TIDMGSL
Greystar Resources Ltd: Year End Financial Statements
FOR: GREYSTAR RESOURCES LTD.
TSX, AIM SYMBOL: GSL
March 29, 2010
Greystar Resources Ltd: Year End Financial Statements
VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 29, 2010) - Greystar Resources Ltd. (TSX:GSL)(AIM:GSL) -
Annual Financial Statements
Years Ended December 31, 2009 and 2008
(In Canadian Dollars, unless otherwise noted)
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KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
CANADA
Telephone: (604) 691-3000
Fax: (604) 691-3031
Internet: www.kpmg.ca
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AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Greystar Resources Ltd. as at December 31, 2009 and 2008 the
consolidated statements of operations, comprehensive loss and deficit, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the Company's management. 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 plan and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2009 and 2008 and the results of its operations and its cash flows
for the years then ended in accordance with Canadian generally accepted accounting principles.
KMPG LLP
Chartered Accountants
Vancouver, Canada
March 23, 2010
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada
provides services to KPMG LLP.
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GREYSTAR RESOURCES LTD.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
As at December 31, 2009 and 2008
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2009 2008
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ASSETS
Current Assets:
Cash and cash equivalents $ 81,583,304 $ 27,262,146
Accounts receivable and prepaids 585,340 449,090
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82,168,644 27,711,236
Equipment (note 4) 1,033,517 1,126,477
Mineral properties (note 5) 18,590,951 14,418,247
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$ 101,793,112 $ 43,255,960
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,764,557 $ 1,280,801
Amounts payable on mineral property
acquisition (note 5) 568,346 -
Asset retirement obligation (note 6) 713,666 390,000
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4,046,569 1,670,801
Amounts payable on mineral property
acquisition (note 5) 445,640 -
Asset retirement obligation (note 6) 629,189 190,000
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5,121,398 1,860,801
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Shareholders' equity:
Common shares (note 7) 207,735,611 143,434,989
Warrants (note 7) 15,277,614 384,800
Contributed surplus (note 7) 10,880,978 10,772,031
Deficit (137,222,489) (113,196,661)
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96,671,714 41,395,159
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$ 101,793,112 $ 43,255,960
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Nature of operations (note 1)
Commitments (notes 5 and 14)
Subsequent events (note 15)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
"David B. Rovig" Director "Brian E. Bayley" Director
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GREYSTAR RESOURCES LTD.
Consolidated Statements of Operations, Comprehensive Loss and Deficit
(Expressed in Canadian Dollars)
For the years ended December 31, 2009 and 2008
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2009 2008
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Exploration expenditures (note 5) $ 19,190,491 $ 20,430,742
General and administrative expenses:
Amortization 266,142 155,209
Audit, legal and other professional fees 699,278 308,625
Investor relations 126,084 159,458
Management and consulting fees (note 8) 498,848 199,775
Office facilities and administration
(note 8) 234,450 197,459
Salaries and benefits 472,353 158,260
Stock-based compensation (note 7) 2,305,684 1,402,085
Transfer agent, listing and filing fees 136,781 181,900
Travel 206,960 157,363
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4,946,580 2,920,134
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Loss before other items 24,137,071 23,350,876
Other items:
Interest income (337,782) (1,406,784)
Gain on sale of assets - (12,800)
Foreign exchange loss 226,539 13,853
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(111,243) (1,405,731)
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Loss and comprehensive loss for the year 24,025,828 21,945,145
Deficit, beginning of year 113,196,661 91,251,516
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Deficit, end of year $ 137,222,489 $ 113,196,661
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Basic and diluted loss per common share $ 0.43 $ 0.48
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Weighted-average number of common shares
outstanding 56,089,860 46,021,299
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See accompanying notes to consolidated financial statements.
GREYSTAR RESOURCES LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
For the years ended December 31, 2009 and 2008
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2009 2008
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Cash provided by (used in):
Operating activities:
Loss for the year $ (24,025,828) $ (21,945,145)
Asset retirement obligation expenditures (455,683) -
Items not involving cash:
Amortization 266,142 155,209
Gain on sale of assets - (12,800)
Increase in asset retirement obligation
expense 1,294,262 234,500
Interest accretion on amounts payable on
mineral property acquisition 64,092 -
Stock-based compensation 2,305,684 1,402,085
Unrealized foreign exchange loss (145,227) -
Changes in non-cash working capital:
Amounts receivable and prepaids (136,250) 146,210
Accounts payable and accrued liabilities 842,156 737,318
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(19,990,652) (19,282,623)
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Investing activities:
Mineral property acquisition costs (1,538,491) (1,802,667)
Proceeds from sale of assets - 27,120
Purchase of equipment (173,182) (595,112)
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(1,711,673) (2,370,659)
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Financing activities:
Common shares and warrants issued on public
offering 63,250,000 -
Common shares and warrants issued on private
placement 12,039,865 -
Issue costs related to equity issuance (3,991,393) -
Common shares issued on exercise of stock
options 827,622 294,375
Common shares issued on exercise of warrants 3,703,124 -
Allotment to be issued pursuant to exercise
of warrants 194,265 -
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76,023,483 294,375
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Increase (decrease) in cash and cash
equivalents 54,321,158 (21,358,907)
Cash and cash equivalents, beginning of year 27,262,146 48,621,053
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Cash and cash equivalents, end of year $ 81,583,304 $ 27,262,146
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Supplementary cash flow information (note 9)
See accompanying notes to consolidated financial statements.
GREYSTAR RESOURCES LTD.
Consolidated Statements of Shareholders' Equity
(Expressed in Canadian Dollars)
For the years ended December 31, 2009 and 2008
Share
Capital
(Number of
Shares) Share Capital Warrants
=----------------------------------------------------------------------
Balance, December 31, 2007 45,723,543 $142,488,793 $ 23,120
Purchase of land - - 361,680
Shares issued upon
exercise of options 340,255 946,196 -
Stock-based compensation - - -
Net loss and comprehensive
loss - - -
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Balance, December 31, 2008 46,063,798 143,434,989 384,800
Private placement 6,579,161 7,874,898 4,164,967
Public offering 18,071,429 53,013,442 10,236,558
Public offering agents'
compensation - - 2,005,548
Issue costs - (4,439,833) (911,525)
Purchase of land - - 973,215
Expired warrants - - (23,120)
Shares issued upon
exercise of options 509,912 3,047,479 -
Shares issued upon
exercise of warrants 1,136,464 5,156,471 (1,552,829)
Share subscriptions
receivable (note 7b) - (546,100) -
Allotment to be issued
pursuant to exercise
of warrants (note 7b) - 194,265 -
Stock-based compensation - - -
Net loss and comprehensive
loss - - -
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Balance, December 31, 2009 72,360,764 $207,735,611 $ 15,277,614
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Contributed
Surplus Deficit Total
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Balance, December 31, 2007 $ 10,021,766 $ (91,251,516) $ 61,282,163
Purchase of land - - 361,680
Shares issued upon
exercise of options (651,820) - 294,376
Stock-based compensation 1,402,085 - 1,402,085
Net loss and comprehensive
loss - (21,945,145) (21,945,145)
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Balance, December 31, 2008 10,772,031 (113,196,661) 41,395,159
Private placement - - 12,039,865
Public offering - - 63,250,000
Public offering agents'
compensation - - 2,005,548
Issue costs - - (5,351,358)
Purchase of land - - 973,215
Expired warrants 23,120 -
Shares issued upon
exercise of options (2,219,857) - 827,622
Shares issued upon
exercise of warrants - - 3,603,642
Share subscriptions
receivable (note 7b) - - (546,100)
Allotment to be issued
pursuant to exercise
of warrants (note 7b) - - 194,265
Stock-based compensation 2,305,684 - 2,305,684
Net loss and comprehensive
loss - (24,025,828) (24,025,828)
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Balance, December 31, 2009 $ 10,880,978 $ (137,222,489) $ 96,671,714
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See accompanying notes to consolidated financial statements.
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1. Nature of operations:
Greystar Resources Ltd. (the Company) was formed effective August 15, 1997 by way of amalgamation pursuant to
the Company Act (British Columbia). On May 5, 2005, the Company amended its articles to continue under the
Business Corporations Act (British Columbia). The Company's principal business activities include the
acquisition, exploration and development of mineral properties.
The Company is in the process of exploring its mineral properties and has not yet determined whether they
contain resources that are economically recoverable. Management anticipates that the Company will continue to
raise adequate funding through equity financings, although there is no assurance that the Company will be able
to obtain adequate funding on favorable terms. The recoverability of amounts shown for mineral properties and
equipment is dependent upon the discovery of economically recoverable reserves, the ability of the Company to
obtain the necessary financing to complete exploration and development, confirmation of the Company's interest
in the underlying claims and leases, and future profitable production or proceeds from the disposition of the
mineral properties.
