss per share does not include the effect of stock
options and warrants as they are anti-dilutive.
13. INCOME TAXES
The reconciliation of the combined Canadian federal and
provincial statutory income tax rate on the net loss for the years end July 31
is as follows:
|
|
Years ended |
|
|
|
July 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
Net loss before recovery of income taxes |
$ |
2,175,624 |
|
$ |
2,947,862 |
|
Expected income tax recovery |
|
(576,540 |
) |
|
(799,608 |
) |
Difference in foreign tax
rates |
|
(97,290 |
) |
|
(128,934 |
) |
Impact of change in tax rates |
|
- |
|
|
(74,820 |
) |
Non-deductible expenses |
|
67,030 |
|
|
160,459 |
|
Expiry of warrants |
|
67,600 |
|
|
- |
|
Change in tax benefits not recognized |
|
539,200 |
|
|
842,903 |
|
|
|
|
|
|
|
|
Income tax recovery reflected in the consolidated
statement of operations |
$ |
- |
|
$ |
- |
|
The 2013 statutory tax rate of 26.5% differs from the 2012
statutory tax rate of 27% because of the reduction in substantively enacted tax
rates.
Unrecognized deferred tax assets
Deferred taxes are provided as a result of temporary
differences that arise due to the differences between the income tax values and
the carrying amount of assets and liabilities. Deferred tax assets have not been
recognized in respect of the following deductible temporary differences:
|
21 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
13. INCOME TAXES
(continued)
Unrecognized deferred tax assets (continued)
|
|
Years Ended |
|
|
|
July 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
Non-capital losses carried forward |
$ |
5,724,820 |
|
$ |
5,260,132 |
|
Share issuance costs |
|
396,400 |
|
|
294,343 |
|
Brazil non-capital assets |
|
91,290 |
|
|
91,292 |
|
Other deductible
temporary differences |
|
106,640 |
|
|
106,641 |
|
|
|
|
|
|
|
|
|
$ |
6,319,150 |
|
|
5,752,408 |
|
The Canadian non-capital loss carry forwards expire as noted in
the table below. Brazil non-capital losses may be carried forward indefinitely
and may be used to offset up to 30% of a Companys taxable income in a tax
period. Share issue and financing costs will be fully amortized in 2017. The
remaining deductible temporary differences may be carried forward indefinitely.
Deferred tax assets have not been recognized in respect of these items because
it is not probable that future taxable profit will be available against which
the group can utilize the benefits therefrom.
The Companys Canadian non-capital tax losses expire as
follows:
2014 |
$ |
293,640
|
|
2015 |
|
323,930 |
|
2026 |
|
574,310 |
|
2027 |
|
561,450 |
|
2028 |
|
771,020 |
|
2029 |
|
646,210 |
|
2030 |
|
700,830 |
|
2031 |
|
747,480 |
|
2032 |
|
641,270 |
|
2033 |
|
464,680 |
|
|
|
|
|
|
$ |
5,724,820 |
|
|
22 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
14.
RELATED PARTY TRANSACTIONS
Related parties include the Board of Directors, close family
members and enterprises that are controlled by these individuals as well as
certain persons performing similar functions.
The remuneration of directors and key management of the Company
for the years ended July 31, 2013 and 2012 was as follows:
|
|
Years Ended |
|
|
|
July 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
Management fees |
$ |
284,167 |
|
$ |
270,000 |
|
Exploration and evaluation expenditures |
|
78,157 |
|
|
90,080 |
|
Share-based payments |
|
- |
|
|
42,000 |
|
|
|
|
|
|
|
|
|
$ |
362,324 |
|
$ |
402,080 |
|
15. SEGMENTED
INFORMATION
The Company operates one operating segment, that being the
exploration and development of mineral properties. No revenue has been generated
by these properties. A summary of assets by geographic area is as follows:
|
|
July 31, 2013 |
|
|
|
Canada |
|
|
Brazil |
|
|
Consolidated |
|
Current assets |
$ |
397,449 |
|
$ |
9,105 |
|
$ |
406,554 |
|
|
|
July
31, 2012 |
|
|
|
Canada |
|
|
Brazil |
|
|
Consolidated |
|
Current assests |
$ |
646,331 |
|
$ |
146,059 |
|
$ |
792,390 |
|
|
23 |
|
AMERIX PRECIOUS METALS CORPORATION |
Notes to Consolidated Financial Statements |
Years Ended July 31, 2013 and 2012 |
(Expressed in
Canadian Dollars) |
16. COMMITMENTS
AND CONTINGENCIES
(a) Limão Property
The agreement relating to the assignment of the mineral rights
for the Limão property calls for future payments in shares as follows:
|
|
Shares to be issued |
|
|
|
Number of |
|
|
$Value of |
|
|
|
shares |
|
|
shares |
|
|
|
|
|
|
|
|
Payment if reserve contains at least 1,000,000 ounces |
|
127,750 |
|
|
2,555 |
|
All commitments and contingent commitments under all Limão
agreements are required at the option of the Company. Should the Company choose
to not make such payments, any interest in the properties or the mineral rights
would revert back to the vendor.
(b) Ouro Roxo Property
Should an independent study confirm that the Ouro Roxo Property
contains a mineral reserve (in the probable category or better) of at least
2,000,000 ounces of gold, the Company will be required to issue 322,083 common
shares to Matapi.
(c) Operating lease obligation
Under the terms of an operating lease obligation for office
rent the Company is obligated to pay $4,000 per month up to April 30, 2014 for a
total remaining obligation of $36,000.
17. SUBSEQUENT
EVENT
Subsequent to July 31, 2013, the Company terminated its
operating lease agreement for office space and, effective December 1, 2013
entered into a new lease agreement for office space with annual lease payments
of approximately $18,000, expiring on July 30, 2016.
|
24 |
|
|
AMERIX PRECIOUS METALS CORPORATION
|
|
MANAGEMENT DISCUSSION AND ANALYSIS
|
|
FOR THE YEAR ENDED JULY 31, 2014
|
|
This Managements Discussion and Analysis is provided for the
purpose of reviewing the fiscal year ended July 31, 2014, and comparing results
to the previous year. This Managements Discussion and Analysis should be read
in conjunction with the Companys audited consolidated financial statements for
the fiscal year ended July 31, 2014 and notes thereto, that have been prepared
by management in accordance with International Financial Reporting Standards
(IFRS) and all monetary amounts are expressed in Canadian dollars unless
otherwise indicated. All of the scientific and technical information has been
reviewed and approved by Ryan Grywul, P. Geo. and Vice President, Corporate
Development of the Company. Mr. Grywul is a Qualified Person within the meaning
of National Instrument 43-101. This report which is dated November 19, 2014 and
the Companys other public filings can be found on SEDAR at (www.sedar.com).
CAUTIONARY NOTE REGARDING FORWARD LOOKING
STATEMENTS
This MD&A may contain forward looking
statements that reflect the Companys current
expectations and projections about its future results. When used in this
MD&A, forward looking statements can be identified by the use of words, such
as estimate, consider, expect, anticipate,
objective and similar expressions or variations of such words. Forward
looking statements are, by their very nature, not a guarantee of the
Companys future operational or financial performance and are subject to
risks and uncertainties and other factors that could cause the
Companys actual results, performance, prospects or opportunities
to differ materially from those expressed in, or implied by, these forward
looking statements. No representation or warranty is intended with respect to
anticipated future results, that estimates and projections will be sustained or
that any project will otherwise prove to be economic.
Readers are cautioned not to place undue reliance on these
forward looking statements, which speak only of the date of this MD&A or as
of the date otherwise specifically indicated herein. Due to risks and
uncertainties, including the risks and uncertainties elsewhere in this MD&A,
actual events may differ materially from current expectations.
OVERVIEW
Amerix Precious Metals Corporation (the Company or Amerix)
is a junior resource company involved in the acquisition, exploration and
development of mineral properties.
The Company does not generate operating revenues. Management
anticipates that the Company will experience net losses as a result of ongoing
exploration, and general corporate and administrative costs until such time as
revenue generating activity is commenced.
As of July 31, 2014, the Company had assets of $11,534,
including cash of $7,789. The Company has current liabilities of $528,326 and no
long term debt. The Company has incurred cumulative historical exploration and
evaluation expenditures of $19,417,285, of which $5,934,024 relates to the Limão
property and $13,483,261 relates to the Ouro Roxo property, both located in
Brazil.
On November 5, 2014 the Company announced that it had signed a
definitive amalgamation agreement with Eagle Graphite Corporation (Eagle
Graphite), a privately-held Canadian company which specializes in natural flake
graphite mining, in respect of a transaction whereby Eagle Graphite will
complete a business combination with Amerix. In conjunction with the proposed
business combination, Amerix closed a private placement financing of 10,930,000
subscription receipts for gross proceeds of $1,093,000, to be held in escrow
until the closing of the business combination. The proceeds of the private
placement financing will be used for eligible Canadian exploration expenditures
and the tax benefit will be renounced in respect of the 2014 taxation year. In
connection with the proposed business combination and concurrent with the Amerix
private placement, Eagle Graphite completed a private placement financing of
15,050,000 subscription receipts of Eagle Graphite for gross proceeds of
$1,505,000. The proceeds of the Eagle Graphite private placement financing are
in addition to bridge financing previously secured by Eagle Graphite in the form
of promissory notes with an aggregate principal value of $700,000. The proceeds
of the Amerix private placement financing and the Eagle Graphite private
placement financing will be held in escrow pending regulatory and Amerix
shareholder approval of the proposed business combination. Amerix has called a
special meeting of shareholders to be held on December 17, 2014. (See Proposed
Transaction below)
The Company presently has interests in two mineral properties
located in Brazil, held through its wholly-owned Brazilian subsidiary, Mineração
Vila Porto Rico Ltda. (MVPR). The Company holds the exploration licenses to
the Limão Gold Property (Limão property), located in the Tapajos gold
district, Para State, Brazil, and holds a 2.5% Net Smelter Return Royalty
(NSR) interest in the southern Ouro Roxo properties.
The Company has completed the Phase 2 drilling program at
the Limão property. The Company does not presently have sufficient
financial resources to complete, by itself, the exploration required to develop
its properties to an advanced stage. The exploration and development of the
Companys properties depends upon the Companys ability to obtain financing
through private placement financing, public financing, the joint venturing of
projects, or other means. There is no assurance that the Company will be
successful in obtaining the required financing. As a result, on November 25,
2013 the Company announced that its Board of Directors has commenced a review of
strategic alternatives for the Company with the objective of enhancing
shareholder value. As part of the strategic review process, and in addition to
the proposed amalgamation with Eagle Graphite discussed above, the Company is examining a number of
alternatives including the sale of MVPR or other corporate transactions to
enhance shareholder value.
1
In September 2013 the Company filed its report with the
Departamento Naçional da Prudução Mineral (DNPM) for a three year extension of
the Limão concession claims and is awaiting publication of the extension in the
Official Gazette.
MINERAL EXPLORATION ACTIVITIES
The Companys operations consist of the exploration and
evaluation of mineral interests in Brazil as well as ongoing corporate head
office costs. Exploration and evaluation expenditures on the Limão property for
the twelve months ended July 31, 2014 were $376,163, compared to $1,586,176 for
the twelve months ended July 31, 2013.
The following tables summarize the continuity of the
exploration and evaluation expenditures during the period:
Exploration and Evaluation Expenditures
on Mineral Properties |
|
|
|
|
|
|
|
|
|
|
|
Limao |
|
|
Ouro
Roxo |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
$ |
3,971,685 |
|
$ |
13,483,261 |
|
$ |
17,454,946 |
|
|
|
|
|
|
|
|
|
|
|
Expenditures during the
period |
|
1,586,176 |
|
|
- |
|
|
1,586,176 |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2013 |
$ |
5,557,861 |
|
$ |
13,483,261 |
|
$ |
19,041,122 |
|
|
|
|
|
|
|
|
|
|
|
Expenditures during the
period |
|
376,163 |
|
|
- |
|
|
376,163 |
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2014 |
$ |
5,934,024 |
|
$ |
13,483,261 |
|
$ |
19,417,285 |
|
|
|
Limão |
|
|
|
Twelve Months ended July 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Drilling |
$ |
- |
|
$ |
456,230 |
|
Geology/geophysics |
|
8,000 |
|
|
252,102 |
|
Lab analysis |
|
0 |
|
|
129,804 |
|
Equipment rental |
|
0 |
|
|
101,136 |
|
Travel, flights |
|
18,335 |
|
|
54,368 |
|
Field camp |
|
|
|
|
|
|
- expenses |
|
62,684 |
|
|
238,403 |
|
- salaries and benefits |
|
67,251 |
|
|
200,867 |
|
General expenses |
|
15,333 |
|
|
9,041 |
|
General management, legal and administrative |
|
204,560 |
|
|
144,225 |
|
|
|
|
|
|
|
|
Exploration expense |
|
376,163 |
|
|
1,586,176 |
|
2
Brazilian Mineral Properties and Exploration and
Evaluation Expenditures
Limão Property
The location of the Limão Gold Property in the Tapajós Gold
Province, Pará State, Brazil is presented at the following link:
http://amerixcorp.com/limao-video-1.php
Background
The Limão property is comprised of two exploration
concessions held by MVPR. On June 9, 2011, the exploration title rights for the
Limão property were published in the Brazilian Official Gazette,
Unions Official Journal. In September 2013 the Company filed its report with
the DNPM for a three year extension of the Limão concession claims and is
awaiting publication of the extension in the Official Gazette. The property was
acquired subject to the terms of the Limão option agreement with Matapi
Exploração Mineral Ltda. (Matapi), signed on July 12, 2007, with subsequent
final amendments as at April 29, 2011. The Company has completed all of its
obligations under the agreement.
The Limão property is situated along the NW-SE Tocantinzinho
Trend located in the Tapajos Gold Province, Pará State, in Central Brazil. This
trend hosts notable gold properties such as Eldorados Tocantinzinho property
and Magellan Minerals Cuiu-Cuiu property. Between 1987 and 1990, Mineração
Pompeia carried out systematic prospecting in the area, which included
geochemical and geophysical surveys followed by a small drill program in an area
previously mined by locals. Holes drilled by Pompeia under an open pit returned
promising results, such as 47 grams gold per tonne over 13 metres and 18.7 grams
gold per tonne over 6.8 metres. During 1994 and 1995, Barrick Gold conducted a
review of the area and took fifteen samples of the syeno-granite in the pit area
that returned values from 1.75 grams gold per tonne to 25 grams gold per tonne.
Additional work conducted by Barrick Gold also identified several gold anomalies
outside the area of the open pit. It must be noted that the previous exploration
is historical and has not been verified.
A technical report dated October 1997 was prepared for the
Company by Behre Dolbear & Company Ltd. and Behre Dolbear Chile & Cia.
Ltda. (Dolbear) with respect to the Limão Property. The report is available for
review at the Companys profile at www.sedar.com.
On May 20, 2011, the Company filed a National Instrument 43-101
(NI 43-101) Technical Report for its Limão Gold Property. The report was
prepared by Mr. Clinton Davis, P. Geo., who is a qualified person under the
definition of NI 43-101. Mr. Davis had previously visited the property in late
2009 and took one independent, float sample from a sulphide rich syenitic
intrusive rock, which returned a high-grade result of 57.4 grams gold per tonne
or 1.67 ounces gold per tonne. The Limão Gold Property is at an early stage of
exploration, with no estimate of resources. A copy of the Technical Report can
be found on the Companys website at http://www.amerixcorp.com/reports_and_presentations.php.,
and at the Companys profile on
SEDAR.