At December 31, 2009, the Company had working capital of $78,122,075 but had not yet achieved profitable
operations and expects to incur further losses in the development of its business. For the year ended December
31, 2009, the Company reported a net loss of $24,025,828 and as at December 31, 2009, had an accumulated
deficit of $137,222,489. The ability of the Company to continue as a going concern is dependent upon the
Company's ability to arrange additional funds to complete the development of its property and upon future
profitable operations.
2. Significant accounting policies:
(a) Basis of presentation and consolidation:
These consolidated financial statements have been prepared in accordance with Canadian generally accepted
accounting principles. They include the accounts of the Company and its branch operations in Colombia. All
significant intercompany transactions and balances have been eliminated.
(b) Comparative figures:
Comparative figures have been adjusted to conform to changes in presentation in these consolidated financial
statements where required.
(c) Cash and cash equivalents:
Cash and cash equivalents are comprised of cash on deposit with banks and highly liquid investments having
original terms to maturity of 90 days or less when acquired.
(d) Equipment:
Equipment is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis
over three to twenty years, which represents the estimated useful lives of the assets.
(e) Mineral properties:
Exploration and development expenditures incurred prior to the determination of the feasibility of mining
operations and a decision to proceed with development are charged to operations as incurred. Mineral property
acquisition costs and development expenditures incurred subsequent to a development decision, and to increase
or to extend the life of existing production, are capitalized and will be amortized on the unit-of-production
method based upon estimated proven and probable reserves. When there is little prospect of further work on a
property being carried out by the Company, the remaining deferred costs associated with that property are
charged to operations during the period such determination is made.
The amounts shown for mineral properties represent acquisition costs incurred to date, less recoveries and
write-offs, and do not reflect fair value.
(f) Impairment assessment:
The Company performs impairment tests on its mineral properties when events or changes in circumstances
indicate that the carrying values of these assets may not be recoverable. As of December 31, 2009, management
determined there is no impairment or write-down of the carrying value of mineral properties.
(g) Asset retirement obligations:
The Company recognizes statutory, contractual or other legal obligations related to the retirement of tangible
long-lived assets when such obligations are incurred, if a reasonable estimate of fair value can be made. These
obligations are measured initially at fair value and the resulting costs capitalized to the carrying value of
the related asset. To the extent that the asset retirement obligation was created due to exploration
activities, the amount capitalized is reduced immediately by a charge to exploration expenses for the same
amount. In subsequent periods, the liability is adjusted for any changes in the amount or timing and for the
discounting of the underlying future cash flows. The capitalized asset retirement cost is amortized to
operations over the life of the asset.
The asset retirement obligation is classified as current and long-term, based on expectation of settlement.
(h) Share capital:
The Company records proceeds from share issuances net of issue costs. Shares issued for consideration other
than cash are valued at the quoted market price on the date the agreement to issue the shares was reached and
announced for business combinations and at the date of issuance for other non-monetary transactions. For
proceeds received from the issuance of compound equity instruments, the Company uses the relative fair value
method to allocate proceeds received between the common share and warrant units upon initial recognition.
(i) Stock-based compensation and other stock-based payments:
The Company has a stock option plan that is described in note 7(c). The Company records all stock-based
payments using the fair value method. Under the fair value method, stock-based payments for employees are
measured at fair value at the date of grant and stock-based payments to non-employees are measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more
reliably measurable and are amortized over the vesting period. The offset to the recorded cost is to
contributed surplus. Consideration received on the exercise of stock options is recorded as share capital and
the related contributed surplus is transferred to share capital.
(j) Income taxes:
The Company uses the asset and liability method of accounting for income taxes. Under this method of tax
allocation, future income tax assets and liabilities are determined based on differences between the financial
statement carrying values of existing assets and liabilities and their respective income tax bases (temporary
differences), and losses carried forward. Future income tax assets and liabilities are measured using the tax
rates expected to be in effect when the temporary differences are likely to reverse. The effect on future
income tax assets and liabilities of a change in tax rates is included in operations in the period in which the
change is enacted or substantively enacted. The amount of future income tax assets recognized is limited to the
amount of the benefit that is more likely than not to be realized.
(k) Loss per share:
Basic loss per share has been calculated using the weighted average number of common shares issued and
outstanding during the period. Diluted loss per share is calculated using the treasury stock method. Under the
treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted
loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants
are used to repurchase common shares at the average market price during the period.
In the Company's case, diluted loss per share is the same as basic loss per share, as the effect of outstanding
options (note 7(c)) and warrants (note 7(d)) on loss per share would be anti-dilutive.
(l) Foreign currency translation:
Transactions and account balances originally stated in currencies other than Canadian dollars have been
translated into Canadian dollars using the temporal method of foreign currency translation as follows:
- Revenue and expense items at average exchange rates.
- Non-monetary assets and liabilities at historical exchange rates, unless such items are carried at market
value, in which case they are translated at the exchange rate in effect on the balance sheet date.
- Monetary assets and liabilities at the exchange rate in effect at the balance sheet date.
Exchange gains and losses are recorded in the statement of operations in the period in which they occur.
(m) Financial instruments:
All financial instruments are classified into one of five categories: held-for-trading, held-to-maturity
investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All
financial instruments and derivatives are measured in the balance sheet at fair value except for loans and
receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost.
Subsequent measurement and changes in fair value will depend on their initial classification as follows: (1)
held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net
income; (2) available-for-sale financial instruments are measured at fair value with changes in fair value
recorded in other comprehensive income until the instrument is derecognized or impaired; and (3) all derivative
instruments, including embedded derivatives, are recorded in the balance sheet at fair value unless they
qualify for the normal sale normal purchase exemption and changes in their fair value are recorded in income
unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other
comprehensive income.
The Company has classified its cash and cash equivalents as held-for-trading and thus, measured at fair value.
Amounts receivables are classified as loans and receivables and thus, measured at amortized cost. Accounts
payable and accrued liabilities and amounts payable on mineral property acquisition are classified as other
financial liabilities and thus, measured at amortized cost. The Company measures derivatives and embedded
derivatives at fair value and the Company has maintained its policy not to use hedge accounting.
Transaction costs incurred upon the issuance of debt instruments or modification of a financial liability are
deducted from the financial liability and are amortized using the effective interest method over the expected
life of the related liability.
(n) Use of estimates:
The preparation of financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the determination of impairment of
mineral properties, determination of asset retirement and remediation obligations, the assumptions used in
determining fair value of stock-based compensation and valuation allowances for future income tax assets.
Actual results could differ from these estimates.
3. Adoption of new accounting standards:
Effective January 1, 2009, the Company adopted, on a prospective basis, the following new accounting standards
issued by the Canadian Institute of Chartered Accountants (CICA):
(a) Credit Risk and the Fair Value of Financial Assets and Financial Liabilities:
In January 2009, the CICA issued EIC-173 "Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities". This guidance clarified that an entity's own credit risk and the credit risk of the counterparty
should be taken into account in determining the fair value of financial assets and financial liabilities
including derivative instruments. This guidance is applicable to financial statements issued on or after
January 12, 2009. The application of this EIC had no material effect on the Company's financial position and
results from operations.
(b) Mining Exploration Costs:
In March 2009, the CICA issued EIC-174, "Mining Exploration Costs." The EIC provides guidance on accounting for
capitalization and impairment of exploration costs. This standard was effective for the fiscal year beginning
January 1, 2009. The application of this EIC had no effect on the Company's financial position and results from
operations.
(c) CICA 3064 Goodwill and Intangible Assets:
The CICA has issued Handbook Section 3064 "Goodwill and Intangible assets". This Section applies to annual and
interim financial statements relating to fiscal years beginning on or after October 1, 2008. Section 3064
establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and
intangible assets. The application of this standard had no effect on the Company's financial position and
results from operations.
(d) Amendment to Financial Instruments - Disclosures ("Section 3862"):
During 2009, CICA Handbook Section 3862, Financial Instruments - Disclosures ("Section 3862"), was amended to
require disclosures about the inputs to fair value measurements, including their classification within a
hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy
are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or
indirectly; and
Level 3 - Inputs that are not based on observable market data.
The application of this standard had no effect on the Company's financial position and results from operations
other than enhanced disclosure under note 12(e).
(e) New accounting pronouncements not yet adopted:
(i) Business Combinations:
In October 2008, the CICA issued Handbook Section 1582, "Business Combinations", which establishes new
standards for accounting for business combinations. This is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2011. Should the Company engage in a future business combination, it would consider early adoption
to coincide with the adoption of International Financial Reporting Standards.
(ii) Non-controlling Interests:
Also in October 2008, the CICA issued Handbook Section 1602, "Non-controlling Interests", to provide guidance
on accounting for non-controlling interests subsequent to a business combination. This is effective for fiscal
years beginning on or after January 2011.
(iii) International Financial Reporting Standards (IFRS):
In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that will significantly
affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the
convergence of Canadian generally accepted accounting principles (GAAP) with IFRS over an expected five year
transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed
companies to use IFRS. The date is for interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for
comparative purposes of amounts reported by the Company for the year ended December 31, 2010. While the Company
will be performing a detailed assessment of the impact of adopting IFRS, the following has been identified as
areas where the Company expects differences. However, the full impact of the transition to IFRS cannot be
reasonably estimated at this time.
(a) Valuation and classification of the Company's mineral properties.
(b) Recognition and measurement of stock-based compensation.
(c) Measurement of asset retirement obligation.
(d) Identification of related parties and disclosure of related party transactions.
The Company is currently assessing the impact of the above new accounting standards on the Company's financial
position and results from operations.
4. Equipment:
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Accumulated Net book
2009 Cost amortization value
=---------------------------------------------------------------------
Buildings $ 556,021 $ 142,331 $ 413,690
Field Equipment 884,975 659,301 225,674
Office equipment 533,932 302,608 231,324
Transport 309,727 146,898 162,830
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$ 2,284,655 $ 1,251,138 $ 1,033,517
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Accumulated Net book
2008 Cost amortization value
=---------------------------------------------------------------------
Buildings $ 556,021 $ 119,349 $ 436,672
Field Equipment 785,688 610,479 175,209
Office equipment 460,038 158,987 301,051
Transport 309,727 96,182 213,545
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$ 2,111,474 $ 984,997 $ 1,126,477
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/T/
5. Mineral properties:
/T/
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2009 2008
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Colombia acquisition costs, beginning of year $ 14,418,247 $ 12,253,900
Additions during the year 4,172,704 2,164,347
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Colombia acquisition costs, end of year $ 18,590,951 $ 14,418,247
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/T/
The details of exploration expenditures expensed during 2009 and 2008 on mineral properties are as follows:
/T/
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2009 2008
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Cumulative exploration expenditures, beginning
of year $ 87,381,498 $ 66,950,756
Exploration expenditures:
General and administrative costs 3,735,582 2,880,132
Assay and metallurgy 1,231,195 1,423,223
Consulting and geology 259,093 366,997
Drilling and field costs 2,737,147 9,613,269
Environmental 1,294,262 536,644
Equipment rentals, repairs, maintenance and
supplies 88,102 885,666
Office supplies 34,576 40,967
Feasibility and pre-feasibility studies 8,582,734 3,675,791
Taxes and surface rights 1,150,434 688,234
Travel 77,366 319,819
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19,190,491 20,430,742
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$ 106,571,989 $ 87,381,498
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/T/
Angostura Project, Colombia:
The Company directly and indirectly holds interests in several mining titles, exploration licenses,
exploitation permits and concession contracts located in northeastern Colombia, which are collectively known as
the Angostura Project. Details are as follows:
(a) Concession Permit 3452:
The Company acquired the original License 3452 covering an area of 250 hectares in the Municipality of
California, Santander, Colombia by a purchase agreement dated September 8, 1994.
License 3452 was converted to an Integration Mining Concession No. 3452 contract ("Permit 3452") with the
Colombian Government on February 14, 2007 and registered in the National Mining Register on August 9, 2007. The
new Permit 3452 incorporates other titles previously held by the Company: 110-68, 102-68, 140-68, 302-68, 3452,
13929, 45-68, 47-68, 13356, 300-68, two contracts proposed HDB-082, GB3-091 and the exploration request 370-68.
The total Permit 3452 area is 5,253 hectares and provides for gold, silver and other precious metals
exploitation. The new contract expires in 2027 and can be renewed for an additional 30 years, with various
renewal periods within the 30-year period relating to exploration, construction and exploitation phases. All
obligations and exploration conditions under the licenses incorporated into the new Concession Permit 3452 have
been successfully fulfilled.
The underlying vendors of original License 3452 retained a 10% net profits royalty. The underlying vendors of
License 47-68 covering an area of approximately 54 hectares hold a 10% net profits royalty. With respect to
License 110-68, the original agreement provides for the acquisition by the Company of a two-thirds interest in
the license area.
During 2008, the Company purchased one-half of the 10% net profit royalty in the original License 3452 from one
of the underlying vendors in consideration for $850,201 (US$800,000) and issued 100,000 common share purchase
warrants exercisable into common shares at a price of $6.30 per share until January 10, 2013. Therefore as at
December 31, 2009, one underlying vendor of the original License 3452 covering an area of approximately 150
hectares holds a 5% net profits royalty while the second underlying vendor covering an area of approximately
100 hectares retains a 10% net profits royalty. The value of the share purchase warrants was estimated to be
$297,050 using the Black Scholes valuation model with the following assumptions:
/T/
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Risk free interest rate 3.35%
Expected life 5 years
Volatility 51.5%
Expected dividends nil
=-----------------------------------------------
/T/
(b) Other Angostura licenses:
The Company holds mineral exploration rights covering approximately 1,833 hectares located adjacent to
Integration Mining Concession No. 3452, including exploitation licenses 101-68, 127-68, and 6979 covering an
area of 49 hectares. Certain other contracts requiring annual fee payments based on the number of hectares and
a Colombian wage factor which fluctuates on an annual basis are as follows:
/T/
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Contract Area (Ha) Expiration date Annual fee
=-----------------------------------------------------------------
22346 1,184.1 September 18, 2032 $ 10,387
343 600.0 February 08, 2037 5,263
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=-----------------------------------------------------------------
/T/
(c) Concession contracts:
The Company has the following concession contracts that require annual fee payments based on the number of
hectares and a Colombian wage factor which fluctuates on an annual basis:
/T/
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Contract Area (Ha) Expiration date Annual fee
=-----------------------------------------------------------------
3452 5,244.9 August 08, 2027 $ 138,026
EJI-159 814.9 March 08, 2037 7,149
EJI-163 8,424.66 May 15, 2037 221,708
EJI-164 1,439.34 May 23, 2037 12,626
AJ5-142 4,061.1 November 14, 2034 71,250
AJ5-143 3,890.5 June 21, 2037 68,256
AJ5-144 4,336.0 February 11, 2038 76,072
=-----------------------------------------------------------------
=-----------------------------------------------------------------
/T/
Each of the contracts above is for an initial exploration period of three years from the date of registration,
with an option to extend for an additional two years. The total period of these concession contracts is
approximately 30 years.
In November 2009, the Company entered into a binding purchase agreement with a private Colombian company for an
exclusive option to acquire a 100% working interest in the 78 hectares La Plata property ("La Plata"). The
terms of the purchase agreement include staged payments totaling US$1,900,000; the issuance of 160,000 share
purchase warrants and minimum annual work commitments, all over a four year period to acquire a 100% working
interest in the property. In addition, if Greystar develops an economically viable ore body at La Plata, the
Company will pay a one-time payment of US$7 per ounce of gold and US$0.10 per ounce of silver for extractable
reserves up to a maximum of 750,000 ounces. As at December 31, 2009, the Company has made cash deposits of
$302,636 (US$300,000). The Company used the Black-Scholes option pricing model to estimate the value of the
warrants at $593,600, which has been accrued in accounts payable and the Company expects to issue the warrants
early in 2010. The remaining payments are contingent on achievement of specific performance criteria.
(d) Sovereign interests:
Pursuant to the applicable mining laws of Colombia, the Government of Colombia currently receives royalty taxes
on gold production equal to a net of 3.2% of the total metal gross value of sales. In order to keep the
Company's property interests in good standing over the term of the license, permit or concession contract, the
Company is required to make surface mineral fee payments as described in note 5(b) and (c).
(e) Surface rights:
During 2004, the Company purchased property surface rights located within the main Angostura Property currently
being explored for total consideration of $593,756.
During March 2006, the Company purchased La Armenia property covering 170 hectares, located in California,
Santander, Colombia for a price of $210,924 (US$186,000).
During April 2006, the Company purchased additional surface rights covering 36 hectares for a payment of
$64,640 (US$57,000).
During October 2006, the Company entered into a purchase agreement to acquire 35 hectares of land for a
purchase price of $91,765 (200,000,000 Colombian pesos) plus 9,178 share purchase warrants that had an exercise
price of $10.10 per share and a fair value of $23,120. These warrants expired on October 9, 2009.
During 2007, the Company acquired Los Llanitos property surface rights for US$45,000 and La Esmeralda property
surface rights for US$28,750.