In May 2012 the Company optioned the adjacent exploration
properties (2 property groups) immediately to the west of the Limão Property.
The Companys geologists believe there is favorable gold exploration potential at these properties,
consisting of almost 7000 hectares and located along the Tocantinzinho gold
trend of Brazil.
3
Recent Exploration
During August and September 2011, Fugro LASA Prospecções S.A.
completed approximately 1800 line kilometres of airborne geophysical surveying
over the entire Limão property providing Amerix with magnetic and radiometric
data, and TerraNotes Geophysics provided additional interpretive consultation of
the data. Results from the Companys 2011 exploration program outlined anomalous
gold targets defined from geochemical surveys conducted across several grids
established on the Limão Property. New grids, existing grid extensions, and
infill lines were completed as a continuation of Amerixs 2009 and 2010
geochemical surveys, as well as over new, prospective areas identified from the
airborne geophysical data.
Previously, the Amerix exploration work at Limão had consisted
primarily of geochemical surveying on grid lines over old pits and workings that
had been developed by artisanal workers, or garimperos, in the near surface,
weathered, saprolitic material. From the earlier geochemical survey work, Amerix
geologists outlined five areas of anomalous gold at the property:
|
Limão Pit Area (Central Grid)
|
|
Reconnaissance Grid |
|
South Grid |
|
Subbão Grid |
|
Jambu Grid |
Grids were primarily sampled using a manual auger to take
1-metre deep samples at 20 metre spacing along the grid lines. Secondary, closer
spaced grid lines and sampling was done over areas with anomalous geochemical
results. Each grid line was mapped and every sample was geologically logged and
then prepared for shipping and analysis. All samples were prepared at Acme Labs
preparation facility in Itaituba, Brazil and samples were shipped to Acmes
Santiago, Chile, laboratory for fire assay gold analysis. The Company utilizes a
QA/QC chain of custody program overseen by its geologists concerning its
samples. Over 5,000 samples were taken during the 2011 and 2012 programs
covering five principal grid areas.
South Grid
The South Grid anomaly is characterized by a greater than 20
parts per billion (ppb) gold in soil anomaly, traceable for 350 meters along a
290 degree trend, and that is coincident with abandoned, small scale mine
workings that exploited gold mineralization hosted in a shear with quartz veins.
Limited mapping completed in the area of the workings has identified an easterly
striking, near vertical shear occurring at or near the contacts of quartz
diorite, diabase, and granite with wall rock alteration consisting of
silicification plus-or-minus muscovite. The artisinal mine workings including an
open cut, shafts, and drifts coincide with 150 metres of conjectured strike
along the shear.
During the 2010 and 2011 exploration campaigns, a total of 60
rock samples were collected from the South Grid artisanal workings in the form
of chips, channels, and grabs from the open cut, shafts, drifts, and test
shafts in both saprolite and unweathered rock. Visible gold was noted at several
locations in oxidized quartz veins. In fresh samples gold is associated with
pyrite and chalcopyrite. It should be noted that most of the Limão Gold
Property is covered by deep weathering and layers of colluvium, alluvium and
saprolite with limited surface rock outcropping. To view the samples (grab, chip
and channel) taken within the area of the artisanal workings, please copy and
paste the following URL link into a new browser http://www.rmcommunicationsinc.com/snapmail/img/file20120221122147.pdf.
4
Of the 60 rock samples collected, nine chip and channel samples
and one panel sample were taken from the shear, veins, and wall rock in both
saprolite and fresh rock at 3 separate locations within 88 metres along the
conjectured strike of the shear. Those samples were collected along the face of
the open cut, a drift into the face of the cut, and a drift worked from a shaft
to 28 metres below surface and returned assay values between 0.058 and 275.0
grams gold per tonne or 0.002 to 8.84 ounces gold per tonne. The estimated true
width of the shear is 1.0 to 2.1 metres and it contains singular to multiple
quartz veins that range in thickness between 0.05 to 0.4 metres. Quartz veins
are hosted in the mineralized shear and weakly mineralized wall rock. Within the
shear there is a strong correlation between quartz vein and anomalous gold
content. The results of those samples are presented in the table below:
Sample |
Type |
Width |
Au (g/t) |
Au (oz/t) |
Ag (g/t) |
Litholgy |
Location: face of open cut, 5m below
surface. |
|
|
|
|
|
|
53785 |
Channel. |
0.39 |
0.153 |
0.005 |
<0.02 |
Quartz diorite wall rock.
Saprolite. |
53786 |
Channel. |
0.28 |
52.0 |
1.67 |
2.397 |
8cm qtz vn and
shear. Saprolite. Visible gold noted. |
53787 |
Channel. |
1.42 |
0.058 |
0.0018 |
0.113 |
Mylonite Wall rock. Saprolite.
|
Location: drift 4m east-southeast into face
of open cut, 5m below surface. |
|
|
|
|
|
|
54171 |
Chip. |
0.5 |
4.651 |
0.149 |
0.295 |
Saprolite, quartz diorite.
|
54172 |
Pannel. |
0.15x0.4m |
168.0 |
5.40 |
12.415 |
White quartz
vein. Well weathered. |
54173 |
Chip. |
0.7 |
0.432 |
0.014 |
0.19 |
Mylonite and granite, wall
rock, saprolite. |
Location: drift from shaft, 28m below
surface. |
|
|
|
|
|
|
54176 |
Chip. |
0.3 |
0.484 |
0.015 |
0.23 |
Diabase with moderate fabric.
Weak oxidized wall rock. |
54177 |
Chip. |
0.85 |
8.138 |
0.26 |
1.081 |
Silicified
diabase with 1-40cm qtz vein plus massive pyrite. Weak oxidized. |
54178 |
Chip. |
0.75 |
275.0 |
8.84 |
74.56 |
Strong silicified diabase with
fine quartz veins in multiple directions. Weak oxidized. |
54179 |
Chip. |
0.3 |
0.067 |
0.021 |
0.23 |
Massive diabase with trace quartz veinlets.
Weak oxidized wall rock |
Prior to excavation of the open cut, 6 grab samples (samples
14767 to 14769 and 14776 to 14778) were collected from dump piles at 2 shafts
located 5 metres and 21 metres west-northwest of the face of the open cut. Those
samples included mylonitic wall rock, granite, and quartz vein and assayed
values between <0.1 to 13.46 grams gold per tonne or <0.003 to 0.43 ounces
gold per tonne. During this time, another 3 grab samples, samples 14773 to
14775, were collected from stockpiled mill feed, and returned assay values of
19.07 grams gold per tonne or 0.61 ounces gold per tonne in one sample with the
remaining samples assaying greater than 100 grams gold per tonne, or greater
than 3.21 ounces gold per tonne, above the detection limit of the ICP analytical
method chosen for that group of samples. Three samples, samples 14770 to 14772,
were collected from mill waste and assayed values between 8.75 and 19.02 grams
gold per tonne or 0.28 and 0.61 ounces gold per tonne.
Further grab samples returned highly anomalous gold values from
quartz vein clasts that were excavated from test shafts sunk into colluvium both
along the conjectured strike of the vein and to the north of the conjectured
strike. Using the textures and sizes of the quartz vein clasts as a guide, the
parent quartz vein material to the clasts is estimated to be between 0.05 to
0.20 metres thick. Sample 20005 was collected from a test shaft sunk along the
conjectured strike and assayed 501.51 grams gold per tonne or 16.12 ounces gold
per tonne with visible gold. Samples 20003, 20004 and 19504 were collected from test shafts approximately 40 metres
to the north of the conjectured strike and assayed values of 51.19, 417.76, and
1026.3 grams gold per tonne or 1.64, 13.43, and 32.0 ounces gold per tonne.
5
Amerix has determined the presence of an east-west trending
shear hosting multiple to singular quartz veins up to 0.3 metres estimated true
thickness with variably mineralized wall rock as deduced from the limited
sampling to date. The Company anticipates that deep auger sampling (2 to 10+
metres of depth) may refine the extensions of the high grade gold veining
reported above and better outline a postulated mineralized shear located 40
metres to the north and east.
Additionally, a second broad geochemical anomaly has been
defined at the South Grid and is located some 300 metres to the northeast of the
workings.
The Company has extended and infilled geochemical survey grid
lines at the eastern margin of the South Grid. The extended and infilled
geochemical survey grid lines followed up a second anomalous gold geochemical
feature centred 400 metres northeast of the drilled Jorge Zone. This gold in
soil geochemical anomaly, the Atilio Zone has now been traced for
approximately 350 metres along an east-west trend and has a variable width of
100 to 200 metres. Anomalous gold values range from 25 to 250 ppb. Company
geologists interpret the extended anomalies to be a parallel system of shear
hosted veins with gold mineralization. The gold in soil geochemical anomaly may
extend further to the east-southeast and this will need to be determined by
further extending the grid.
To view a map image of the South Grid, please copy and paste
the URL below into a new browser: http://amerixcorp.com/pressreleases/SZ_SOIL_CONTOUR_DRILL_HIGHLIGHTS_UPDATE_p.p
df
Subbão Grid
During 2011 and 2012, two separate soil sample grids, called
the Subbão Grid and the Reconnaissance Grid, were established over a small scale
artisanal mine working and over regional magnetic geophysical and topographic
lineaments respectively. These grids are separate from the Limão Pit, South
Grid, and Jambu Zone described in News Release 2012 4, dated April 2, 2012. To
view the locations of these grids, please copy and paste the attached URL into a
new browser: http://www.rmcommunicationsinc.com/snapmail/img/file20120517094216.pdf.
The Subbão soil grid covers an area of 116 hectares and was
established over small scale artisanal mine workings, called the Subbão Zone,
where saprolite and rock samples had returned anomalous gold assay results
mainly from grabs, selective grabs, and stockpiled crusher waste that ranged
from <0.005 grams per tonne gold to 361.5 grams per tonne gold. Higher grade
samples resulted from hand selective grabs of fine quartz vein material where
visible gold was occasionally noted. Gold values are expected to have been
enhanced by oxidation of sulphide bearing, fine quartz veins. Limited exposure
of saprolite outcrop and evidence gathered from saprolite in shaft dump piles
show fine, less than 5 centimetre thick, quartz vein or veins hosted in and
along granite, a fine grained volcanic, and a fine mylonite with some sericite
and fracture chlorite in wall rocks. The contact between granite and the fine
grained volcanic is speculated to be a structural focus for quartz veining and
shearing.
6
To view the soil assay results, please copy and paste the URL
below into a new browser: http://www.rmcommunicationsinc.com/snapmail/img/file20120517094303.pdf.
To view the rock and saprolite sample assay results, please
copy and paste the URL below into a new browser: http://www.rmcommunicationsinc.com/snapmail/img/file20120517094345.pdf
In total, 775 one-metre manual soil auger samples were
collected at twenty metre stations along 16, one hundred-metre spaced wing lines
and 1 baseline at the Subbão Grid. This grid was also established to explore
west-northwest trending regional structures identified from satellite images and
an airborne magnetic survey, as well as, possible secondary structures. In the
vicinity of the artisanal workings, soil assay results show a localized gold
anomaly that requires follow up with detail, infill geochemical sampling and
mapping to define the limits of the mineralization encountered at the Subbão
Zone. Sparse localized colluvial and saprolite gold in soil anomalies were also
encountered elsewhere in the Subbão soil grid, occasionally near abandoned,
small scale alluvial/placer operations.
Reconnaissance Grid
At the Reconnaissance Grid, 515 one-metre manual soil augers
were collected at twenty metre sample stations along 4, five hundred-metre
spaced lines totalling 9.08 line kilometres. The Reconnaissance Grid was
designed to access and test northwest and northeast lineaments identified from
the airborne magnetic survey and satellite imagery, as well as, magnetic and
radiometric anomalies including highs and lows. The gold in soil assay results
were generally negligible but have resulted in a few soil anomalies located near
the magnetic lineaments or near the intersection of magnetic lineaments. Amerix
will reserve these areas for follow up prospecting and soil sampling.
To view the results of the gold in soil assays for the
Reconnaissance Grid, please copy and paste the URL below into a new browser:
http://www.rmcommunicationsinc.com/snapmail/img/file20120517094422.pdf.
Central Grid
During late 2011, the Company established a 10 metre by 10
metre spaced and a 20 metre by 10 metre spaced, infill soil grid, as a
continuation of its earlier, 100 metre by 20 metre spaced soil grid. These grids
cover the Limão Pit area that is the main gold target at the Central Grid. As
described in News Release 2012-04 dated April 2, 2012, the Limão Pit target is
characterized by pyrite bearing syenogranite to syenite that was exploited by
small-scale artisanal miners and diamond drilled during the 1980s using
conventional drilling methods. Amerixs sampling of stockpiled pyrite bearing
syenite from near the Limão Pit also returned positive gold in rock assay
values. The interpreted strike of mineralization acquired from the historic
drilling, combined with mapping by the Companys geologists, guided the
orientation of the infill soil grid and a total of one thousand four hundred and
sixty eight, 1-metre manual soil auger samples were collected along a northwest
trend. The infill grid is bisected by two creeks that were subject to alluvial
placer mining.
To view the soil sample locations overlain on satellite
imagery, please copy and paste the URL below into a new browser: http://www.rmcommunicationsinc.com/snapmail/img/file20120607134750.pdf.
7
The 1-metre soil auger samples were collected from a regolith
consisting of colluvium, laterite, saprolite, alluvium, and tailings that
included placer mining reject and tailings from the Limão Pit. Excluding
alluvium and tailings material, soil assay results from colluvial to saprolitic
material have defined a 600 metre long northwest trending gold in soil anomaly
defined by subtle, sporadic clusters of soil anomalies ranging from 25 to 1,217
ppb gold and represent the majority of the soil samples collected. Apart from
the colluvium, laterite, and saprolite, alluvial and tailings samples returned
results ranging from 11 to 6,660 ppb gold with one outlier of 12,900 ppb gold.
All soil samples were delivered to Acme Labs preparation
facility in Itaituba, Brazil, where the samples were dried, sieved, split, and
shipped to Acmes Santiago, Chile, laboratory for gold analysis by fire assay
with atomic absorption finish on a 30 or 50 gram split. Rock and saprolite
samples were delivered to Acme Laboratories preparation facility in Itaituba,
where the samples were crushed, pulverized, split, and shipped to Acmes
Santiago laboratory, where they were analysed for fire-assay gold on a 30 gram
split. Acme Laboratories is registered under International Standards
Organization ISO 9001:2008 quality control program. The Company utilizes a QA/QC
chain of custody program overseen by its geologists concerning its samples.
Jambu Grid
The Jambu Grid, or Jambu Zone, is located 800 metres northwest
of the Limão pit. Five hundred and sixty two (562), 1 metre soil auger samples
were collected at the Jambu Zone during 2011 and 2012 within a 300 metre by 300
metre infill grid on 20 metre by 10 metre sample stations. The soil auger
samples were analysed for gold by fire assay and outlined a greater than 25 ppb
gold in soil anomaly with an ovoidal shape that is elongate to the northwest and
measures 340 metres by 225 metres. 21% of those soil samples assayed between 0
to 15 ppb gold, 25% assayed between 15 to 25 ppb gold, 27% assayed between 25 to
50 ppb gold, 18% assayed between 50 to 100 ppb gold, and 9% assayed between 100
to 470 ppb gold. The Jambu Zone is located on a ridge and the soil assay results
between 50 to 100 and 100 to 470 ppb gold form the core of the ovoidal anomaly.
Drilling
Limão Pit
In May of 2012, the Company began a drilling program designed
to follow up its earlier exploration programs. Those earlier programs provided
property wide airborne magnetic and radiometric surveying and four grids of
detailed soil geochemical auger sampling, mapping and rock sampling.