During 2008, the Company acquired property surface rights at El Cadillial, El Bosque, El Salbial, and El Carbon
for total cash consideration of $952,466 (1,695,000,000 Colombian pesos) and the issuance of 40,000 common
share purchase warrants exercisable into common shares at a price of $7.10 per share until January 11, 2012.
The value of the share purchase warrants was estimated to be $64,630 using the Black-Scholes valuation model.
In January 2009, the Company entered into an agreement to acquire the "Los Robles" land parcel with an area of
14.6 hectares. The property was acquired for a cash payment of $58,794. The Company also issued 30,000 common
share purchase warrants exercisable into common shares at a price of $2.05 per share, exercisable until January
22, 2013. The fair value of these share purchase warrants was estimated to be $59,374 using the Black-Scholes
valuation model.
In June 2009, the Company acquired the "Las Puentes" land parcel with an area of 1,034 hectares for $2,037,318
(COP4,010,000,000), of which $1,098,000 (COP2,150,000,000) remains payable at December 31, 2009, and due at
varying amounts in April 2010 and April 2011. The cash payment made on the acquisition date was $1,017,920
(COP1,860,000,000). The future obligations have been recorded as amounts payable on mineral property
acquisition on the consolidated balance sheet and have been discounted to reflect the non-interest bearing
feature of this obligation. The discounted value of the future payments recognized on the date of acquisition
was $1,019,398 and is being accreted to earnings at a rate of 12%. The Company also issued 300,000 share
purchase warrants exercisable into common shares at a price of $2.30 per share, exercisable until June 29,
2013. The fair value of these share purchase warrants was estimated to be $650,451 using the Black-Scholes
valuation model.
In June 2009, the Company entered into an agreement to acquire the "Laguna de la Virgen" land parcel comprised
of approximately 189 hectares. The Company has made a cash deposit of $81,760 and has agreed to make further
payments of approximately $199,290 and to issue 60,000 share purchase warrants having an exercise price of
$2.30 expiring four years following the closing of the transaction. This transaction had not closed as at
December 31, 2009, but is expected to close in early 2010.
In June 2009, the Company issued 123,500 share purchase warrants relating to the El Bosque, El Carbon and El
Salbial land parcel acquisitions that were completed in previous reporting periods. The issuance of these share
purchase warrants received regulatory approval during April and May 2009. Of the 123,500 share purchase
warrants, 3,700 have an exercise price of $6.75 and expire on January 14, 2012, 19,800 have an exercise price
of $5.65 and expire on February 18, 2012, and 100,000 have an exercise price of $4.89 and expire on June 29,
2013. The value of the share purchase warrants was estimated to be $263,390 using the Black-Scholes valuation
model.
In June 2009, the Company made an additional payment of $5,841 to acquire the right to purchase the "El Alta"
land parcel.
In December 2009, the Company entered into an agreement to acquire the "San Julian" land parcel with an area of
18 hectares. The terms of the agreement include a cash deposit paid of $71,540 with a final payment of
approximately $30,660 due when title transfers, and the issuance of 15,000 share purchase warrants exercisable
into common shares at a price of $6.10 per share. The Company used the Black-Scholes option pricing model to
estimate the value of the warrants at $48,000, which has been accrued in accounts payable and the Company
expects to issue the warrants early in 2010.
The valuation of the various share purchase warrants issued in relation to the above land acquisitions were
estimated using the Black-Scholes valuation model applying risk free rates ranging from 1.39% to 3.45%,
expected lives based on the full term of the warrants, expected dividends of nil, and volatility rates ranging
from 48.4% to 80.3%. Costs incurred for issuing these warrants were $12,121.
6. Asset retirement obligation:
As at December 31, 2009, the Company has an asset retirement obligation of $1,342,855 (2008 - $580,000)
relating to the remediation of environmental disturbances on the Angostura project. The obligation is based on
undiscounted estimated cash flows required to settle the obligation in the future. Assumptions used by
management to determine the carrying amount of the asset retirement obligation were a 12% credit-adjusted risk-
free rate, a 15-25% mark-up in costs to reflect anticipated third party contractor costs and a 3.55-3.75% rate
of inflation over the expected years to settlement, which is estimated to be in 2012.
The following table shows the changes in the carrying amount of the Company's asset retirement obligation
associated with the Angostura Project:
/T/
=-----------------------------------------------------------------------
2009 2008
=-----------------------------------------------------------------------
Beginning of year, current and long-term $ 580,000 $ 345,500
Remediation work performed (455,683) (280,000)
Liabilities incurred during the year 1,294,262 514,500
Effect of translation on foreign currencies (75,724) -
--------------------------
1,342,855 580,000
Less current portion 713,666 390,000
=-----------------------------------------------------------------------
$ 629,189 $ 190,000
=-----------------------------------------------------------------------
=-----------------------------------------------------------------------
/T/
7. Share capital:
(a) Authorized:
Unlimited common shares without par value
(b) Issued and outstanding:
As of December 31, 2009, the Company had 72,360,764 common shares issued and outstanding (2008 - 46,063,798).
On March 20, 2009, the Company completed a private placement of 6,579,161 units at a price of $1.83 per unit
for gross proceeds of $12,039,865. Each unit consisted of one common share and three-quarters of a transferable
common share purchase warrant. A total of 6,579,161 common shares and 4,934,371 warrants were issued on
closing. The Company allocated $7,874,898 of gross proceeds to share capital and $4,164,967 allocated to
warrants using the relative fair value method. The Company incurred $191,627 of issue costs with $125,338
allocated to common shares and $66,289 allocated to warrants. Each whole warrant entitles the holder to
purchase one common share at a price of $2.47 per share during the five-year period ending March 20, 2014. If
at any time following six months from March 20, 2009, the closing price of the Company's common shares on the
Toronto Stock Exchange (TSX) is above $3.70 for 30 or more consecutive trading days, the Company can give
notice to accelerate the expiry date of up to 2,467,185 warrants to 60 days following the date of such notice.
Additionally, if at any time following two months from the completion and delivery of a bankable feasibility
study with respect to the Company's Angostura gold-silver project, the closing price of the Company's common
shares on the TSX is above $3.70 for 30 or more consecutive trading days, the Company can give notice to
accelerate the expiry of the remaining 2,467,186 warrants (or less) to 60 days following the date of such
notice. The value of the warrants issued as part of this private offering was estimated using the Black-Scholes
valuation model with the following assumptions:
/T/
=-----------------------------------------------
Risk-free interest rate 1.85%
Expected life 5 years
Volatility 72%
Expected dividends Nil
=-----------------------------------------------
=-----------------------------------------------
/T/
On September 29, 2009, the Company closed a public offering of 18,071,429 units at a price of $3.50 per unit
for gross proceeds of $63,250,000. Each unit consisted of one common share and one-half of a transferable
common share purchase warrant. A total of 18,071,429 common shares and 9,939,285 warrants were issued on
closing, including 903,571 warrants issued as compensation to the agents assisting with the offering. The
Company allocated the gross proceeds of $53,013,442 to share capital and $10,236,558 to warrants using the
relative fair value method. The Company incurred $5,147,610 of issue costs with $4,314,495 allocated to common
shares and $833,115 allocated to warrants. The 9,035,714 warrants subscribed to in this offering entitle the
holder to purchase one common share at a price of $4.30 per share during the one-year period ending September
29, 2010. If at any time, the closing price of the Company's common shares on the TSX is greater than $5.00 for
20 or more consecutive trading days, the Company can give notice to accelerate the expiry date of the warrants
to 20 days following the date of such notice. Of these warrants, the Company received $194,265 due to the
allotment to be issued pursuant to the exercise of 45,178 warrants. The Company also issued 127,000 common
shares and received cash proceeds of $546,100 subsequent to December 31, 2009. The 903,571 agents' warrants
entitle the holder to purchase one unit at a price of $3.50 per unit during the one-year period ending
September 29, 2010, with each unit comprised of one common share and one-half of a transferable common share
purchase warrant and having the same terms as the units subscribed to as part of the September 29, 2009 public
offering. The value of the agents' warrants was estimated to be $1,359,965 using the Black-Scholes valuation
model and has been recorded as an issue cost of this transaction.
The valuation of the warrants issued as part of this public offering was estimated using the Black-Scholes
valuation model with the following assumptions:
/T/
=-----------------------------------------------
Risk-free interest rate 1.20%
Expected life 1 year
Volatility 119%
Expected dividends Nil
=-----------------------------------------------
=-----------------------------------------------
/T/
(c) Share purchase options:
The Company has an incentive share option plan (the Plan) that allows it to grant options to its employees,
officers, directors and consultants to acquire common shares. The number of shares issuable pursuant to the
Plan is a fixed maximum percentage of 10% of the common shares issued.