The Phase 1 drill program consisted of 14 diamond drill holes
totaling 1984 metres, of which ten of these holes were completed at the Limão
Pit target. The Phase 1 drilling has outlined a zone or lens of high grade gold
mineralization intersected by drill holes LDH-01 to 04 and LDH-10, 11 and 13.
Drill hole LDH-11 highlights the zone, intersecting 14.38 metres grading 53.85
grams gold per tonne. This gold mineralization is hosted in pyritized, strongly
potassic altered monzogranites, syenogranites and syenites. Potassic alteration
in the complete rock package is variable. These rocks show little deformational
fabric and the pyrite occurs in disseminations, clots and along fractures.
Other, less abundant sulphides include chalcopyrite, bornite and bismuth bearing
sulphides.
A crosscutting, northeast trending dyke was identified by drill
hole LDH-05. Gold mineralization on the northwest side of this dyke appears to
occur as a lens trending at approximately 110 degrees, and plunging steeply to the southeast. Across the dyke to the
southeast, LDH-14 intersected significant gold mineralization: 9.03 metres
grading 21.02 grams gold per tonne.
8
In November and December of 2012, the Company completed a
second phase of diamond drilling. The Phase 2 drilling program had two
objectives;
1) to step across a steeply dipping,
northeast trending dyke encountered in earlier hole LDH-05 and test the near
surface extension and potential continuity of gold mineralization to the east;
and
2) to test the extension of the gold mineralization further to the
west
Drill holes LDH-15, 16, 19 and 20 were drilled on the southeast
side, and across the northeast trending dyke that was defined earlier in LDH-05.
Holes LDH-15, 16 and 19 were all collared from the same location as earlier hole
LDH-14 that intercepted 9.03 metres grading 21.12 grams gold per tonne. Company
geologists believe that a second lens-like zone of gold mineralization has now
been intersected in holes LDH-14, and LDH-20 with a yet unknown width and
orientation.
Drill hole LDH-15 was drilled at azimuth 000 and 45 degrees
and has intersected from 84.1 to 87.7 metres, 3.6 metres averaging 1.24 grams
gold per tonne, from 89.2 to 90.35 metres, 1.15 metres averaging 1.60 grams gold
per tonne, and from 101.66 to 104.2 metres, 2.54 metres averaging 1.07 grams
gold per tonne. Drill hole LDH-16 was drilled at azimuth 020 and -55 degrees,
drilling vertically above the gold intersection in LDH-14 and did not encounter
the mineralized zone. Drill hole LDH-19 was drilled at azimuth 034 and -67
degree, drilling to the east of the gold intersection in LDH-14 and did not
encounter significant gold mineralization. Drill hole LDH-20 was collared east
of the Limão Pit, and drilled at azimuth 265 and -67.5 degrees and has
intersected from 102.75 to 106.46 metres, 3.71 metres averaging 48.09 grams gold
per tonne and from 109.79 to 112.15 metres, 2.36 metres averaging 2.91 grams
gold per tonne.
Drill holes LDH-17 and LDH-18 were drilled at the western
margin of the Limão Pit. These were short, 50 metre holes that targeted the
western projection of the gold mineralization near surface. Neither hole
intersected significant gold mineralization. These results indicate the western
margin of the lens of gold mineralization that was encountered in holes LDH-01,
02, 03, 04, 11 and 13. (See Table 1 below for a summary of all Phase 1 and Phase
2 drill results). It appears to the
Companys geologists that the gold mineralization tested on the
west side of the dyke is trending at 110 degrees and plunging to the southeast.
To view the plan view map of the drill holes in Figure 1 copy
and paste the URL below into a new browser:
LDH1to5 10to20 BASE 1to500
9
All drill results from the Limão Pit (Phase 1 and Phase 2) are
presented in Table 1 below.
Table 1 |
Hole # |
From (m) |
To (m) |
Interval (m) |
Gold (g/t) |
LDH-01 |
28.33 |
41.00 |
12.67 |
14.04 |
LDH-02 |
36.60 |
77.00 |
40.40 |
3.51 |
LDH-03 |
25.95 |
49.55 |
23.60 |
6.35 |
LDH-04 |
34.31 |
44.20 |
9.89 |
8.209 |
LDH-05 |
NE dyke |
LDH-10 |
N.S.A. - below zone of mineralization |
LDH-11 |
27.85 |
42.23 |
14.38 |
53.85 |
LDH-12 |
104.11 |
106.78 |
2.67 |
1.41 |
LDH-13 |
21.89 |
27.63 |
5.74 |
6.95 |
LDH-14 |
94.19 |
103.22 |
9.03 |
21.12 |
LDH-15 |
84.10 |
87.70 |
3.60 |
1.24 |
|
101.66 |
104.20 |
2.54 |
1.07 |
LDH-16 |
N.S.A |
LDH-17 |
N.S.A. Western margin |
LDH-18 |
N.S.A. Western margin |
LDH-19 |
N.S.A. |
LDH-20 |
102.75 |
106.46 |
3.71 |
48.09 |
|
109.79 |
112.15 |
2.36 |
2.92 |
High grade lenses of gold mineralization at the Limão Pit have
been encountered in drilling on both the east and west sides of the northeast
trending dyke. The true width of the gold mineralization on the west side of the
dyke that was drilled in holes LDH-1, 2, 3, 4, 11, and 13, is estimated to be 5
to 12 metres contained in an irregular, tabular lens that trends and plunges
steeply to the east. Holes LDH-12, 14, 15, and 20 have outlined mineralization
on the east side of the dyke where correlation of mineralization is presently
uncertain.
Company geologists believe the high grade gold mineralization
encountered at the Limão Pit may be spatially related to the northeast trending
dyke and regionally related structures that crosscut the northwest trend of the
Tapajós rock assemblage. These same structures may have been the conduits for
the alteration and mineralizing events that led to the existence of the present
gold mineralization at the Limão Pit. Additionally, anomalous gold
mineralization has been intersected coincident with the dyke. There exists the
potential of a separate target for gold mineralization occurring in these
northeast structures, as evidenced by the gold intercepts coincident with the
dyke in drill holes LDH-03 and LDH-15.
Amerix is encouraged by the high grade nature of the gold
mineralization intersected in the 2012 drilling at the Limão Pit. Gold-in-soil
geochemical surveying described in Company News Release 2012-08 of June 7, 2012,
has outlined a 600 metre long anomaly that extends southeast from the Limão Pit
that is characterized by subtle clusters of gold anomalies. The Company has
drill tested only a small segment of this anomaly (150 metres) and this remains
a high priority target for further drilling.
10
To view Central Grid: Limão Pit, Au (ppb) in Soil Results
Figure, copy and paste the URL below into a new browser:
PIT Geochem 1 to 3500
South Grid
The Company has also drilled 4 holes, LDHM-06 to 09 at the
South Grid. This grid is located approximately 1.6 km south of the Limão Pit.
Earlier geochemical survey work and geological prospecting indicated that
east-west shear zones occurring in granitic rocks and mafic dykes contained high
grade gold mineralization in quartz veins with estimated true thickness up to
0.5 metres in addition to variably mineralized wall rock. These drill hole
locations are presented in the following South Grid location map:
http://www.rmcommunicationsinc.com/snapmail/img/file20120904112549.pdf
Amerix has now tested this discreet style of gold
mineralization at the South Grid with 4 holes drilled on 3 north-south drill
sections spaced 125 and 60 metres apart from west to east. LDHM06 intersected
7.36 grams gold per tonne over 1 metre from 78.9 metres to 79.9 metres (Jorge
zone) and LDHM09 intersected 39.4 grams gold per tonne over 0.5 metres from 53
metres to 53.5 metres. These are encouraging results as a preliminary test of
this second style of gold mineralization occurring at the property. These drill
holes have only tested a portion of the gold in soil geochemical anomaly at the
South Grid. These veins are interpreted to be pinch and swell style quartz
veins that host high grade gold mineralization. This concurs with the experience
of the artisan miners (garimpeiros) that previously opened workings along these
veins. Company geologists were able to access adits and view the veins occurring
in saprolite and rock near surface. Photos are posted at the Companys website of these veins as
seen underground.
The Company has extended and infilled geochemical survey grid
lines at the eastern margin of the South Grid. The extended and infilled
geochemical survey grid lines followed up a second anomalous gold geochemical
feature centred 400 metres northeast of the drilled Jorge Zone. This gold in
soil geochemical anomaly, the Atilio Zone has now been traced for
approximately 350 metres along an east-west trend and has a variable width of
100 to 200 metres. Anomalous gold values range from 25 to 250 ppb. Company
geologists interpret the extended anomalies to be a parallel system of shear
hosted veins with gold mineralization. The gold in soil geochemical anomaly may
extend further to the east-southeast and this will need to be determined by
further extending the grid.
To view a map image of the South Grid, please copy and paste
the URL below into a new browser:
http://amerixcorp.com/pressreleases/SZ_SOIL_CONTOUR_DRILL_HIGHLIGHTS_UPDATE_p.
pdf
Results from the drill program are available at the Companys
website (www.amerixcorp.com). A photo gallery of the Limão Gold Property is also
available at the website.
Diamond drilling was accompanied by a quality assurance and
quality control program managed by Amerix geologists and includes industry standard documentation
during data collection, reporting, and down hole azimuth and angle surveys.
Drill core sample intervals were selected based on geological and mineralogical
changes in the rock and averaged near 1-metre sample length within mineralized intervals and the immediate wall rock using sample
lengths that ranged from a minimum of 0.5 metres to a maximum of 1.5 metres. NTW
size rock drill core was split in half using a diamond saw preserving half of
the split core for reference and half to be sent for gold analysis. Standard
references, blanks, and quartered drill core duplicates were also inserted into
the sample stream prior to transport. All samples were delivered to Acme
Laboratories preparation facility in Itaituba, Brazil where the samples were
crushed, pulverized, split, and shipped to Acmes Santiago, Chile, laboratory for fire assay gold on a 30 gram
split. Samples analyzing greater than 10 grams per tonne gold, or over the fire
assay detection limit, were automatically re-analyzed for gold by gravimetric
gold analysis. Both Acme Itaituba and Acme Santiago are registered under
International Standards Organizations ISO 9001:2008 quality control program.
The Company utilizes a chain of custody program overseen by its geologists
concerning sample transport from the Limão property to Acmes Itaituba preparation facility.
11
Amerix has completed its geochemical surveying at the extensive
(18,000 hectare) Limão land package. A drill target has been outlined at the
Jambu Zone, located 800 meters to the northwest of the Limão Pit. This is a
northwest trending gold-in-soil anomaly with approximate dimensions of 340
metres by 225 metres (See News Release 2012-04, April 2, 2012). Several other
grids have been extended to follow anomalous gold-in-soil trends, particularly
at the Northern Grid and the South Grid where Phase 1 drilling intersected gold
mineralization in shear hosted veins as in LDHM-06 and LDHM-09 (See News Release
2012-12, September 5, 2012). To the west, at the adjoining Serra Dourada
property, stream sediments and artisanal workings along drainage systems have
been sampled, as well as, grid oriented soil geochemical surveys. Targets have
been prioritized for follow up work.
Additional information on the Companys Limão exploration
program and principal grid areas can be found under the Project tab on the
Companys website at: http://www.amerixcorp.com/project_limao.php.
The Companys exploration plan for the Limão project, subject
to financing, would be to continue drilling on the property and follow-up on
prospective anomalies. Significant additional drilling would be necessary to
advance the project to a point where a resource estimate can be determined at
the property. The Company currently does not have sufficient funds to continue
with the next stage of this plan. In the interim, the Companys plan is to
safeguard the opportunity to continue the
Limão exploration program to a time when equity markets
improve. Additionally, the Company is investigating other options, such as a
sale of the project, or securing partners or other strategic alternatives that
would be in the interests of the shareholders.
Ouro Roxo
The Company holds a 2.5% NSR interest on the Ouro Roxo
concessions as per its October 29, 2009 agreement with the Brazilian Consortium
that holds the Ouro Roxo mining licenses. As a result of a pre-existing
agreement between Matapi and Amerix, the southern Ouro Roxo concessions are
subject to a 2.0% underlying NSR payable to Matapi. Amerix has the right to
buy-out this underlying 2.0% NSR.
As of the date of this report, the Company has not received any
royalty income from the Consortium due to delays in the Consortium achieving
commercial production. The Companys ability to maintain its interest in the
Ouro Roxo royalty is subject to the Company making all required payments to
Matapi of its underlying 2.0% NSR. If the Company is unable to make such
payments the Company may lose all of its interest in the Ouro Roxo royalty. See
Risk Factors.
12
RESULTS OF OPERATIONS
Selected Annual Information:
The following table summarizes selected financial data for the
Company for each of the last three fiscal years. The information set forth below
should be read in conjunction with the audited Consolidated Financial
Statements, prepared in accordance with IFRS, and their related notes.
|
Year Ended
July 31st
, 2014 $ |
Year Ended
July 31st
, 2013 $ |
Year Ended
July 31st
, 2012 $ |
|
|
|
|
Exploration and evaluation
expenditures |
$ 376,163 |
$ 1,586,176 |
$ 2,257,145 |
|
|
|
|
Net Loss |
(665,950) |
(2,175,624) |
(2,947,862) |
Net Loss per Share |
(0.01)
|
(0.03)
|
(0.05)
|
|
|
|
|
Working Capital (Deficit) |
(516,792) |
149,158 |
325,144 |
|
|
|
|
|
|
|
|
Total Assets |
11,534 |
406,554 |
792,390 |
|
|
|
|
Shareholders Equity (Deficiency)
|
|
|
|
Dollar amount |
$ (516,792) |
$ 149,158 |
$ 325,144 |
Number of Shares
Outstanding |
82,454,934 |
82,454,934 |
63,693,434 |
|
|
|
|
Summary of Quarterly Results:
|
Revenues |
Net Loss |
Loss/Share
Basic and
Diluted |
July 31,2014 |
Nil |
(119,796) |
(0.002) |
April 30, 2014 |
Nil |
(147,547) |
(0.002) |
January 31, 2014 |
Nil |
(179,061) |
(0.002) |
October 31, 2013
|
Nil |
(219,546) |
(0.003) |
|
|
|
|
July 31, 2013 |
Nil |
(179,017) |
(0.00) |
April 30, 2013 |
Nil |
(341,827) |
(0.01) |
January 31, 2013
|
Nil |
(816,259) |
(0.01) |
October 31, 2012 |
Nil |
(838,521) |
(0.01) |
13
Three and Twelve Months ended July 31, 2014:
Canadian Dollars |
Three Months ended
July 31,
|
Twelve Months ended
July 31,
|
2014 |
2013 |
2014 |
2013 |
Operating expenses |
|
|
|
|
Exploration and evaluation |
$ 80,309 |
$ 149,840 |
$ 376,163 |
$ 1,586,176 |
Management fees |
- |
56,667 |
56,000 |
284,167 |
Professional fees |
36,114 |
32,973 |
112,547 |
131,369 |
General and administrative |
1,190 |
673 |
34,793 |
57,355 |
Shareholder relations
and filing fees |
2,201 |
1,244 |
26,763 |
54,375 |
Rent |
4,500 |
12,000 |
35,428 |
39,000 |
Travel and promotion |
2,857 |
2,618 |
8,678 |
28,054 |
Loss (gain) on foreign exchange |
(7,375) |
(76,998) |
15,578 |
(7,881) |
Stock-based compensation |
- |
- |
- |
5,750 |
Total operating expenses |
$ 119,796 |
$ 179,017 |
$ 665,950 |
$ 2,178,365 |
Interest income |
- |
- |
- |
2,741 |
Net loss for the period |
$ 119,796 |
$ 179,017 |
$ 665,950 |
$ 2,175,624 |
Financing activities (net) |
$ - |
$ - |
$ - |
$ 1,993,888 |
Working capital (deficiency) |
$ (516,792) |
$ 149,158 |
$ (516,792) |
$ 149,158 |
Three Months ended July 31, 2014:
The Company incurred operating expenses of $119,796 for the
three months ended July 31, 2014, compared to $179,017 for the prior year
period. Exploration and evaluation expenditures amounted to $80,309 (2013 -
$149,840) as the Company scaled back on its exploration activities during the
current period compared to the prior year period, which included costs related
to the Phase 2 drill program on the Limão property. Management fees of $Nil
(2013 - $56,667) were lower during the period as management reduced fees
effective June 2013. Professional fees of $36,114 (2013 - $32,973) were higher
in the current period due mainly to costs associated with the proposed
transaction with Eagle Graphite Corporation (See Liquidity and Capital
Resources). Rent expense of $4,500 (2013 - $12,000) was less than the prior year
period as the Company entered into a lower cost office lease arrangement in
December 2013. Travel and promotion of $2,857 (2013 - $2,618) was comparable to
the prior year expense. Foreign exchange gain of $7,375 (2013 gain 76,998) was
a result of the Canadian dollar exchange rate fluctuating against the US dollar
and the Brazilian Real during the period.
14
Twelve Months ended July 31, 2014:
The Company incurred operating expenses of $665,950 for the
twelve months ended July 31, 2014, compared to $2,178,365 for the prior year
period. Exploration and evaluation expenditures amounted to $376,163(2013 -
$1,586,176) as the Company scaled back on its exploration activities during the
current period compared to the prior year period, which included costs related
to the Phase 2 drill program on the Limão property and an option payment of
BR$100,000 on the optioned concessions adjacent to the Limão property.
Management fees of $56,000 (2013 - $284,167) were lower during the period as
management reduced fees effective June 2013. Professional fees of $112,547 (2013
- $131,369) were lower in the current period due to a reduction in the overall
level of business activity compared to the prior year activity. General and
administrative costs of $34,793 (2013 - $57,355) were lower than the prior year
period due to reduced activity and general cost cutting measures. Shareholder
relations and filing fees of $26,763 (2013 - $54,375) were lower in the current
period as the prior year period included costs associated with updating the
website for corporate videos and social media accounts, as well as general cost
cutting measures. Rent expense of $35,428 (2013 - $39,000) was lower as the
Company terminated its office lease agreement effective November 30, 2013, and
entered into a lower cost office lease arrangement in December 2013. Travel and
promotion of $8,678 (2013 - $28,054) was lower as there was no travel to Brazil
during the current period, compared to the prior year period which had
additional travel related to the drill program. Foreign exchange loss of $15,578
(2013 gain 7,881) was a result of the Canadian dollar exchange rate
fluctuating against the US dollar and the Brazilian Real during the period.
LIQUIDITY AND CAPITAL RESOURCES
As at July 31, 2014, the Company had cash of $7,789, total
current assets of $11,534 and total current liabilities of $528,326, resulting
in a working capital deficit of $516,792 (July 31, 2013 working capital
balance of $149,158). Included in current liabilities is $465,827 relating to
MVPR. During the twelve months ended July 31, 2014 the Companys average monthly
cash burn rate, excluding exploration expenditures and foreign exchange, was
approximately $23,000. The Company expects its monthly burn rate to continue to
decrease going forward due to ongoing cost cutting measures. The Company has
also deferred further exploration work on the Limão project. (See comments below
and Proposed Transaction).
As a junior exploration stage company, Amerix has traditionally
relied on equity financings and warrant exercises to fund exploration programs
and general working capital requirements of a publicly traded junior resource
company. The Companys ability to raise additional funds and its future
performance are largely tied to the health of the financial markets and investor
interest in the gold mining industry. Financial markets are currently volatile,
and are likely to remain so throughout 2014 and 2015, reflecting ongoing
concerns about the stability of the global economy, sovereign debt levels,
global growth prospects and many other factors that might impact the Companys
ability to raise additional funds.
Although the Company has been successful to date in raising
capital, there can be no assurance that adequate or sufficient funding will be
available in the future on terms that are acceptable to the Company. These
circumstances indicate the existence of a material uncertainty, which may cast
significant doubt as to the ability of the Company to continue as a going
concern.
On November 5, 2014 the Company announced that it had signed a
definitive amalgamation agreement with Eagle Graphite Corporation (Eagle), a
privately-held Canadian company which specializes in natural flake graphite mining, in respect of a
transaction whereby Eagle Graphite will complete a business combination with
Amerix. Also, on November 5, 2014, in conjunction with the proposed business
combination, Amerix closed a private placement financing of 10,930,000
subscription receipts for gross proceeds of $1,093,000, to be held in escrow
until the closing of the business combination. The proceeds of the private
placement financing will be used for eligible Canadian exploration expenditures
and the tax benefit will be renounced in respect of the 2014 taxation year. Also
in conjunction with the proposed transaction, Eagle completed a private
placement financing for gross proceeds of $1,505,000 to be held in escrow until
the closing of the proposed business combination.
15
The Company believes its ability to manage its working capital
position for the next twelve months and continue as a going concern is dependent
upon closing of the business combination with Eagle. Should the proposed
business combination not be completed this will cause serious doubt as to the
Companys ability to continue as a going concern. (See Proposed
Transaction).
On November 25, 2013 the Company announced that its Board of
Directors has commenced a review of strategic alternatives for the Company with
the objective of enhancing shareholder value. As part of the strategic review
process, the Company will be examining a number of alternatives including, but
not limited to, joint ventures, strategic partnerships, mergers, acquisitions,
and the sale of the Company or other corporate transactions to enhance
shareholder value.
Amerix has entered into discussions and has executed
confidentiality agreements with a number of interested parties. The Company has
not set a schedule to complete its evaluation and there can be no assurance that
any transaction will result. The Company does not intend to disclose further
details with respect to its review of strategic alternatives unless and until
the Board of Directors has approved a specific transaction or such disclosure is
otherwise appropriate. The Company anticipates that any contemplated sale of
MVPR would involve the sale of the legal entity and assumption of outstanding
liabilities, which were $465,827 as at the date of this report.
As at the date of this report, the Company has 82,454,934
common shares outstanding together with 3,533,332 stock options. The Companys
fully diluted position is 85,988,266 common shares. All outstanding stock
options are currently not in the money.
COMMITMENTS AND CONTINGENCIES
As at the date of this report the Company has the following
contractual obligations:
Contractual Obligations |
Total |
2015 |
2016 |
Long term debt |
- |
- |
- |
Capital lease obligations |
- |
- |
- |
Operating obligations ( Cdn 000s) |
36 |
18 |
18 |
Purchase obligations |
- |
- |
- |
Other Long Term Obligations |
- |
- |
- |
16
Operating Obligations
The Company has entered into a lease agreement for office space
effective December 1, 2013, with annual lease payments of approximately $18,000,
expiring on July 30, 2016.
Limão exploration expenditures and option payments
Matapi retains a 2.0% NSR in respect of the Limão Property and
will receive an additional 127,750 common shares of Amerix if a technical report
is prepared in compliance with NI 43-101 confirms the existence of at least
1,000,000 ounces of gold at the Limão Property. The Company has the option to
buy out the underlying 2.0% NSR for approximately $479,000 (R$1,000,000).
On May 14, 2012 Amerix entered into an agreement whereby the
Company optioned adjacent exploration properties (2 property groups) immediately
to the west of the Limão Property. The terms of the Agreement allow for staged
payments to the local vendors consisting of cash (BR$1,000,000) and Amerix
common shares (650,000 shares) over 4 years followed by success payments of
R$500,000 for positive Feasibility Studies at either of the properties. In the
event of a production decision at either of the properties, a payment of
BR$1,000,000 will be payable upon reaching commercial production. In addition a
1.0% Net Gold Sales Royalty will be payable to the vendors. The Company
completed its due diligence on the optioned exploration properties and made an
option payment of BR$100,000 to the local vendors on October 30, 2012. Future
option payments are conditional upon transfer of title to the exploration
properties to Amerix. Due to delays relating to the proposed new Brazilian
mining code, the DNPM has temporarily suspended the granting and transfer of
titles and as a result the vendors have been unable to transfer the property
titles to MVPR. The Companys second option payment is comprised of BR$100,000
and 100,000 common shares and was due in April 2013. The payments due in April
2013, and all subsequent option payments, have been deferred until title to the
properties has been transferred.
The Company has submitted to the DNPM in September 2014, a
report of its exploration work, to renew the Limão principal concessions for a
second 3 year exploration period. The Company is awaiting the acknowledgement
from the DNPM of the renewal.
Ouro Roxo
As a result of an earlier agreement entered into with Matapi,
the Company has existing obligations to Matapi as follows:
(i) |
a 2.0% NSR to Matapi, with a buyout of US$200,000 for
each one-quarter of the NSR (0.5%) which may be paid down, in whole or in
part, at any time by the Company; and |
|
|
(ii) |
The issue of 322,083 common shares of the Company,
issuable to Matapi upon receipt by the Company of an independent study
that confirms a mineable reserve (in the probable category or better) of
at least 2,000,000 ounces of gold on this
property. |
17
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this filing, the Company does not have any
off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect upon the results of operations or financial condition
of the Company, including, and without limitation, such considerations as
liquidity and capital resources.
TRANSACTIONS WITH RELATED PARTIES
For the three and twelve months ended July 31, 2014, the
Company had the following related party transactions:
|
Three Months ended July 31, |
Twelve Months ended July 31, |
Related party |
2014 |
|
2013 |
2014 |
|
2013 |
Single Jack Investments (1) |
$ - |
|
$ 7,500 |
$ 12,500 |
|
$ 30,000 |
Steve Brunelle (2) |
$ - |
|
$ 36,667 |
$ 31,000 |
|
$ 174,167 |
Dan Hamilton (3) |
$
- |
|
$ 12,500 |
$ 12,500 |
|
$ 80,000 |
Ad Hoc Consultores (4) |
$ 22,500 |
|
$ 22,500 |
$ 90,000 |
|
$ 90,000 |
(1) Single Jack Research and Exploration (Single
Jack) is a private company controlled by Mr. Jeffrey Reeder. Payments made to
Single Jack are on account of Mr. Reeders services as Executive Chairman of
Amerix.
(2) Mr. Steve Brunelle is the President and CEO of
Amerix. Payments made to Mr. Brunelle are on account of his services as
President and CEO of Amerix.
(3) Mr. Hamilton is the Chief Financial Officer of
the Company. Payments made to Mr. Hamilton are on account of Mr. Hamiltons
services as Chief Financial Officer.
(4) Ad Hoc Consultores (Ad Hoc) is a private
company in Brazil controlled by Mr. Luciano Borges. Mr. Borges is a Director of
the Company and the President and General Manager of the
Companys Brazilian subsidiary, MVPR. Payments made to Ad Hoc
are on account of Mr. Borges services as President and General Manager of MVPR
and are in $US. As at July 31, 2014 accounts payable included $131,302 payable
to Mr. Borges and Ad Hoc.
Directors, key management and other related parties were not
awarded any share options under the employee share option plan during the three
and twelve-month periods ended July 31, 2014 and 2013.
18
SHARE CAPITAL
Common shares
The following table shows the continuity of common shares
issued and outstanding during the period:
|
|
Number of Shares |
|
|
Amount |
|
Balance, July 31, 2012 |
|
63,693,434 |
|
$ |
22,373,248 |
|
|
|
|
|
|
|
|
Private placements |
|
18,661,500 |
|
|
2,239,380 |
|
Fair value of warrants issued |
|
- |
|
|
( 594,426 |
) |
Fair value of broker warrants
issued |
|
- |
|
|
( 103,105 |
) |
Share issuance costs |
|
- |
|
|
( 161,040 |
) |
Exercise of stock options |
|
100,000 |
|
|
21,400 |
|
|
|
|
|
|
|
|
Balance, July 31, 2013 and
July 31, 2014 |
|
82,454,934 |
|
$ |
23,775,457 |
|
Warrants
The following table shows the continuity of common share
purchase warrants, compensation options and unit purchase options (broker
warrants) during the period:
|
|
Common share |
|
|
|
|
|
|
|
|
Average |
|
|
|
Purchase |
|
|
Broker |
|
|
Total |
|
|
Exercise |
|
|
|
Warrants |
|
|
Warrants |
|
|
Warrants |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2012 |
|
11,296,985 |
|
|
1,449,898 |
|
|
12,746,883 |
|
|
$0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted as part of private
placement |
|
9,330,750 |
|
|
1,212,998 |
|
|
10,543,748 |
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
(2,196,985 |
) |
|
(1,449,898 |
) |
|
(3,646,883 |
) |
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2013 |
|
18,430,750 |
|
|
1,212,998 |
|
|
19,643,748 |
|
|
$0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired during the period |
|
(9,100,000 |
) |
|
- |
|
|
(9,100,000 |
) |
|
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2014 |
|
9,330,750 |
|
|
1,212,998 |
|
|
10,543,748 |
|
|
$0.17 |
|
All common share purchase warrants and broker warrants
outstanding as at July 31, 2014 expired without exercise on October 30, 2014.
19
Stock options
The following table shows the continuity of stock options
during the period:
|
|
Number of |
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price |
|
Balance, July 31, 2012 |
|
5,924,994 |
|
|
$0.30 |
|
Options exercised |
|
( 100,000 |
) |
|
$0.11 |
|
Options expired |
|
( 1,199,996 |
) |
|
$0.39 |
|
Options granted |
|
50,000 |
|
|
$0.12 |
|
Balance, July 31, 2013 |
|
4,674,998 |
|
|
$0.27 |
|
Options expired |
|
(
1,141,666 |
) |
|
$0.26 |
|
Balance, July 31, 2014 |
|
3,533,332 |
|
|
$0.28 |
|
As at November 19, 2014, the following stock options were
outstanding:
Number of
options |
Exercise Price |
Expiry Date |
1,208,332 |
$0.30 |
March 7, 2015 |
1,000,000 |
$0.38 |
January 25, 2016 |
1,000,000 |
$0.22 |
July 19, 2016 |
275,000 |
$0.11 |
January 17, 2017 |
50,000 |
$0.12 |
October 1, 2017 |
Fully diluted
A summary of common shares, common share options, broker
warrants, and common share purchase warrants at November 19, 2014, is tabled
below:
Common shares issued |
|
82,454,934 |
|
Common share options |
|
3,533,332 |
|
Fully diluted common shares |
|
85,988,266 |
|
PROPOSED TRANSACTION
On November 5, 2014 the Company announced that it closed a
private placement (the Amerix Offering) of subscription receipts
(the Subscription Receipts), led by Canaccord Genuity Corp. (the
Agent). The Company also entered into a definitive amalgamation
agreement (the Definitive Agreement) with Eagle Graphite Corporation
(Eagle) dated November 5, 2014 in respect of a proposed merger of
Amerix and Eagle (the Transaction), pursuant to which 9073329 Canada
Inc., a wholly-owned subsidiary of Amerix (Amerix Subco), and Eagle
will amalgamate and the outstanding securities of Eagle will be exchanged, on a
one-for-one basis, for securities of the Company (as constituted post-Transaction, the
Company is herein sometimes referred to as the Resulting Issuer).