Under the terms of the Plan, the exercise price of each option equals the closing market price for the common
shares on the TSX on the trading day prior to the date of the grant. Options have a maximum term of ten years
and terminate sixty days following the termination of the optionee's employment or term of engagement, except
in the case of retirement, or death, termination for cause, resignation at the request of the Board, removal or
disqualification. Vesting of options is made at the discretion of the Board of Directors at the time the
options are granted.
The share option plan also provides for a cashless exercise option provision which is in substance a stock
appreciation right which calls for settlement by the issuance of equity instruments or in cash. Stock-based
employee awards that include stock appreciation rights are accounted under the fair value based method.
(d) Stock-based payments:
The Company has recorded stock-based payments made during 2009 in these consolidated financial statements. The
estimated fair value of stock options granted to directors, officers, employees and consultants at the date of
option grant is $3,241,456 (2008 - $1,829,508).
During the year ended December 31, 2009, the Company granted a total of 1,510,000 options with vesting periods
ranging from immediate vesting to vesting one third on each one year anniversary from the date of grant. The
options are exercisable for up to four to five years from date of grant.
The Company recorded a stock based compensation expense of $2,305,684 for the year ended December 31, 2009, and
will record additional expenses of $2,385,391 as the remaining options become vested.
During the year ended December 31, 2008, the Company granted a total of 920,250 options with vesting periods
ranging from immediate vesting to vesting one third on each one year anniversary from the date of grant. The
options are exercisable for up to three to five years from date of grant. The weighted average assumptions used
to estimate the fair value of options granted were:
/T/
=------------------------------------------------------------
2009 2008
=------------------------------------------------------------
Risk-free interest rate 1.75% 2.99%
Expected life 5 years 4.9 years
Volatility 72.6% 51.3%
Expected dividends Nil Nil
=------------------------------------------------------------
/T/
The continuity of share purchase options for 2009 is as follows:
/T/
=-------------------------------------------------------------
Balance,
Expiry Exercise December 31,
date price 2008 Granted
=-------------------------------------------------------------
June 7, 2009 $2.10 195,000 -
October 13, 2009 $2.55 4,400 -
November 23, 2009 $4.00 699,000 -
April 29, 2010 $4.10 99,450 -
July 25, 2010 $5.90 2,750 -
August 22, 2010 $6.00 14,000 -
September 6, 2010 $7.10 608,600 -
January 20, 2011 $8.01 471,000 -
March 1, 2011 $6.60 50,000 -
March 31, 2011 $ 11.00 9,500 -
May 26, 2011 $ 10.20 13,400 -
October 2, 2011 $ 10.30 406,500 -
October 20, 2011 $0.88 10,000 -
September 20, 2012 $6.60 642,250 -
May 15, 2013 $4.71 629,750 -
June 23, 2013 $4.46 150,000 -
November 17, 2013 $0.98 50,000 -
December 5, 2013 $0.85 20,000 -
May 18, 2014 $3.60 - 1,285,000
July 16, 2014 $3.26 - 75,000
August 6, 2014 $4.10 - 35,000
August 11, 2014 $4.00 - 25,000
August 17, 2014 $4.05 - 30,000
September 14, 2014 $3.61 - 25,000
November 23, 2014 $6.22 - 35,000
=-------------------------------------------------------------
4,075,600 1,510,000
=-------------------------------------------------------------
Weighted average
exercise price $6.02 $3.67
=-------------------------------------------------------------
=-------------------------------------------------------------
=-------------------------------------------------------------
Balance,
Expiry Expired/ December 31,
date Exercised(1) cancelled 2009
=-------------------------------------------------------------
June 7, 2009 (195,000) - -
October 13, 2009 (4,400) - -
November 23, 2009 (699,000) - -
April 29, 2010 - - 99,450
July 25, 2010 - - 2,750
August 22, 2010 - - 14,000
September 6, 2010 - - 608,600
January 20, 2011 - - 471,000
March 1, 2011 - - 50,000
March 31, 2011 - - 9,500
May 26, 2011 - - 13,400
October 2, 2011 - - 406,500
October 20, 2011 (10,000) - -
September 20, 2012 - - 642,250
May 15, 2013 (12,215) - 617,535
June 23, 2013 (50,000) - 100,000
November 17, 2013 - (50,000) -
December 5, 2013 (2,200) - 17,800
May 18, 2014 (28,500) - 1,256,500
July 16, 2014 - - 75,000
August 6, 2014 - (35,000) -
August 11, 2014 - - 25,000
August 17, 2014 - - 30,000
September 14, 2014 - - 25,000
November 23, 2014 - - 35,000
=-------------------------------------------------------------
(1,001,315) (85,000) 4,499,285
=-------------------------------------------------------------
=-------------------------------------------------------------
Weighted average
exercise price $3.61 $2.26 $5.83
=-------------------------------------------------------------
=-------------------------------------------------------------
(1) There were 776,500 options exercised on a cashless basis
resulting in the issuance of 285,097 common shares.
/T/
The continuity of share purchase options for 2008 was as follows:
/T/
=-------------------------------------------------------------
Balance,
Exercise December 31,
Expiry date price 2007 Granted
=-------------------------------------------------------------
February 6, 2008 $1.90 270,000 -
June 9, 2008 $1.40 65,000 -
November 12, 2008 $2.75 684,000 -
June 7, 2009 $2.10 225,000 -
October 13, 2009 $2.55 4,400 -
November 23, 2009 $4.00 800,000 -
April 29, 2010 $4.10 101,700 -
June 15, 2010 $4.55 43,000 -
July 25, 2010 $5.90 2,750 -
August 22, 2010 $6.00 14,000 -
September 6, 2010 $7.10 688,100 -
January 11, 2011 $8.01 511,000 -
March 31, 2011 $11.00 9,500 -
May 26, 2011 $10.20 13,400 -
October 2, 2011 $10.30 425,000 -
September 20, 2012 $6.60 685,250 -
March 1, 2011 $6.60 - 50,000
May 15, 2013 $4.71 - 640,250
June 23, 2013 $4.46 - 150,000
October 20, 2011 $0.88 - 10,000
November 17, 2013 $0.98 - 50,000
December 5, 2013 $0.85 - 20,000
=-------------------------------------------------------------
4,542,100 920,250
=-------------------------------------------------------------
=-------------------------------------------------------------
Weighted average
exercise price $5.50 $4.44
=-------------------------------------------------------------
=-------------------------------------------------------------
=-------------------------------------------------------------
Balance,
Expired/ December 31,
Expiry date Exercised(1) cancelled 2008
=-------------------------------------------------------------
February 6, 2008 (270,000) - -
June 9, 2008 (65,000) - -
November 12, 2008 - (684,000) -
June 7, 2009 (30,000) - 195,000
October 13, 2009 - - 4,400
November 23, 2009 (101,000) - 699,000
April 29, 2010 (2,250) - 99,450
June 15, 2010 (43,000) - -
July 25, 2010 - - 2,750
August 22, 2010 - - 14,000
September 6, 2010 - (79,500) 608,600
January 11, 2011 - (40,000) 471,000
March 31, 2011 - - 9,500
May 26, 2011 - - 13,400
October 2, 2011 - (18,500) 406,500
September 20, 2012 - (43,000) 642,250
March 1, 2011 - - 50,000
May 15, 2013 - (10,500) 629,750
June 23, 2013 - - 150,000
October 20, 2011 - - 10,000
November 17, 2013 - - 50,000
December 5, 2013 - - 20,000
=-------------------------------------------------------------
(511,250) (875,500) 4,075,600
=-------------------------------------------------------------
=-------------------------------------------------------------
Weighted average
exercise price $2.50 $3.76 $6.02
=-------------------------------------------------------------
=-------------------------------------------------------------
(1) There were 420,000 options exercised on a cashless basis
resulting in the issuance of 249,005 common shares.
/T/
Refer to note 7(c) for disclosure of the fair value of the options granted in 2009 and 2008 and the related
accounting in these consolidated financial statements.
(e) Share purchase warrants:
The continuity of share purchase warrants for 2009 is as follows:
/T/
=-------------------------------------------------------------------------
Balance Balance
December December
Exercise 31, 31,
Expiry date price 2008 Issued Exercised Expired 2009
=-------------------------------------------------------------------------
October 3,
2009 $10.10 9,178 - - (9,178) -
January
11,2012 $7.10 40,000 - - - 40,000
January 10,
2010 $6.30 100,000 - - - 100,000
September
29, 2010 $3.50 - 903,571 (796,964) - 106,607
September
29, 2010 (1) $4.30 - 9,434,195 (339,500) - 9,094,695
January 14,
2012 $6.75 - 3,700 - - 3,700
February 18,
2012 $5.65 - 19,800 - - 19,800
January 22,
2013 $2.05 - 30,000 - - 30,000
June 20,
2013 $2.30 - 300,000 - - 300,000
June 29,
2013 $4.89 - 100,000 - - 100,000
March 20,
2014 $2.47 - 4,934,371 - - 4,934,371
=-------------------------------------------------------------------------
149,178 15,725,637 (1,136,464) (9,178) 14,729,173
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
(1) There were 9,035,714 share purchase warrants issued related to the
September 29, 2009, public offering. The remaining 398,481 share
purchase warrants relate to the exercise of 796,964 agents' warrants,
which entitle them to an additional one-half of one transferable share
purchase warrant as disclosed in note 7(b). The fair value of these
additional warrants was estimated to be $645,580 and is based on a
proportion that is equal to the relative fair value allocation of the
gross proceeds described in note 7(b) applied to the original warrant
value and exercise price.
/T/
The continuity of share purchase warrants for 2008 was as follows:
/T/
=-------------------------------------------------------------------------
Balance Balance
December December
Exercise 31, 31,
Expiry date price 2007 Issued Exercised Expired 2008
=-------------------------------------------------------------------------
October 3,
2009 $10.10 9,178 - - - 9,178
January
11,2012
(note 6(e)) $7.10 - 40,000 - - 40,000
January 10,
2013
(note 6(a)) $6.30 - 100,000 - - 100,000
=-------------------------------------------------------------------------
9,178 140,000 - - 149,178
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
/T/
(f) Shareholder rights plan:
During 2003, the Company received regulatory and shareholder approval for a shareholder rights plan (the Rights
Plan). Under the terms of the Rights Plan, one right was issued and attached to each outstanding common share
of the Company at the close of the business on November 19, 2003, and one right will attach automatically to
each common share issued thereafter.
The rights will trigger and become exercisable ten trading days after the occurrence of certain events
including the acquisition or announcement of an intention to acquire by a person, including any persons related
to or acting jointly or in concert with such person, of 20% or more of the Company's outstanding common shares,
other than by an acquisition that complies with the permitted bid provisions of the Rights Plan or by an
acquisition in respect of which the board of directors has waived the application of the Rights Plan. The
initial exercise price of the rights is $25.00, subject to adjustments set forth in the Rights Plan. Expiry
date for the rights plan has been extended from December 19, 2007 to December 20, 2010.
8. Related party transactions:
During the year ended December 31, 2009, the Company was charged a total of $382,398 (2008 - $310,296) for
office and administration fees, management and consulting fees and reimbursement of expenses, by directors and
by companies with common directors. These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Included in the accounts payable and accrued liabilities balance is a total of $29,702 (2008 - $6,627) owing to
companies with common directors.
Included in the amounts receivable, prepaids and exploration advances are amounts totaling $Nil (2008 - $7,500)
due from companies with common directors.
9. Supplementary cash flow information:
/T/
=--------------------------------------------------------------------------
2009 2008
=--------------------------------------------------------------------------
Cash amount of payments received:
Interest received $ 337,782 $ 1,406,784
Non-cash investing and financing activities:
Agents' warrants issued from the public offering 1,359,968 -
Fair value of additional warrants granted upon
exercise of agents' warrants 645,580 -
Share subscription receivable for common shares
issued on exercise of warrants 546,100 -
Fair value of stock options transferred to share
capital from contributed surplus on exercise of
options 2,219,857 651,820
Fair value of warrants transferred to share
capital on exercise of warrants 1,552,829 -
Fair value of share purchase warrants issued on
mineral property acquisitions 973,215 384,800
Amounts payable on mineral property acquisition 1,013,986 -
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
Cash and cash equivalents are comprised of:
=--------------------------------------------------------------------------
2009 2008
=--------------------------------------------------------------------------
Cash $ 11,966,396 $ 27,262,146
Bank short-term deposits 69,616,908 -
=--------------------------------------------------------------------------
$ 81,583,304 $ 27,262,146
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
/T/
10. Income taxes:
Income tax expense (recovery) differs from the amounts computed by applying the combined federal and provincial
income tax rate of 30% (2008 - 31%) to pre-tax income (loss) as follows:
/T/
=------------------------------------------------------------------------
2009 2008
=------------------------------------------------------------------------
Loss before income taxes $ (24,025,828) $ (21,945,145)
=------------------------------------------------------------------------
Income tax recovery at statutory rates $ (7,207,748) $ (6,802,995)
Difference in foreign tax rates 228,116 (401,048)
Stock based compensation and other
permanent differences 691,705 434,646
Future tax rate differences 7,797,114 233,588
=------------------------------------------------------------------------
1,509,187 (6,535,809)
Valuation allowance (1,509,187) 6,535,809
=------------------------------------------------------------------------
Income tax recovery $ - $ -
=------------------------------------------------------------------------
=------------------------------------------------------------------------
/T/
The significant components of the Company's future income tax assets and liabilities at December 31, 2009 and
2008 are as follows:
/T/
=----------------------------------------------------------------------
2009 2008
=----------------------------------------------------------------------
Future income tax assets
Capital assets and resource properties 28,493,527 31,592,885
Asset retirement obligation 335,714 191,400
Losses carried forward 2,781,990 1,989,924
Share issuance costs 1,051,520 397,730
=----------------------------------------------------------------------
Total future income tax assets 32,662,751 34,171,938
Valuation Allowance (32,662,751) (34,171,938)
=----------------------------------------------------------------------
Future income tax assets, net of
valuation allowance $ - $ -
=----------------------------------------------------------------------
=----------------------------------------------------------------------
/T/
At December 31, 2009, the Company has capital losses of approximately $2,157,000 (2008 - $2,157,000) that are
without expiry and Canadian operating losses with expiry dates as follows:
/T/
=---------------------------------------------------------------
Operating loss for years ending Amount Expiry Dates
=---------------------------------------------------------------
December 31, 2003 $ 687,142 2010
December 31, 2004 2,005,328 2014
December 31, 2005 610,310 2015
December 31, 2006 443,270 2026
December 31, 2007 450,760 2027
December 31, 2008 1,818,281 2028
December 31, 2009 4,034,238 2029
=---------------------------------------------------------------
$ 10,049,329
=---------------------------------------------------------------
=---------------------------------------------------------------
/T/
11. Segment disclosures:
The Company operates in a single segment, being resource exploration and development. Capital expenditures made
during 2009 and 2008 are disclosed in notes 4 and 5. Other geographic information is as follows:
/T/
=--------------------------------------------------------------------
Canada Colombia Total
=--------------------------------------------------------------------
December 31, 2009:
Loss for the year $ 10,838,962 $ 13,186,866 $ 24,025,828
Interest Income 323,549 14,233 337,782
Identifiable assets 89,313,842 12,479,270 101,793,112
December 31, 2008:
Loss for the year $ 1,358,304 $ 20,586,841 $ 21,945,145
Interest Income 1,406,784 - 1,406,784
Identifiable assets 27,166,840 16,089,120 43,255,960
=--------------------------------------------------------------------
=--------------------------------------------------------------------
/T/
12. Management of financial risk:
The Company's financial instruments are exposed to certain financial risks, including currency risk, credit
risk, liquidity risk, interest risk and price risk.
(a) Currency risk:
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company
operates in Canada and Colombia and a large portion of its expenses are incurred in Colombian Pesos. A
significant change in the currency exchange rates between the Canadian Dollar relative to the Colombian Peso
could have an effect on the Company's results of operations, financial position or cash flows. The Company has
not hedged its exposure to currency fluctuations.
The Company's exposure, expressed in Canadian dollars, to the Colombian Peso on financial instruments is as
follows:
/T/
=-------------------------------------------------------------------------
2009 2008
=-------------------------------------------------------------------------
Cash and cash equivalents $ 598,289 $ 205,425
Accounts receivable and prepaids 337,783 355,797
Accounts payable and accrued liabilities 1,761,310 536,735
=-------------------------------------------------------------------------
$ 2,697,382 $ 1,097,957
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
/T/
As at December 31, 2009, with other variables unchanged, a 10% depreciation or appreciation of the Canadian
dollar against the Colombian Peso would change the values of the Colombian Peso denominated financial
instruments and would affect the consolidated statement of operations and comprehensive loss by approximately
$269,738.
The Company's exposure to the Colombia Peso on annual exploration expenditures as at December 31, 2009 was
$12,980,616. A 10% depreciation of the Canadian dollar against the Colombian Peso would affect the consolidated
statement of operations and comprehensive loss by approximately $1,298,062.
(b) Credit risk:
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its
contractual obligations. The Company manages its credit risk through its counterparty ratings and credit
limits.
The Company's cash and cash equivalents and short term investments are held through large Canadian financial
institutions. Short-term investments are composed of financial instruments issued by Canadian banks and
companies with high investment-grade ratings. These instruments mature at various dates over the current
operating period and are normally cashable on a designated monthly date. Amounts receivable primarily consists
of GST receivable with expected payment from the Canadian government.