20
In connection with the Transaction, on November 5, 2014, Eagle
closed a private placement (the Eagle Offering) for proceeds of
$1,505,000. The Amerix Offering, the Eagle Offering and the Definitive Agreement
are each discussed in greater detail below.
The Amerix Offering
The Company issued a total of 10,930,000 Subscription Receipts
at a price of $0.10 per Subscription Receipt (the Issue Price) for
gross proceeds of $1,093,000. The Subscription Receipts were issued in
connection with the Transaction, as set forth pursuant to the terms and
conditions of the Definitive Agreement.
In accordance with the terms of the Subscription Receipts, the
Definitive Agreement, and other documentation in relation to the Amerix
Offering, the gross proceeds of the Amerix Offering (the Escrowed
Funds) will be held in escrow on behalf of the holders of the Subscription
Receipts pending the satisfaction of the escrow release conditions (the
Escrow Release Conditions). Upon satisfaction of the Escrow Release
Conditions, each Subscription Receipt will be automatically exercisable into one
share of the Resulting Issuer (each, a Resulting Issuer Share) which
will qualify as a flow-through share within the meaning of the Income Tax
Act (Canada), and the Escrowed Funds shall be released to the Resulting
Issuer from escrow.
The Escrow Release Conditions for the Amerix Offering will
include the completion of the Transaction, which itself is subject to a number
of conditions, including the receipt of conditional approval for trading on the
TSX Venture Exchange (the TSXV) in respect of the Resulting Issuer
Shares ultimately underlying the Subscription Receipts. Assuming satisfaction of
the Escrow Release Conditions, the proceeds of the Amerix Offering will be used
for exploration expenditures by the Resulting Issuer, which will constitute
Canadian exploration expenses (within the meaning of the Income Tax Act
(Canada)) and will be renounced in respect of the Companys 2014 taxation
year.
In the event that the Escrow Release Conditions are not
satisfied on or before 5:00 p.m. (Toronto time) on December 31, 2014 (the
Escrow Deadline), the unexercised Subscription Receipts will
immediately become null, void and of no further force or effect and, as soon as
reasonably possible, and in any event within five (5) business days following
the Escrow Deadline, the Escrowed Funds shall be distributed to the holders of
Subscription Receipts such that each purchaser will receive an amount equal to
the aggregate Issue Price for such purchasers unexercised Subscription Receipts
without interest or deduction.
In consideration for its services, the Agent received a cash
commission equal to 7% of the gross proceeds of the Amerix Offering, as well as
broker warrants to purchase an aggregate of 765,100 Resulting Issuer Shares,
representing 7% of the number of Subscription Receipts issued pursuant to the
Amerix Offering, at the Issue Price for a period of 24 months from closing of
the Amerix Offering.
The Escrowed Funds will be held by Equity Financial Trust
Company (the Escrow Agent).
In connection with the Transaction, Amerix will, effective
immediately prior to the completion of the Transaction, consolidate its
outstanding common shares on the basis of one (1) new share for twenty (20) old shares (the Consolidation). For
greater clarity, the Resulting Issuer Shares issuable upon exercise of the
Subscription Receipts are the post-Consolidation shares of Amerix.
21
The Eagle Offering
In connection with the Transaction and concurrent with the
Amerix Offering, Eagle has completed a best efforts private placement offering
(the Eagle Offering) of 15,050,000 subscription receipts of
Eagle (the Eagle Subscription Receipts) at a price of $0.10 per Eagle
Subscription Receipt for gross proceeds of $1,505,000. Each Eagle
Subscription Receipt is exercisable into one unit of Eagle (each, a
Unit) upon the satisfaction of the escrow release conditions applicable
to the Units (the Eagle Escrow Release Conditions).
The Eagle Escrow Release Conditions include (a) the
satisfaction or waiver of all conditions precedent to the Transaction in
accordance with the terms of the Definitive Agreement; (b) the receipt of
conditional approval for the Transaction from the TSXV, including the listing of
the Resulting Issuer Shares issued and issuable under the Eagle Offering; (c)
Eagle not being in breach or default of any of its covenants or obligations
under the agency agreement entered into in connection with the Eagle Offering in
any material respect except those breaches or defaults that have been cured by
Eagle or waived by the Agent; (d) the Transaction being completed (other than
the amalgamation taking effect) on substantially the terms which the Agent
approved prior to the closing of the Eagle Offering (unless otherwise agreed by
the Agent); and (e) no material change having occurred in respect of Eagle or
the Resulting Issuer.
Each Unit consists of one common share of Eagle (each, an
Eagle Share) and one-half of one common share purchase warrant (each
whole warrant, an Eagle Warrant). Each Eagle Warrant is exercisable by
the holder thereof to acquire one Eagle Share at a price of $0.15 per share for
a period of 60 months following the exercise of the Eagle Subscription Receipts.
The Eagle Shares and Eagle Warrants will be exchanged on a one-for-one basis for
Resulting Issuer Shares and common share purchase warrants of the Resulting
Issuer, respectively, on the same economic terms, upon the completion of the
Transaction. The net proceeds of the Eagle Offering are anticipated to be used
for ongoing exploration and development of Eagles Black Crystal graphite
project and for working capital and general corporate purposes.
In connection with the Transaction, Eagle will, effective
immediately prior to the completion of the Transaction, split its outstanding
common shares on the basis of one (1) old share for twenty (20) new shares (the
Stock Split). For greater clarity, the Eagle Shares partially
underlying the Units issuable upon exercise of the Eagle Subscription Receipts
are the post-Stock Split shares of Eagle.
The proceeds of the Eagle Offering are in addition to bridge
financing previously secured by Eagle in the form of promissory notes with an
aggregate principal value of $700,000 (the Notes). The Notes are due
June 22, 2015, and are automatically convertible into up to 7,840,000 Eagle
Shares and up to 3,920,000 Eagle Warrants immediately prior to the closing of
the Transaction.
The Definitive Agreement
On November 5, 2014, the Company, Eagle, and Amerix Subco
entered into the Definitive Agreement. Subject to regulatory and other approvals
which may be required and the satisfaction of other conditions contained in the
Definitive Agreement, the merger will occur via a reverse takeover under the
policies of the TSXV. Pursuant to the terms of the Definitive Agreement, Amerix Subco will amalgamate with Eagle, and all outstanding
securities of Eagle will be exchanged, on a one-for-one basis, for securities of
the Resulting Issuer. Any outstanding convertible securities of Eagle, including the Eagle Warrants,
will be exchanged for convertible securities of the Resulting Issuer on similar
economic terms. As the Transaction requires the approval of the shareholders of
Amerix, the Company has called a special meeting of shareholders to be held on
December 17, 2014. In connection with the meeting, Amerix will mail an
information circular to its shareholders describing the Transaction, Eagle and
other information prescribed under applicable securities laws and TSXV policies.
22
Capital Structure of the Resulting Issuer
Amerix currently has 82,454,934 common shares issued and
outstanding on a pre-Consolidation basis (approximately 4,122,746 common shares
on a post-Consolidation basis). Eagle is expected to have approximately
11,409,940 common shares issued and outstanding on a pre-Stock Split basis
(approximately 228,198,800 Eagle Shares on a post-Stock Split basis). Eagle is
currently controlled by Latitude Minerals Inc. (Latitude), a
corporation incorporated under the Business Corporations Act (British
Columbia), which holds approximately 91% of the outstanding shares of Eagle.
Latitude is in turn controlled by the President of Eagle (as to approximately
63%).
Upon completion of the Transaction, former shareholders of
Eagle will receive, for each Eagle Share held, one (1) Resulting Issuer Share.
Assuming satisfaction of the Escrow Release Conditions and the completion of the
Amerix Offering and the Eagle Offering for aggregate gross proceeds of up to
$1,100,000 and up to $2,000,000, respectively, upon the completion of the
Transaction, as of the date hereof there would be approximately 263,321,546
Resulting Issuer Shares issued and outstanding, and that:
|
(a) |
the former shareholders of Eagle will hold an aggregate
of approximately 228,198,800 Resulting Issuer Shares representing
approximately 88.3% of the issued and outstanding Resulting Issuer
Shares; |
|
|
|
|
(b) |
the current shareholders of Amerix will hold an aggregate
of approximately 4,122,746 Resulting Issuer Shares representing
approximately 1.6% of the outstanding Resulting Issuer Shares; |
|
|
|
|
(c) |
purchasers under the Amerix Offering will hold an
aggregate of approximately 11,000,000 Resulting Issuer Shares representing
approximately 4.3% of the outstanding Resulting Issuer Shares;
and |
|
|
|
|
(d) |
purchasers under the Eagle Offering will hold an
aggregate of approximately 20,000,000 Resulting Issuer Shares representing
approximately 5.8% of the outstanding Resulting Issuer
Shares. |
The number of Resulting Issuer Shares, and the percentages
listed above, is subject to change depending on the actual gross proceeds of the
Amerix Offering, the Eagle Offering and any shares issuable upon conversion of
Eagle convertible securities prior to the date of completion of the
Transaction.
Closing Conditions
Completion of the Transaction is subject to a number of
conditions, including but not limited to the satisfaction of Amerix and Eagle in
respect of the due diligence investigations to be undertaken by each party, the
receipt of approval of the directors of each of Amerix and Eagle, the approval
of the shareholders of Eagle, the receipt of approval of the
shareholders of Amerix, and the receipt of all necessary approvals of all
regulatory bodies having jurisdiction in connection with the Transaction,
including the TSXV. The Transaction cannot close until the required conditions
are satisfied or waived, and there can be no assurance that the Transaction will
be completed as proposed or at all.
23
SUBSEQUENT EVENTS
See above re Proposed Transactions.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the unaudited condensed consolidated interim
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of expenses during the reporting
period. Actual outcomes could differ from these estimates. The unaudited
condensed consolidated interim financial statements include estimates which, by
their nature, are uncertain. The impacts of such estimates are pervasive
throughout the consolidated financial statements, and may require accounting
adjustments based on future occurrences. Revisions to accounting estimates are
recognized in the period in which the estimate is revised and the revision
affects both current and future periods.
CHANGES IN ACCOUNTING POLICIES
The significant accounting policies are outlined in the July
31, 2014 annual consolidated financial statements. There are no relevant changes
in accounting standards applicable to future periods other than as disclosed in
the most recent annual consolidated financial statements as at and for the year
ended July 31, 2014.
FINANCIAL RISK FACTORS
Financial Risk
The Companys activities expose it to a variety of financial
risks: credit risk, liquidity risk and market risk including interest rate,
foreign exchange rate, and commodity price risk. Risk management is carried out
by the Company's management team with guidance from the Audit Committee under
policies approved by the Board of Directors. The Board of Directors also
provides regular guidance for overall risk management.
Credit Risk
Credit risk is the risk of loss
associated with a counterpartys inability to fulfill its payment obligations.
The Company's credit risk is primarily attributable to cash, cash equivalents
and other receivables. Cash and cash equivalents are held with reputable
financial institutions which are closely monitored by management. Management
believes that the credit risk concentration with respect to financial
instruments included in cash and cash equivalents is minimal.
Liquidity Risk
The Company's approach to managing
liquidity risk is to ensure that it will have sufficient liquidity to meet
liabilities when due. As at July 31, 2014, the Company had a working capital
deficit of $516,792 (July 31, 2013 working capital of $149,158). All of
the Company's financial liabilities have contractual maturities of less than 60
days and are subject to normal trade terms.
24
Market Risk
Interest Rate Risk
Interest
rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market interest rates. The Company
has minimal cash balances.
Commodity Price Risk
The
Company is exposed to commodity price risk. Commodity price risk is defined as
the potential adverse impact on earnings and economic value due to commodity
price movements and volatilities. The Company closely monitors commodity prices
as it relates to precious metals to determine the appropriate course of action
to be taken by the Company.
Foreign Currency Risk
The
Company's reporting and functional currency is the Canadian dollar and major
purchases are transacted in Canadian dollars, US dollars and Brazilian Reals.
The Company funds major exploration expenses in Brazil. Accordingly, it
maintains Brazilian Real bank accounts in Brazil. Management believes the
foreign exchange risk derived from currency conversions is negligible and
therefore does not hedge its foreign exchange risk.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Company is not involved in any hedging program, nor is it a
party to any financial instruments that may have an impact on its financial
position.
ENVIRONMENTAL
The Company does not believe that there are any significant
environmental obligations requiring material capital outlays in the immediate
future and anticipates that such obligations will only arise when full-scale
development commences. As the Companys projects are still in the exploration
and development stage and no significant environmental impact has occurred to
date, the Company does not currently consider that expenditures required to meet
any ongoing environmental obligations at the projects are material to its
results or to the financial condition of the Company at this time. However,
these costs may become material in the future and will be reported in the
Companys filings at that time.
DISCLOSURE OF INTERNAL CONTROLS
Management has established processes which are in place to
provide them sufficient knowledge to support management representations that
they have exercised reasonable diligence that (i) the consolidated financial
statements do not contain any untrue statement of material fact or omit to state
a material fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it is made, as of the
date of and for the periods presented by the consolidated financial statements; and (ii) the
consolidated financial statements fairly present all material respects the
financial condition, results of the operations and cash flows of the Company, as
of the date of and for the periods presented by the consolidated financial
statements.
25
In contrast to the certificate required under Multilateral
Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim
Filings (MI 52-109), the Company utilizes the Venture Issuer Basic Certificate
which does not include representations relating to the establishment and
maintenance of disclosure controls and procedures (DC&P) and internal
control over financial reporting (ICFR), as defined in MI 52-109. In particular,
the certifying officers filing the Certificate are not making any
representations relating to the establishment and maintenance of:
i) controls and other procedures
designed to provide reasonable assurance that information required to be
disclosed by the issuer its annual filings, interim filings or other reports
filed or submitted under securities legislation is recorded, processed,
summarized and reported within the time periods specified in securities
legislation; and
ii) a process to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with the issuers
GAAP. The Companys certifying officers are responsible for ensuring that
processes are in place to provide them with sufficient knowledge to support the
representations they are making in this certificate.
Investors should be aware that inherent limitations on the
ability of certifying officers of a venture issuer to design and implement on a
cost effective basis DC&P and ICFR as defined in MI 52-109 may result in
additional risks to the quality, reliability, transparency and timeliness of
interim and annual filings and other reports provided under securities
legislation.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company, including its
audited annual consolidated financial statements, its unaudited quarterly
financial statements and related management discussion and analysis for each
period therein is available on SEDAR at www.sedar.com.
RISK FACTORS
Investment in a natural resource company involves a significant
degree of risk. The degree of risk increases substantially where the Companys
properties are in the exploration, as opposed to the development or production
stage. All of the Companys properties are in the exploration stage. There are a
number of risks inherent to the Companys business. These may be summarized as
follows:
Financing: The Company does not presently have
sufficient financial resources to complete, by itself, the exploration required
to develop its properties to an advanced stage. The exploration and development
of the Companys properties will therefore depend upon the Companys ability to
obtain financing through the joint venturing of projects, private placement
financing, public financing or other means. There is no assurance that the
Company will be successful in obtaining the required financing.
26
Limited Operating History and Lack of Cash Flow:
The Company has a limited business history. The Company has no history of
earnings or cash flow from its present operations. The only present source of
funds available to the Company is through the sale of equity or debt securities
or borrowing. Even if the results of exploration are encouraging, the Company
may not have sufficient funds to conduct further exploration that may be
necessary to determine whether or not a commercially mineable deposit exists on
any property it has or it acquires and the Company may not realize a return on
its investment. While the Company may generate additional working capital
through equity offerings, borrowing, sale or the joint venture development of
its properties and/or a combination thereof, there is no assurance that any such
funds will be available. Failure to obtain such additional capital, if needed,
would have a material adverse effect on the Company.