The total cash and cash equivalents and amounts receivable represent the maximum credit exposure. The Company
limits its credit risk exposure by holding bank accounts and any short term investments with reputable banks
with high credit ratings.
(c) Liquidity risk:
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short and long term
business requirements. The Company believes that these sources will be sufficient to cover its cash
requirements for the upcoming year. The Company's cash is invested in liquid investments with quality financial
institutions and is available on demand for the Company's programs and is not invested in any asset backed
commercial paper. Contractual commitments that the Company is obligated to pay in future years are disclosed in
note 14.
As at December 31, 2009, the Company's liabilities have contractual maturities as summarized below:
/T/
=-------------------------------------------------------------------------
Less than 1 - 3 After
Total 1 year years 3 years
=-------------------------------------------------------------------------
Accounts payable and
accrued liabilities $ 2,764,557 $ 2,764,557 $ - $ -
Accounts payable on
mineral properties 1,098,650 587,650 511,000 -
Other commitments
(note 14) 478,366 195,326 283,040 -
=-------------------------------------------------------------------------
$ 4,341,573 $ 3,547,533 $ 794,040 $ -
=-------------------------------------------------------------------------
=-------------------------------------------------------------------------
/T/
(d) Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Company's bank accounts earn interest income at
variable rates. The Company's future interest income is exposed to changes in short-term rates. An increase or
decrease in the annual interest rate of 1% would result in a corresponding increase or decrease of annual
interest income by $690,000.
(e) Fair value of financial instruments:
The fair values of amounts receivable and accounts payable and accrued liabilities approximate their carrying
values due to the short-term nature of these instruments. The fair value of the amounts payable on mineral
property acquisitions approximates their carrying value as there was no material change to the discount rate
used to calculate the fair value since initial recognition.
The following table illustrates the classification of the Company's financial instruments recorded at fair
value within the fair value hierarchy as at December 31, 2009.
/T/
=--------------------------------------------------------------------------
Financial assets at fair value
-----------------------------------------------------------
Level 1 Level 2 Level 3 December 31, December 31,
2009 2008
=--------------------------------------------------------------------------
Cash and cash
equivalents $ 81,583,304 $ - $ - $81,583,304 $27,262,146
=--------------------------------------------------------------------------
Held for
trading 81,583,304 - - 81,583,304 27,262,146
Amounts
receivable 585,340 - - 585,340 449,090
=--------------------------------------------------------------------------
Financial assets 585,340 - - 585,340 449,090
=--------------------------------------------------------------------------
Total financial
asset at fair
value $ 82,168,644 $ - $ - $82,168,644 $27,711,236
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
Financial inputs liabilities at fair value
----------------------------------------------------------
Level 1 Level 2 Level 3 December 31, December 31,
2009 2008
=--------------------------------------------------------------------------
Accounts payable
and accrued
liabilities $ 2,764,557 $ - $ - $ 2,764,557 $ 1,280,801
Amounts payable
on mineral
property
acquisition - 1,013,986 - 1,013,986 -
=--------------------------------------------------------------------------
Total financial
asset at fair
value $ 2,764,557 $1,013,986 $ - $ 3,778,543 $ 1,280,801
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
/T/
13. Capital management:
The Company's objective when managing capital is to maintain adequate levels of funding, in order to support
exploration and development of its Colombian Project, and to maintain corporate and administrative functions.
The Company considers shareholders' equity as capital.
The Company is not subject to externally imposed capital requirements and the Company's overall strategy with
respect to capital risk management remains unchanged from the prior year (see note 1 for additional
information).
14. Commitments:
The following is a schedule of the Company's commitments as at December 31, 2009:
/T/
=-----------------------------------------------------------------
Note 14(a) Note 14(b) Total
=-----------------------------------------------------------------
2010 $ 116,831 $ 78,495 $ 195,326
2011 127,452 17,515 144,967
2012 127,452 - 127,452
2013 10,621 - 10,621
2014 and thereafter - - -
=-----------------------------------------------------------------
$ 382,356 $ 96,010 $ 478,366
=-----------------------------------------------------------------
=-----------------------------------------------------------------
/T/
(a) The Company has entered into an office operating lease for its corporate office in Vancouver with aggregate
future rental payments approximating $382,356 for the term of three years starting February 1, 2010. Office
lease payments are recorded as rental expenditures and paid on a monthly basis.
(b) During the year ended December 31, 2009, the Company entered into an agreement with a third party that will
assist municipalities close to the Angostura Project in developing managerial competences to be ready for
managing royalties investments and additional alternative sources of income. This will help maximize the
positive impact on the living standards of their populations. As part of the terms of the agreement, the
Company is committed to future payments consisting of US$75,000 in November 2010 and US$16,735 in November
2011.
(c) The Company has commitments related to the acquisition of mineral properties as described in note 5.
(d) The Company is from time to time involved in various claims, legal proceedings and complaints arising in
the ordinary course of business. The Company does not believe that adverse decisions in any pending or
threatened proceedings related to any matter, or any amount which it may be required to pay by reason thereof,
will have a material effect on the financial condition or future results of operations of the Company.
15. Subsequent events:
(a) Exercise of warrants (see note 7(b)):
In January 2010, the Company received proceeds of $39,049,551 from the exercise of 9,081,291 common share
purchase warrants at $4.30 per warrant. In addition, the Company also received proceeds of $373,125 from the
exercise of 106,607 agents' warrants at $3.50 each. Both the warrants and the agents' warrants were issued in
connection with the Company's financing completed on September 29, 2009.
In February 2010, the Company received proceeds of $6,093,947 from the exercise of 2,467,185 common share
purchase warrants at a price of $2.47 per share. The share purchase warrants were associated with the Company's
financing completed with International Finance Corporation, a member of the World Bank Group, on March 20,
2009.
GREYSTAR RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2009
INTRODUCTION
The following information of Greystar Resources Ltd. (the "Company" or "Greystar"), prepared as of March 25,
2010, should be read in conjunction with the Company's audited annual consolidated financial statements for the
years ended December 31, 2009 and 2008, and the related notes attached thereto. These financial statements have
been prepared in accordance with Canadian generally accepted accounting principles. All amounts in this
management's discussion and analysis ("MD&A") are expressed in Canadian dollars unless otherwise indicated.
Additional information relevant to the Company's activities, including the Company's Annual Information Form,
can be found on SEDAR at www.sedar.com.
The Company is a development stage company, engaged in the acquisition and exploration of resource properties.
The Company's primary activity is the exploration and development of the Angostura Gold-Silver Project in
Colombia. The Company's head office is located in Vancouver, British Columbia, Canada and its exploration and
administrative office in Colombia is located in the city of Bucaramanga. The Angostura mineral property is
located approximately 55 kilometres north-east of Bucaramanga. The Company is a reporting issuer in British
Columbia, Alberta, Ontario and Nova Scotia and trades on the Toronto Stock Exchange ("TSX") and on the AIM
Market of the London Stock Exchange (the "AIM Market"), under the symbol GSL.
The following discussion, analysis and financial review is comprised of the following sections:
1. 2009 HIGHLIGHTS
2. SELECTED ANNUAL FINANCIAL INFORMATION FOR PAST THREE YEARS
3. ANGOSTURA GOLD-SILVER PROJECT UPDATE, COLOMBIA
4. RESULTS OF OPERATIONS, INCLUDING FOURTH QUARTER RESULTS
5. QUARTERLY INFORMATION
6. LIQUIDITY AND CAPITAL RESOURCES
7. FINANCIAL INSTRUMENTS
8. TRANSACTIONS WITH RELATED PARTIES
9. CRITICAL ACCOUNTING ESTIMATES
10. NEW ACCOUNTING POLICIES
11. OFF-BALANCE SHEET ARRANGEMENTS
12. OUTSTANDING SHARE DATA
13. RISKS AND UNCERTAINTIES
14. INTERNAL CONTROL OVER FINANCIAL REPORTING
15. FORWARD-LOOKING STATEMENTS
16. QUALIFIED PERSONS
1. 2009 HIGHLIGHTS
Results of Operations
The net loss for the year ended December 31, 2009, was $24 million compared to $21.9 million for the year ended
December 31, 2008. Loss per share for 2009 was $0.43 compared to $0.48 for 2008. For the fourth quarter of
2009, the net loss was $6.5 million and loss per share was $0.09 compared to a net loss of $5.9 million and
loss per share of $0.13 for the fourth quarter of 2008.