The Company has neither declared nor paid dividends during the
past five years and does not anticipate doing so in the foreseeable future.
Limited Business of the Company: Other than the
Companys interest in the Limão Property in Brazil and its interest in the Ouro
Roxo NSR, the Company has no material non-cash assets. There is no assurance the
Company will be able to finance the acquisition of properties or the exploration
or development thereof.
Exploration and Development: All of the resource
properties in which the Company has an interest or the right to acquire an
interest are in the exploration stage and without a known body of commercial
ore. Development of any resource property held or acquired by the Company will
only follow obtaining satisfactory exploration results. Exploration for and the
development of natural resources involve a high degree of risk and few
properties which are explored are ultimately developed into producing
properties. There is no assurance that the Companys exploration activities will
result in any discovery of commercial ore.
Substantial expenditures are required to establish reserves
through drilling, to develop processes to extract reserves and to develop the
extraction and processing facilities and infrastructure at any site chosen for
extraction. Although substantial benefits may be derived from the discovery of a
major deposit, no assurance can be given that resources will be discovered in
sufficient quantities to justify commercial operations or that the funds
required for development can be obtained on a timely basis. Few properties that
are explored are ultimately developed into producing mines.
Loss of Brazilian Properties: The Company must
incur future expenditures in order to complete the purchase option obligations
for the Limão exploration properties acquired in May 2012 and there is the risk
the property vendor may seek to repossess the property if the required option
obligations are not made as scheduled.
Environmental and Government Legislation:
Existing and possible future environmental legislation, regulations, and actions
could cause significant expense, capital expenditures, restrictions, and/or
delays in the activities of the Company, the extent of which cannot be predicted
and which may well be beyond the capacity of the Company to fund. The Companys
right to exploit any mining properties is subject to various reporting
requirements and to obtaining certain governmental approvals and there is no
assurance that such approvals, including environmental approvals, will be
obtained without delay, or at all.
Any exploration program executed by the Company will be subject
to government legislation, policies and controls relating to prospecting,
development, production, environmental protection, mining taxes and labour
standards. In addition, the profitability of any mining project is affected both by production costs and by markets for the projects
metals, which in turn may be influenced by factors including the supply and
demand for such metals, the rate of inflation, the inventories of larger
producers, the political environment and changes in international investment
patterns.
27
Environmental Factors: All phases of the
Companys future operations are subject to environmental regulation in the
various jurisdictions in which it operates. Environmental legislation is
evolving in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. There is no assurance
that future changes in environmental regulation, if any, will not adversely
affect the Company's business.
Conflicts of Interest: Certain of the directors
and officers of the Company are also directors, officers or shareholders of
other companies that are engaged in the business of acquiring, exploring and
developing natural resource properties. Such associations may give rise to
conflicts of interest from time to time. 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, to disclose any material interest which they may have
in any project or opportunity of the Company, and to abstain from voting on such
matter.
Operating Hazards and Risks: Future operations in
which the Company has a direct or indirect interest will be subject to all the
hazards and risks normally incidental to exploration, development and production
of resources, any of which could result in work stoppages, damage to persons or
property and possible environmental damage. The nature of the risks associated
with the Companys business are such that liabilities might exceed
insurance policy limits, the liabilities and hazards might not be insurable, or
the Company may elect not to insure itself against such liabilities due to high
premium costs or other reasons, in which event the Company could incur
significant costs that could have a material adverse effect upon its financial
condition.
The Company may become subject to liability for personal
injury, property, or environmental damage, and other hazards of mineral
exploration against which it cannot insure or against which it may elect not to
insure due to high premium costs or other reasons. Payment of such liabilities
could have a material adverse effect on the financial position of the Company.
Permits and Licenses: Upon acquisition of a
property interest, the operations of the Company will require licenses and
permits from various governmental authorities. There can be no assurance that
the Company will be able to obtain all necessary licenses and permits that may
be required to carry out exploration, development and mining operations at its
projects.
Fluctuating Prices: The Companys future
revenues, if any, are expected to be in large part derived from the extraction
and sale of precious metals. The price of those commodities fluctuates widely
and is affected by numerous factors beyond the Companys control including
international economic and political trends, expectations of inflation, currency
exchange fluctuations, interest rates, global or regional consumptive patterns,
speculative activities and increased production due to new extraction
developments and improved extraction and production methods. The effect of these
factors on the price of precious metals, and therefore the economic viability of
any of the Companys exploration projects, cannot be predicted accurately.
28
EXHIBIT C
PRO FORMA FINANCIAL STATEMENTS
EAGLE GRAPHITE CORPORATION
Pro Forma Financial Statements (Unaudited)
C-1
Eagle Graphite Corporation |
Pro Forma Consolidated Statement of Financial
Position |
As at August 31, 2014 |
(Unaudited) |
(Expressed in Canadian Dollars)
|
|
|
Amerix |
|
|
Eagle |
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
July 31, 2014 |
|
|
August 31, 2014 |
|
|
Note 2 |
|
|
Pro Forma |
|
|
Consolidated |
|
|
|
(Audited) |
|
|
(Unaudited) |
|
|
Ref. |
|
|
Adjustments |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
$ |
7,789 |
|
$ |
53,988 |
|
|
e |
|
$ |
1,093,000 |
|
|
|
|
|
|
|
|
|
|
|
|
f |
|
|
(76,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
h |
|
|
1,505,000 |
|
|
|
|
|
|
|
|
|
|
|
|
i |
|
|
(105,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
l |
|
|
350,000 |
|
$ |
2,827,917 |
|
Other
receivables |
|
2,245 |
|
|
14,582 |
|
|
|
|
|
- |
|
|
16,827 |
|
Prepaid expenses |
|
1,500 |
|
|
26,606 |
|
|
|
|
|
- |
|
|
28,106 |
|
|
|
11,534 |
|
|
95,176 |
|
|
|
|
|
2,766,140 |
|
|
2,872,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property rights |
|
|
|
|
241,016 |
|
|
|
|
|
|
|
|
241,016 |
|
Reclamation bond |
|
|
|
|
135,000 |
|
|
|
|
|
|
|
|
135,000 |
|
Property, plant and equipment |
|
|
|
|
190,860 |
|
|
|
|
|
|
|
|
190,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,534 |
|
$ |
662,052 |
|
|
|
|
$ |
2,766,140 |
|
$ |
3,439,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
528,326 |
|
$ |
99,903 |
|
|
m |
|
$ |
200,000 |
|
$ |
828,229 |
|
Advances
under graphite sales contract |
|
- |
|
|
1,521,116 |
|
|
|
|
|
- |
|
|
1,521,116 |
|
Notes payable |
|
- |
|
|
475,000 |
|
|
k |
|
|
(475,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
l |
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
l |
|
|
(350,000 |
) |
|
- |
|
Due to shareholder |
|
- |
|
|
21,007 |
|
|
|
|
|
- |
|
|
21,007 |
|
|
|
528,326 |
|
|
2,117,026 |
|
|
|
|
|
(275,000 |
) |
|
2,370,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decommissioning
obligation |
|
- |
|
|
135,000 |
|
|
|
|
|
- |
|
|
135,000 |
|
|
|
528,326 |
|
|
2,252,026 |
|
|
|
|
|
(275,000 |
) |
|
2,505,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
23,775,457 |
|
|
4,806,453 |
|
|
b |
|
|
(23,775,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
d |
|
|
412,275 |
|
|
|
|
|
|
|
|
|
|
|
|
e |
|
|
1,093,000 |
|
|
|
|
|
|
|
|
|
|
|
|
f |
|
|
(76,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
g |
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
h |
|
|
1,505,000 |
|
|
|
|
|
|
|
|
|
|
|
|
h |
|
|
(331,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
i |
|
|
(105,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
j |
|
|
(55,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
k |
|
|
475,000 |
|
|
|
|
|
|
|
|
|
|
|
|
l |
|
|
350,000 |
|
|
8,069,537 |
|
Reserves |
|
1,366,179 |
|
|
190,506 |
|
|
b |
|
|
(1,366,179 |
) |
|
|
|
|
|
|
|
|
|
|
|
g |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
h |
|
|
331,995 |
|
|
|
|
|
|
|
|
|
|
|
|
j |
|
|
55,836 |
|
|
580,837 |
|
Accumulated
deficit |
|
(25,658,428 |
) |
|
(6,586,933 |
) |
|
b |
|
|
25,658,428 |
|
|
|
|
|
|
|
|
|
|
|
|
d |
|
|
(929,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
m |
|
|
(200,000 |
) |
|
(7,716,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(516,792 |
) |
|
(1,589,974 |
) |
|
|
|
|
3,041,140 |
|
|
934,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,534 |
|
$ |
662,052 |
|
|
|
|
$ |
2,766,140 |
|
$ |
3,439,726 |
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
Eagle Graphite Corporation |
Pro Forma Consolidated Statement of Comprehensive
Loss |
For the twelve months ended August 31, 2014 |
(Unaudited) |
(Expressed in Canadian Dollars)
|
|
|
Amerix |
|
|
Eagle |
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
July 31, 2014 |
|
|
August 31, 2014 |
|
|
Note 2 |
|
|
Pro Forma |
|
|
Consolidated |
|
|
|
(Audited) |
|
|
(Unaudited) |
|
|
Ref. |
|
|
Adjustments |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenditures
|
$ |
376,163 |
|
$ |
68,301 |
|
|
|
|
$ |
- |
|
$ |
444,464 |
|
Management fees |
|
56,000 |
|
|
- |
|
|
|
|
|
- |
|
|
56,000 |
|
Professional fees |
|
112,547 |
|
|
41,663 |
|
|
m |
|
|
200,000 |
|
|
354,210 |
|
General and
administrative |
|
34,793 |
|
|
56,889 |
|
|
|
|
|
- |
|
|
91,682 |
|
Shareholder relations and filing fees
|
|
26,763 |
|
|
- |
|
|
|
|
|
- |
|
|
26,763 |
|
Rent |
|
35,428 |
|
|
- |
|
|
|
|
|
- |
|
|
35,428 |
|
Travel and promotion |
|
8,678 |
|
|
8,836 |
|
|
|
|
|
- |
|
|
17,514 |
|
Amortization |
|
- |
|
|
38,889 |
|
|
|
|
|
- |
|
|
38,889 |
|
Share based compensation |
|
- |
|
|
190,506 |
|
|
|
|
|
- |
|
|
190,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before the following |
|
650,372 |
|
|
405,084 |
|
|
|
|
|
200,000 |
|
|
1,255,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listing expense |
|
|
|
|
|
|
|
d |
|
|
929,067 |
|
|
929,067 |
|
Foreign exchange loss
|
|
15,578 |
|
|
- |
|
|
|
|
|
- |
|
|
15,578 |
|
Interest expense |
|
- |
|
|
7,929 |
|
|
|
|
|
- |
|
|
7,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and
comprehensive loss |
$ |
665,950 |
|
$ |
413,013 |
|
|
|
|
$ |
1,129,067 |
|
$ |
2,208,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted loss per common share |
$ |
0.01 |
|
$ |
0.04 |
|
|
|
|
|
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding |
|
82,454,934 |
|
|
11,009,940 |
|
|
|
|
|
- |
|
|
259,541,546 |
|
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
Eagle Graphite Corporation |
Notes to Pro Forma Consolidated Financial Statements
|
As at August 31, 2014 |
(Unaudited) |
1. |
Basis of Presentation |
|
|
|
The accompanying unaudited pro forma consolidated
statement of financial position of Amerix Precious Metals Corporation
(Amerix) and Eagle Graphite Corporation (Eagle) has been prepared by
management to reflect the proposed transactions (the Transaction) as
described in Note 2. |
|
|
|
The pro forma consolidated financial statements have been
prepared from information derived from and should be read in conjunction
with the following: |
|
1. |
The audited financial statements of Amerix as at July 31,
2014. |
|
|
|
|
2. |
The unaudited condensed interim financial statements of
Eagle as at and for the three month period ending August 31,
2014. |
|
|
|
|
3. |
The audited financial statements of Eagle as at May 31,
2014. |
The unaudited pro forma consolidated
statement of financial position of Eagle and Amerix has been presented assuming
the Transaction had been completed on August 31, 2014. The pro forma statement
of loss for Eagle for the twelve months ended August 31, 2014 has been
reconciled by adjusting the statement of loss for the year ended May 31, 2014
for the three months ended August 31, 2013 and adding the three months ended
August 31, 2014.
The Transaction has been accounted for
in accordance with IFRS 2, Share Based-Payments. The Transaction is considered
to be a reverse takeover of Amerix by Eagle. A reverse takeover transaction
involving a non-public operating entity public company is in substance a
share-based payment transaction, rather than a business combination. The
transaction is equivalent to the issuance of shares by the non-public operating
entity, Eagle, for the net assets and the listing status of the public company,
Amerix. The fair value of the shares issued was determined based on the fair
value of the common shares issued by Eagle.
The unaudited pro forma consolidated
financial statements have been prepared by management, and, in the opinion of
management, include all adjustments necessary for fair presentation. No
adjustments have been made to reflect additional costs or cost savings that
could result from the combination of the operations of Eagle and Amerix, as
management does not anticipate any material costs or cost savings as a result of
the Transaction.
The unaudited pro forma consolidated
statements have been prepared for illustration purposes only and may not be
indicative of the combined results or financial position had the Transaction
been in effect at the date and for the period indicated.
On November 5, 2014, Amerix announced
that it has entered into a definitive amalgamation agreement (the Amalgamation
Agreement) dated November 5, 2014 with Eagle, pursuant to which Eagle will,
subject to a number of conditions, become a wholly owned subsidiary of Amerix,
which will change its name to Eagle Graphite Corporation (the Resulting
Issuer).
Eagle Graphite Corporation |
Notes to Pro Forma Consolidated Financial Statements
|
As at August 31, 2014 |
(Unaudited) |
2. |
Pro Forma Assumptions and Adjustments |
|
|
|
The unaudited pro forma consolidated statement of
financial position gives effect to the following assumptions and
adjustments: |
|
a) |
The consolidation of the Amerix shares on the basis of
one new share for every twenty shares held. |
|
|
|
|
b) |
Share capital, reserves and deficit accounts of Amerix
are eliminated. |
|
|
|
|
c) |
The issuance by Amerix of 220,198,800 common shares to
acquire 100% of the issued and outstanding ordinary shares of
Eagle. |
|
|
|
|
d) |
The fair value of Amerixs net assets acquired was based
on the concurrent private placement. The fair value of the consideration
of $412,275 has been allocated as follows: |
|
Cash |
$ |
7,789 |
|
|
Other receivables |
|
2,245 |
|
|
Prepaid expenses |
|
1,500 |
|
|
Accounts payable and accrued liabilities |
|
(528,326 |
) |
|
Transaction costs expensed |
|
929,067 |
|
|
Value attributed to Amerix shares issued |
$ |
412,275 |
|
|
e) |
Concurrently with the Transaction Amerix intends to
complete a private placement (the Amerix Private Placement) of a minimum
of 10,930,000 flow-through common shares at a price of $0.10 per
flow-through common share for gross proceeds of $1,093,000. |
|
|
|
|
f) |
The agent for the Amerix Private Placement will receive
as compensation $76,510. |
|
|
|
|
g) |
The agent for the Amerix Private Placement will receive
approximately 765,100 broker warrants at an exercise price of $0.10 per
share for a period of two years. The broker warrants have been valued at
$2,500, using the Black-Scholes option pricing model with the following
assumptions: |
|
Risk-free interest rate |
1.00% |
|
Dividend yield |
Nil |
|
Volatility factor |
100% |
|
Expected life |
2 years |
|
h) |
Concurrently with the Transaction Eagle intends to
complete a private placement (the Eagle Private Placement) of a minimum
of 15,050,000 Units at a price of $0.10 per Unit for gross proceeds of
$1,505,000. Each Unit is comprised of one common share of Eagle and
one-half one common share purchase warrant. Each whole warrant is
exercisable to acquire one common share at a price of $0.15 per share for
a period of five years. The warrants have been valued at $331,995, using
the Black- Scholes option pricing model with the following
assumptions: |
|
Risk-free interest rate |
1.00% |
|
Dividend yield |
Nil |
|
Volatility factor |
100% |
|
Expected life |
5 years |
|
i) |
The agent for the Eagle Private Placement will receive as
compensation $105,350. |
Eagle Graphite Corporation |
Notes to Pro Forma Consolidated Financial Statements
|
As at August 31, 2014 |
(Unaudited) |
2. |
Pro Forma Assumptions and Adjustments
(continued) |
|
j) |
The agent for the Eagle Private Placement will receive
approximately 1,053,500 broker warrants at an exercise price of $0.10 per
share for a period of two years. The broker warrants have been valued at
$55,836, using the Black-Scholes option pricing model with the following
assumptions: |
|
Risk-free interest rate |
1.00% |
|
Dividend yield |
Nil |
|
Volatility factor |
100% |
|
Expected life |
2 years |
|
k) |
Notes payable will be immediately converted to common
shares in connection with the Transaction. Each $25,000 principal is
convertible into 280,000 common shares and 140,000 warrants. |
|
|
|
|
l) |
Concurrently with the Transaction, notes payable of
$350,000 issued in October 2014 will be converted to common shares. Each
$25,000 principal is convertible into 280,000 common shares and 140,000
warrants. |
|
|
|
|
m) |
Costs associated with the transaction are estimated to be
$200,000. |
|
|
|
|
n) |
The pro forma effective income tax applicable to the
operations will be approximately 26%. |
Eagle Graphite Corporation |
Notes to Pro Forma Consolidated Financial Statements
|
As at August 31, 2014 |
(Unaudited) |
3. |
Pro Forma Share
Capital |
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
Note
|
|
|
of shares |
|
|
Amount |
|
|
Reserves |
|
Amerix common shares issued and outstanding
as at August 31, 2014 |
|
|
|
|
82,454,934 |
|
$ |
23,775,457 |
|
$ |
1,366,179 |
|
Consolidation of Amerix shares |
|
a |
|
|
(78,332,188 |
) |
|
- |
|
|
- |
|
Eagle common shares issued and outstanding
as at August 31, 2014 |
|
|
|
|
11,009,940 |
|
|
4,806,453 |
|
|
190,506 |
|
Adjustment for the transaction |
|
b |
|
|
(11,009,940 |
) |
|
(23,775,457 |
) |
|
(1,366,179 |
) |
Shares issued to Eagle shareholders in
connection with the Transaction |
|
c |
|
|
220,198,800 |
|
|
- |
|
|
- |
|
Acquisition of Amerix at fair value |
|
d |
|
|
- |
|
|
412,275 |
|
|
- |
|
Common shares held by purchasers of Amerix
private placement |
|
e |
|
|
10,930,000 |
|
|
1,093,000 |
|
|
- |
|
Share issue costs related to the Amerix private placement
|
|
f |
|
|
- |
|
|
(76,510 |
) |
|
- |
|
Fair value of broker warrants issued as
part of the Amerix private placement |
|
g |
|
|
- |
|
|
(2,500 |
) |
|
2,500 |
|
Common shares held by purchasers of Eagle private placement
|
|
h |
|
|
15,050,000 |
|
|
1,505,000 |
|
|
- |
|
Fair value of common share purchase
warrants issued as part of the Eagle private placement |
|
h |
|
|
- |
|
|
(331,995 |
) |
|
331,995 |
|
Share issue costs related to the Eagle private placement
|
|
i |
|
|
- |
|
|
(105,350 |
) |
|
- |
|
Fair value of broker warrants issued as
part of the Eagle private placement |
|
j |
|
|
- |
|
|
(55,836 |
) |
|
55,836 |
|
Common shares issued on conversion of Eagle Notes issued
and outstanding as at August 31, 2014 |
|
k |
|
|
5,320,000 |
|
|
475,000 |
|
|
- |
|
Common shares issued on conversion of Eagle
Notes issued subsequent to August 31, 2014 |
|
l |
|
|
3,920,000 |
|
|
350,000 |
|
|
- |
|
Pro forma share capital as at August 31, 2014 |
|
|
|
|
259,541,546 |
|
$ |
8,069,537 |
|
$ |
580,837 |
|
EXHIBIT D
SECTION 190 OF THE CANADA BUSINESS CORPORATIONS
ACT
190(1) Right to dissent
Subject to sections 191 and 241, a holder of shares of any
class of a corporation may dissent if the corporation is subject to an order
under paragraph 192(4)(d) that affects the holder or if the corporation resolves
to
|
(a) |
amend its articles under section 173 or 174 to add,
change or remove any provisions restricting or constraining the issue,
transfer or ownership of shares of that class; |
|
(b) |
amend its articles under section 173 to add, change or
remove any restriction on the business or businesses that the corporation
may carry on; |
|
(c) |
amalgamate otherwise than under section 184; |
|
(d) |
be continued under section 188; |
|
(e) |
sell, lease or exchange all or substantially all its
property under subsection 189(3); or |
|
(f) |
carry out a going-private transaction or a squeeze-out
transaction. |
190(2) Further right
A holder of shares of any class or series of shares entitled to
vote under section 176 may dissent if the corporation resolves to amend its
articles in a manner described in that section.
190(2.1) If one class of shares
The right to dissent described in subsection (2) applies even
if there is only one class of shares.
190(3) Payment for shares
In addition to any other right the shareholder may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which the shareholder
dissents or an order made under subsection 192(4) becomes effective, to be paid
by the corporation the fair value of the shares in respect of which the
shareholder dissents, determined as of the close of business on the day before
the resolution was adopted or the order was made.
190(4) No partial dissent
A dissenting shareholder may only claim under this section with
respect to all the shares of a class held on behalf of any one beneficial owner
and registered in the name of the dissenting shareholder.
190(5) Objection
A dissenting shareholder shall send to the corporation, at or
before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of their right to dissent.
190(6) Notice of resolution
The corporation shall, within ten days after the shareholders
adopt the resolution, send to each shareholder who has filed the objection
referred to in subsection (5) notice that the resolution has been adopted, but
such notice is not required to be sent to any shareholder who voted for the
resolution or who has withdrawn their objection.
190(7) Demand for payment
A dissenting shareholder shall, within twenty days after
receiving a notice under subsection (6) or. if the shareholder does not receive
such notice, within twenty days after learning that the resolution has been
adopted, send to the corporation a written notice containing
D-1
|
(a) |
the shareholders name and address; |
|
(b) |
the number and class of shares in respect of which the
shareholder dissents; and |
|
(c) |
a demand for payment of the fair value of such
shares. |
190(8) Share certificate
A dissenting shareholder shall, within thirty days after
sending a notice under subsection (7), send the certificates representing the
shares in respect of which the shareholder dissents to the corporation or its
transfer agent.
190(9) Forfeiture
A dissenting shareholder who fails to comply with subsection
(8) has no right to make a claim under this section.
190(10) Endorsing certificate
A corporation or its transfer agent shall endorse on any share
certificate received under subsection (8) a notice that the holder is a
dissenting shareholder under this section and shall forthwith return the share
certificates to the dissenting shareholder,
190(11) Suspension of rights
On sending a notice under subsection (7), a dissenting
shareholder ceases to have any rights as a shareholder other than to be paid the
fair value of their shares as determined under this section except where:
|
(a) |
the shareholder withdraws that notice before the
corporation makes an offer under subsection (12), |
|
(b) |
the corporation fails to make an offer in accordance with
subsection (12) and the shareholder withdraws the notice, or |
|
(c) |
the directors revoke a resolution to amend the articles
under subsection 173(2) or 174(5), terminate an amalgamation agreement
under subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection
189(9), |
in which case the shareholder's rights are reinstated as of the
date the notice was sent.
190(12) Offer to pay
A corporation shall, not later than seven days after the later
of the day on which the action approved by the resolution is effective or the
day the corporation received the notice referred to in subsection (7), send to
each dissenting shareholder who has sent such notice
|
(a) |
a written offer to pay for their shares in an amount
considered by the directors of the corporation to be the fair value,
accompanied by a statement showing- how the fair value was determined;
or |
|
(b) |
if subsection (26) applies, a notification that it is
unable lawfully to pay dissenting shareholders for their
shares. |
190(13) Same terms
Every offer made under subsection (12) for shares of the same
class, or series shall be on the same terms.
190(14) Payment
Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
D-2
190(15) Corporation may apply to court
Where a corporation fails to make an offer under subsection
(12), or if a dissenting shareholder fails to accept an offer, the corporation
may, within fifty days after the action approved by the resolution is effective
or within such further period as a court may allow, apply to a court to fix a
fair value for the shares of any dissenting shareholder,
190(16) Shareholder application to court
If a corporation fails to apply to a court under subsection
(15), a dissenting shareholder may apply to a court for the same purpose within
a further period of twenty days or within such further period as a court may
allow.
190(17) Venue
Au application under subsection (15) or (16) shall be made to a
court having jurisdiction in the place where the corporation has its registered
office or in the province where the dissenting shareholder resides if the
corporation carries on business in that province.
190(18) No security for costs
A dissenting shareholder is not required to give security for
costs in an application made under subsection (15) or (16).
190(19) Parties
On an application to a court under subsection (15) or (16),
|
(a) |
all dissenting shareholders whose shares have not been
purchased by the corporation shall be joined as parties and are bound by
the decision of the court; and |
|
(b) |
the corporation shall notify each affected dissenting
shareholder of the date, place and consequences of the application and of
their right to appear and be heard in person or by
counsel. |
190(20) Powers of court
On an application to a court under subsection (15) or (16), the
court may determine whether any other person is a dissenting shareholder who
should be joined as a party, and the court shall then fix fair value for the
shares of all dissenting shareholders.
190(21) Appraisers
A court may in its discretion appoint one or more appraisers to
assist the court to fix a fair value for the shares of the dissenting
shareholders.
190(22) Final order
The final order of a court shall be rendered against the
corporation in favour of each dissenting shareholder and for the amount of the
shares as fixed by the court.
190(23) Interest
A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
190(24) Notice that Subsection (26) applies
If subsection (26) applies, the corporation shall, within ten
days after the pronouncement of an order under subsection (22), notify each
dissenting shareholder that it is unable lawfully to pay dissenting shareholders
for their shares.
D-3
190(25) Effect where Subsection (26) applies
If subsection (26) applies, a dissenting shareholder, by
written notice delivered to the corporation within thirty days after receiving a
notice under subsection (24), may:
|
(a) |
withdraw their notice of dissent, in which case the
corporation is deemed to consent to the withdrawal and the shareholder is
reinstated to their full rights as a shareholder; or |
|
(b) |
retain a status as a claimant against the corporation, to
be paid as soon as the corporation is lawfully able to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors of the
corporation but in priority to its shareholders. |
190(26) Limitation
A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that:
|
(a) |
the corporation is or would after the payment be unable
to pay its liabilities as they become due; or |
|
(b) |
the realizable value of the corporations assets would
thereby be less than the aggregate of its
liabilities. |
D-4
The instructions accompanying this Letter of Transmittal
should be read carefully before this Letter of Transmittal is completed.
LETTER OF TRANSMITTAL
FOR COMMON SHARES OF
EAGLE GRAPHITE CORPORATION
This Letter of Transmittal is for use by registered holders
(Registered Eagle Shareholders) of common shares (Eagle
Shares) of Eagle Graphite Corporation (Eagle) in connection with
the proposed three cornered amalgamation (the Amalgamation) under the
Canada Business Corporations Act, involving Eagle, 9073329 Canada Inc.
(Amerix Subco), a wholly owned subsidiary of Amerix Precious Metals
Corporation (Amerix) and Amerix, that is being submitted for approval
at a special meeting of the holders of common shares to be held on December 19,
2014 (the Meeting). Eagle Shareholders are referred to the Notices of
Special Meetings and Joint Information Circular, dated November 25, 2014 (the
Circular) prepared in connection with the Meeting that accompanies this
Letter of Transmittal. Capitalized terms used but not defined in this Letter
of Transmittal have the meanings set out in the Circular.
This Letter of Transmittal is for use by Registered Eagle
Shareholders only and is not to be used by beneficial holders of Eagle Shares
(the Beneficial Shareholders). A Beneficial Shareholder does not hold Eagle
Shares in its name but such Eagle Shares are held by an Intermediary. If you are
a Beneficial Shareholder you should contact your Intermediary for instructions
and assistance in delivering your certificates representing Eagle Shares and
receiving common shares of Amerix (Amerix Shares) for such Eagle
Shares.
The Amalgamation is anticipated to close prior to December
31, 2014. If the Amalgamation is completed, then, at the Effective Time, Eagle
Shareholders (other than Dissenting Shareholders) will be entitled to receive,
in exchange for each Eagle Share, one Amerix Share.
In order to receive the appropriate number of Amerix Shares
that a Eagle Shareholder is entitled to receive pursuant to the Amalgamation,
Eagle Shareholders are required to deposit the certificate(s) representing their
Eagle Shares held by them with Eagles legal counsel, Cassels Brock &
Blackwell LLP (Cassels) at 2100 Scotia Plaza, 40 King Street West, Toronto, ON
M5H 3C2, Attention: Chad Accursi. This Letter of Transmittal, properly completed
and duly executed, together with all other required documents, must accompany
all certificates for Eagle Shares deposited in exchange for Amerix Shares
pursuant to the Amalgamation, unless otherwise indicated below.
No fractional Amerix Shares shall be issued to Eagle
Shareholders. The number of Amerix Shares to be issued to Eagle Shareholders
shall be rounded down to the nearest whole Amerix Share in the event that an
Eagle Shareholder is entitled to a fractional share.
Eagle Shareholders who do not deliver their Eagle Share
certificates and all other required documents to Cassels on or before the date
which is six years after the Effective Date will lose their right to receive
Amerix Shares for their Eagle Shares.
TO: |
CASSELS BROCK & BLACKWELL
LLP, at the office set out herein |
AND TO: |
EAGLE GRAPHITE CORPORATION
|
AND TO: |
AMERIX PREVIOUS METALS
CORPORATION |
Please read the Circular and the instructions set out below
carefully before completing this Letter of Transmittal. Delivery of this Letter
of Transmittal to an address other than as set forth herein will not constitute
a valid delivery. If Eagle Shares are registered in different names, a separate
Letter of Transmittal must be submitted for each different registered owner. See
Instruction 2.
In connection with the Amalgamation being considered for
approval at the Meeting, the undersigned represents and warrants that the
undersigned owns the Eagle Shares represented by the share certificate(s)
described below (the Deposited Shares):
Certificate Number(s) |
Name(s) in which Registered |
Number of Eagle Shares Represented
by Certificate |
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
(Please print or type. If space is insufficient, please
attach a list to this Letter of Transmittal in the above form.)
Please check the appropriate box:
[ ] The
undersigned hereby deposits with Cassels the enclosed certificate(s)
representing its Deposited Shares for delivery to the Transfer Agent (as defined
herein).
OR
[ ] By
checking this box, the undersigned acknowledges that its certificate(s)
representing its Deposited Shares are being held by Cassels and irrevocably
authorizes and instructs Cassels to deliver to the Transfer Agent the Deposited
Shares on the undersigneds behalf.
It is understood that, upon receipt of this Letter of
Transmittal duly completed and signed and of the certificate(s) representing the
Deposited Shares (either herewith or by Cassels, as applicable) and following
the Effective Time of the Amalgamation, Cassels will cause Amerixs transfer
agent, TMX Equity Transfer Services (the Transfer Agent) to deliver to
the undersigned certificate(s) representing the Amerix Shares that the
undersigned is entitled to receive under the Amalgamation, or to hold at the
office of the Transfer Agent such Amerix Shares for pick-up in accordance with
the instructions set out below, and the certificate(s) representing the
Deposited Shares will forthwith be cancelled. The Transfer Agents office is
set out on the last page of this Letter of Transmittal.
The undersigned holder of Eagle Shares represents and warrants
in favour of Eagle, Amerix, Cassels and the Transfer Agent that: (i) the
undersigned is the registered holder of the Deposited Shares and that such
Deposited Shares represent all of the Eagle Shares beneficially owned, directly
or indirectly, by the undersigned; (ii) such Deposited Shares are owned by the
undersigned free and clear of all mortgages, liens, charges, encumbrances,
security interests and adverse claims; (iii) the undersigned has full power and
authority to execute and deliver this Letter of Transmittal and to deposit,
sell, assign, transfer and deliver the Deposited Shares and that, when the Amerix Shares
are issued, none of Eagle, Amerix, Cassels and the Transfer Agent, or any
successor thereto will be subject to any adverse claim in respect of such
Deposited Shares; (iv) the Deposited Shares have not been sold, assigned or
transferred, nor has any agreement been entered into to sell, assign or transfer
any such Deposited Shares, to any other person; (v) the surrender of the
Deposited Shares complies with applicable laws; (vi) all information inserted by
the undersigned into this Letter of Transmittal is complete, true and accurate;
(vii) unless the undersigned shall have revoked this Letter of Transmittal by
notice in writing given to the Depositary by no later than 10:00 a.m. (Toronto
time) on December 17, 2014 or, if the Meeting is adjourned or postponed,
not less than 48 hours (excluding Saturdays, Sundays and holidays) preceding the
date of the reconvened Meeting, the undersigned will not, prior to such time,
transfer or permit to be transferred any of such Deposited Shares; and (viii)
the payment of the appropriate number of Amerix Shares to the undersigned holder
of Eagle Shares will completely discharge any and all obligations of Eagle,
Amerix, Cassels and the Transfer Agent with respect to the matters contemplated
by this Letter of Transmittal. These representations and warranties shall
survive the completion of the Amalgamation.
- 2 -
Except for any proxy deposited with respect to the votes on the
Amalgamation Resolution and the Stock Split Resolution in connection with the
Meeting, the undersigned revokes any and all authority, other than as granted in
this Letter of Transmittal, whether as agent, attorney-in-fact, proxy or
otherwise, previously conferred or agreed to be conferred by the undersigned at
any time with respect to the Deposited Shares and no subsequent authority,
whether as agent, attorney-in-fact, proxy or otherwise, will be granted with
respect to the Deposited Shares.
The undersigned hereby acknowledges that the delivery of the
Deposited Shares shall be effected and the risk of loss to such Deposited Shares
shall pass only upon proper receipt thereof by Cassels. The undersigned will,
upon request, execute any signature guarantees or additional documents deemed by
Cassels to be reasonably necessary or desirable to complete the transfer of the
Deposited Shares.
Each authority conferred or agreed to be conferred by the
undersigned in this Letter of Transmittal shall survive the death or incapacity
of the undersigned and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, legal representatives,
successors and assigns of the undersigned.
The undersigned instructs Amerix and the Transfer Agent, to
mail the certificate(s) representing the Amerix Shares that the undersigned is
entitled to pursuant to the Amalgamation, representing consideration for the
Deposited Shares promptly after the Effective Time, by first-class insured mail,
postage prepaid, to the undersigned, or to hold such certificate(s) for Amerix
Shares for the Deposited Shares for pick-up at the office of the Transfer Agent,
in accordance with the instructions given below.
If the Amalgamation is not completed or proceeded with, the
enclosed certificate(s) and all other ancillary documents will be returned
forthwith to the undersigned at the address set out below in Box D or, failing
such address being specified, to the undersigned at the last address of the
undersigned as it appears on the securities register of Eagle.
It is understood that the undersigned will not receive the
applicable Amerix Shares under the Amalgamation in respect of the Deposited
Shares until the certificate(s) representing the Deposited Shares owned by the
undersigned are received by Cassels at the address set forth herein, together
with a duly completed Letter of Transmittal and such additional documents as
Cassels and/or the Transfer Agent may require, and until the same are processed
by Cassels and the Transfer Agent, as applicable. It is understood that under no
circumstances will interest, or similar penalty, accrue or be paid on the Amerix
Shares issuable in respect of the Deposited Shares in connection with the
Amalgamation.
By reason of the use by the undersigned of an English language
Letter of Transmittal, the undersigned and each of you shall be deemed to have required that any
contract in connection with the delivery of the Amerix Shares pursuant to the
Amalgamation through this Letter of Transmittal, as well as all documents
related thereto, be drawn exclusively in the English language. En raison de
lutilisation dune lettre denvoi en langue anglaise par le soussigné, le
soussigné et les destinataires sont présumés avoir requis que tout contrat
attesté par ceci et son acceptation au moyen de la présente letter denvoi, de
même que tous les documents qui sy rapportent, soient rédigés exclusivement en
langue anglaise.
- 3 -
BOX A |
|
BOX B |
PAYMENT AND ISSUANCE |
|
SPECIAL DELIVERY INSTRUCTIONS |
INSTRUCTIONS |
|
To be completed ONLY if the Amerix Shares to which the undersigned is entitled pursuant to the Amalgamation is to be sent to someone other than the person shown in Box A or to an address other than the address shown on Box A |
[ ] issue Amerix Shares in the name of: |
(please print or type)
|
|
|
[ ] Same address as Box A;
or |
(Name) |
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|
|
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|
(Street Address and Number) |
|
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|
(City and Province or State) |
|
(Name) |
|
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|
|
(Country and Postal (Zip) Code) |
|
(Street Address and Number) |
|
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|
|
|
|
(Telephone Business Hours) |
|
(City and Province or State) |
|
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|
|
|
Social Insurance Number, Social Security |
|
(Country and Postal (Zip) Code) |
Number or Taxpayer Identification Number) |
|
|
BOX C SPECIAL PICK-UP INSTRUCTIONS
[ ] HOLD FOR PICK-UP AT THE OFFICE OF THE TRANSFER AGENT
|
BOX D DELIVERY INSTRUCTIONS (in the
event the Amalgamation is not completed) |
|
To be completed by all Eagle Shareholders by selecting one
box below. |
|
[
] Mail Certificate(s) to (please fill in address for mailing): |
________________________________________________________ |
________________________________________________________
|
________________________________________________________ |
or |
[ ] Hold certificate(s) for pick-up at the
office of Cassels where the Eagle Shares were deposited.
|
- 4 -
BOX E SIGNATURE GUARANTEE |
|
BOX F SIGNATURE |
|
|
|
Signature guaranteed by |
|
Dated: _____________________________ |
(if required under Instruction 3): |
|
|
|
|
|
Authorized Signature |
|
(Signature of Eagle Shareholder or authorized
|
|
|
representative) |
|
|
|
Name of Guarantor (please print or type) |
|
|
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|
(Signature of any joint holder) |
|
|
|
Address (please print or type) |
|
|
|
|
(Name of Eagle Shareholder) |
|
|
|
Area Code and Telephone Number |
|
|
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|
(Name of Authorized representative) |
|
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(Social Insurance Number, Social Security Number
|
|
|
or Taxpayer Identification Number)
|
|
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|
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(Daytime Telephone Number of Eagle Shareholder
|
|
|
or Authorized Representative) |
|
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(Daytime Facsimile Number of Eagle Shareholder
|
|
|
or Authorized Representative)
|
- 5 -
INSTRUCTIONS
1. |
Use of Letter of Transmittal |
|
|
|
|
(a) |
Eagle Shareholders should read the accompanying Circular
prior to completing this Letter of Transmittal. |
|
|
|
|
(b) |
This Letter of Transmittal duly completed and signed (or
an originally signed facsimile copy thereof) together with (i) either
accompanying certificate(s) representing the Eagle Shares or, if
applicable, confirmation of authorization to Cassels to deliver such
certificate(s), and (ii) all other required documents must be sent or
delivered to Cassels at the addresses set out on herein. In order to
receive the Amerix Shares issuable under the Amalgamation for the
Deposited Shares, it is recommended that the foregoing documents be
received by the Depositary at the address set out herein by no later than
10:00 a.m. (Toronto time) on December 17, 2014. |
|
|
|
|
(c) |
The method used to deliver this Letter of Transmittal and
any accompanying certificate(s) representing Eagle Shares, if applicable,
and all other required documents is at the option and risk of the Eagle
Shareholder and delivery will be deemed effective only when such documents
are actually received. Eagle recommends that the necessary documentation
be hand delivered to Cassels at the address set out on the back of this
Letter of Transmittal, and a receipt obtained; otherwise the use of
registered mail with return receipt requested, properly insured, is
recommended. Eagle Shareholders whose Eagle Shares are registered in the
name of a broker, investment dealer, bank, trust company or other nominee
should contact that nominee for assistance in depositing those Eagle
Shares. Delivery to an office other than to the specified office does not
constitute delivery for this purpose. |
|
|
|
|
(d) |
Eagle reserves the right if it so elects in its absolute
discretion to instruct Cassels to waive any defect or irregularity
contained in any Letter of Transmittal and/or accompanying documents
received by it. |
2. |
Signatures |
|
|
|
|
|
This Letter of Transmittal must be completed and signed
by the holder of Eagle Shares or by such holders duly authorized
representative (in accordance with paragraph 4 below of these
Instructions). |
|
|
|
|
|
(a) |
If this Letter of Transmittal is signed by the registered
owner(s) of the accompanying certificate(s), such signature(s) on this
Letter of Transmittal must correspond with the name(s) as registered or as
written on the face of such certificate(s) without any change whatsoever,
and the certificate(s) need not be endorsed. If such deposited
certificate(s) are owned of record by two or more joint owners, all such
owners must sign this Letter of Transmittal. |
|
|
|
|
|
(b) |
If this Letter of Transmittal is signed by a person other
than the registered owner(s) of the accompanying certificate(s), or if
certificates representing Amerix Shares are to be issued to a person other
than the registered owner(s): |
|
|
|
|
|
|
(i) |
such deposited certificate(s) must be endorsed or be
accompanied by appropriate share transfer power(s) of attorney duly and
properly completed by the registered owner(s); and |
- 6 -
|
(ii) |
the signature(s) on such endorsement or share transfer
power(s) of attorney must correspond exactly to the name(s) of the
registered owner(s) as registered or as appearing on the certificate(s)
and must be guaranteed as noted in paragraph 3 below of these
Instructions. |
|
(c) |
If any of the Deposited Shares are registered in
different names on several certificates, it will be necessary to complete,
sign and submit as many separate Letters of Transmittal as there are
different registrations of such Deposited
Shares. |
3. |
Guarantee of Signatures |
|
|
|
If this Letter of Transmittal is signed by a person other
than the registered owner(s) of the Eagle Shares in Box F or if the
Amerix Shares are to be issued in a name other than the registered
owner(s) of the Eagle Shares, such signature must be guaranteed by an
Eligible Institution (see below), or in some other manner satisfactory to
Cassels (except that no guarantee is required if the signature is that of
an Eligible Institution) in Box E. An Eligible Institution means a
Canadian Schedule I chartered bank, a member of the Securities Transfer
Agent Medallion Program (STAMP), a member of the Stock Exchange Medallion
Program (SEMP) or a member of the New York Stock Exchange, Inc. Medallion
Signature Program (MSP). Members of these programs are usually members of
a recognized stock exchange in Canada or the United States, members of the
Investment Industry Regulatory Organization of Canada, members of the
National Association of Securities Dealers or banks and trust companies in
the United States. |
|
|
4. |
Fiduciaries, Representatives and
Authorizations |
|
|
|
Where this Letter of Transmittal or any share transfer
power(s) of attorney is executed by a person as an executor,
administrator, trustee or guardian, or on behalf of a corporation,
partnership or association or is executed by any other person acting in a
representative capacity, such person should indicate when signing and this
Letter of Transmittal must be accompanied by satisfactory evidence of the
authority to act. Eagle, Amerix, Cassels or the Transfer Agent, at their
discretion, may require additional evidence of authority or additional
documentation. |
|
|
5. |
Delivery Instructions |
|
|
|
All certificate(s) representing Amerix Shares to be
issued in exchange for the Deposited Shares will be issued in the name of
the person indicated in Box A and delivered to the address indicated in
Box A (unless another address has been provided in Box B). If any
certificate(s) representing Amerix Shares are to be held for pick-up at
the offices of the Transfer Agent, complete Box C. If neither Box A
nor Box B is completed, any certificate(s) representing Amerix Shares
issued in exchange for the Deposited Shares will be issued in the name of
the registered holder of the Deposited Shares and will be mailed to the
address of the registered holder of the Deposited Shares as it appears on
the register of Eagle. Any certificate(s) mailed in accordance with this
Letter of Transmittal will be deemed to be delivered at the time of
mailing. |
|
|
6. |
Lost Certificates |
|
|
|
If a certificate representing Eagle Shares has been lost,
stolen or destroyed, this Letter of Transmittal should be completed as
fully as possible and forwarded, together with a letter describing the
loss, to Cassels. Cassels and/or the Transfer Agent will respond with
replacement requirements (which may include bonding requirement) that must
be satisfied in order for the undersigned to receive the Amerix Shares
issuable in accordance with the Amalgamation. |
- 7 -
7. |
Return of Certificates |
|
|
|
|
If the Amalgamation does not proceed for any reason, any
certificate(s) for Eagle Shares received by Cassels will be returned to
you forthwith in accordance with your delivery instructions in Box D, or
failing such address being specified, to the undersigned at the last
address of the undersigned as it appears on the securities register of
Eagle. |
|
|
|
8. |
Miscellaneous |
|
|
|
|
(a) |
If the space on this Letter of Transmittal is
insufficient to list all certificates for Eagle Shares, additional
certificate numbers and number of Eagle Shares may be included on a
separate signed list affixed to this Letter of Transmittal. |
|
|
|
|
(b) |
If Eagle Shares are registered in different forms (e.g.,
John Doe and J. Doe) a separate Letter of Transmittal should be signed
for each different registration. |
|
|
|
|
(c) |
No alternative, conditional or contingent deposits of
Eagle Shares will be accepted and no fractional Amerix Shares will be
issued. |
|
|
|
|
(d) |
Additional copies of the Letter of Transmittal may be
obtained from Cassels at its address set out herein. |
|
|
|
|
(e) |
This Letter of Transmittal will be construed in
accordance with and be governed by the laws of the Province of Ontario and
the federal laws of Canada applicable therein. |
- 8 -
THE TRANSFER AGENT IS:
TMX Equity Transfer Services
The office of the Transfer Agent is:
By: Mail, Registered Mail, Hand or Courier
200 University Avenue, Suite 300
Toronto ON M5H 4H1
Attention: Corporate Actions
Inquiries
Phone Number: (416) 361-0930
Fax
Number: (416) 361-0470
Any questions and requests for assistance may be directed by
holders of Eagle Shares to
the Transfer Agent at the telephone number
and location set out above.
- 9 -
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