Financing
On March 20, 2009, the Company completed a private placement of 6,579,161 units at a price of $1.83 per unit
for gross proceeds of $12 million. Each unit consisted of one common share and three-quarters of a transferable
common share purchase warrant. A total of 6,579,161 common shares and 4,934,371 warrants were issued on
closing. Each whole warrant entitles the holder to purchase one common share at a price of $2.47 per share
during the five-year period ending March 20, 2014. In February 2010, the Company received proceeds of $6.1
million from the exercise of 2,467,185 common share purchase warrants at an exercise price of $2.47 per share.
On September 29, 2009, the Company closed a public offering of 18,071,429 units at $3.50 per unit for gross
proceeds of $63.3 million. Each unit consisted of one common share and one-half of a transferable common share
purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of $4.30 per
share during the one-year period ending September 29, 2010. The Company also issued 903,571 warrants as
compensation to the agents assisting with the public offering. The 903,571 agents' warrants entitle the holder
to purchase one unit at a price of $3.50 per unit during the one-year period ending September 29, 2010, with
each unit comprised of one common share and one-half of a transferable common share purchase warrant and having
the same terms as the units subscribed to as part of the September 29, 2009 public offering. During 2009 and
January 2010, the Company received proceeds of $43.3 million from the exercise of these warrants.
Management Changes
The Company strengthened its management team during 2009. The following new appointments were made: Mr. Timothy
Lallas, Vice President Finance and Administration and Chief Financial Officer; Mr. Geoff Chater, Vice President
Corporate Development; Mr. Victor Guimaraes Aguilar, Mine Planning Superintendent; Mr Leonardo di Mare,
Environment Superintendent; and Mr. Eduardo Enrique Mayorga Rojas, Human Resources Superintendent.
In the fourth quarter of 2009, the Company appointed Mr. Richard Robinson as a director to the Company's Board
of Directors. The Company also announced the pending retirement of its President and Chief Executive Officer,
Mr. David Rovig. Mr. Rovig will be appointed to the new position of Chairman of the Board of Directors where he
will continue a guiding role in the development of Greystar. In February 2010, the Company announced the
appointment of Mr. Steve Kesler to the position of President and Chief Executive Officer. Mr. Kesler will
assume this position upon receipt of a Canadian work permit. In March 2010, Mr. Kesler was appointed as a
director to the Company's Board of Directors.
Secondary Listing on Colombia Stock Exchange
During the third quarter of 2009, the Board of Directors approved a project to explore the listing of the
Company's shares on the Bolsa de Valores de Colombia, Colombia's national stock exchange. This listing would
qualify as a secondary listing, and the Company's primary exchange will remain the Toronto Stock Exchange
(TSX). The Company would also retain its listing on the Alternative Investment Market (AIM). The Company does
not anticipate making an offering in conjunction with this listing and therefore there would be no dilution to
existing shareholders. The review of the listing process is ongoing.
The Company believes this new listing would expand its institutional and retail shareholder base in Colombia
where it is developing its Angostura gold-silver deposit, and is optimistic that pension funds and individual
investors in Colombia would see an investment in Greystar as an opportunity to support their own economy
through the responsible development of the country's natural resources.
2. SELECTED ANNUAL FINANCIAL INFORMATION FOR PAST THREE YEARS
/T/
Fiscal Years Ended
December 31
-------------------------------------------
2009 2008 2007
-------------------------------------------
$ $ $
Balance Sheet:
Total assets 101,793,112 43,255,960 62,171,146
Total long-term liabilities 1,074,829 190,000 65,862
Operations:
Exploration expenditures 19,190,491 20,430,742 14,054,752
Administrative costs
General 2,640,896 1,518,049 1,163,793
Stock-based compensation 2,305,684 1,402,085 990,581
Interest income (337,782) (1,406,784) (1,583,562)
Other items 226,539 1,053 15,821
-------------------------------------------
Net loss for the year 24,025,828 21,945,145 14,641,385
-------------------------------------------
Basic and diluted loss per
share $ 0.43 $ 0.48 $ 0.35
Dividends per share - - -
Per month exploration costs $1,599,207.58 $1,702,561.83 $1,171,229.33
/T/
The variation in total assets over the three year term is mainly due to fluctuations in levels of cash. As the
Company has no operating revenue, it relies primarily on equity financing to fund its activities. Proceeds from
equity financing, including exercise of stock options and warrants, were $76 million, $294,000 and $37.4
million in 2009, 2008 and 2007, respectively. Interest income has covered the cash costs of administration
during 2008 and 2007. Interest income decreased in 2009 due to the decrease in interest rates in 2009 compared
to prior years. Funds raised have been used primarily for exploration activities and mineral property
acquisitions at the Angostura project. Over the three year period, exploration costs have trended up from a
monthly average of $1.2 million in 2007 to $1.6 million in 2009, due to costs incurred for a scoping study and
preparation of the prefeasibility and definitive feasibility studies. Administrative costs have increased in
step with the level of exploration activity, additional administrative personnel and professional fees as the
Company transitions from exploration to development. At December 31, 2009, cash and cash equivalents
represented approximately $81.6 million out of the $101.8 million of total assets.
Stock-based compensation costs, primarily stock options to directors and employees of the Company, were the
largest single component of administrative expenses during 2008 and 2009. Stock based compensation costs are a
non-cash expense and represent an estimate of the fair value of stock options granted to directors, employees
and consultants of the Company.
3. ANGOSTURA GOLD-SILVER PROJECT UPDATE, COLOMBIA
On March 25, 2009, the Company announced that GRD Minproc Ingenieria y Construccion Ltda. Chile ("Minproc")
completed a Prefeasibility study ("PFS") for the Angostura project. On June 1, 2009, the Company announced that
Minproc will prepare a definitive feasibility study ("DFS"). The DFS will provide technical evaluations,
engineering designs, capital and operating costs for the mine, mill, process plant and site infrastructure, as
well as the financial analysis of the project. The DFS will also include the basic engineering of the project
and continue to refine work completed during the prefeasibility phase. The results of the PFS and progress on
the DFS are discussed below.
Prefeasibility Study
The PFS was completed by Minproc to prefeasibility study standards and marks the first stage to completing the
DFS. The PFS describes the resources, metallurgy, geotechnical study, open pit mine plan, metallurgy process
design, operating and capital costs and financial analysis for the Angostura project. The PFS was prepared
based on an updated NI 43-101 resource estimate completed by Greystar staff under the overall supervision of
consulting company Metalica Consultores S.A. ("Metalica ") from Chile. The updated NI 43-101 resource estimate
is available for review on SEDAR. All dollar amounts stated in the PFS discussion are in US dollars, unless
otherwise stated.
/T/
Project Highlights
=---------------------------------------------------------------------------
Production Data
=---------------------------------------------------------------------------
Life of Mine 15 Years
=---------------------------------------------------------------------------
Heap Leach Throughput 70,000 tonnes per day
=---------------------------------------------------------------------------
Heap Leach metallurgical gold recovery 70.6%
=---------------------------------------------------------------------------
Grinding and Flotation Throughput 5,200 tonnes per day
=---------------------------------------------------------------------------
Grinding and Flotation metallurgical gold recovery 94%
=---------------------------------------------------------------------------
Average annual gold production 511,000 ounces
=---------------------------------------------------------------------------
=---------------------------------------------------------------------------
Total gold produced 7.7 million ounces
=---------------------------------------------------------------------------
=---------------------------------------------------------------------------
Costs
=---------------------------------------------------------------------------
=---------------------------------------------------------------------------
Total operating costs (excluding by-product credits) US$391 per ounce
=---------------------------------------------------------------------------
Total operating costs (excluding by product credits) US$9.1 per tonne
=---------------------------------------------------------------------------
Initial Investment US$638 million
=---------------------------------------------------------------------------
Deferred Capital US$307 million
=---------------------------------------------------------------------------
Economics @ $700 (First 3 years) and $650 (Thereafter)
=---------------------------------------------------------------------------
Net Present Value @ 6%,pre-tax, after government
royalty US$558 million
=---------------------------------------------------------------------------
Internal rate of return, pre-tax, after government
royalty 19.0%
=---------------------------------------------------------------------------
=---------------------------------------------------------------------------
/T/
Project Sensitivities (NPV values pre-tax, after government royalty. All amounts are in US$)
/T/
=----------------------------------------------------
Gold Price ($/Oz) 600 Base Case 750
=----------------------------------------------------
NPV @ 6% ($miIIion) 294 558 942
=----------------------------------------------------
IRR (%) 13.3 19.0 24.9
=----------------------------------------------------
=----------------------------------------------------
Capex change 10% Base Case -10%
=----------------------------------------------------
NPV @ 6% ($million) 482 558 634
=----------------------------------------------------
IRR (%) 16.5 19.0 21.8
=----------------------------------------------------
=----------------------------------------------------
Operating cost change 10% Base Case -10%
=----------------------------------------------------
NPV @6% ($million) 387 558 730
=----------------------------------------------------
IRR (%) 15.6 19.0 21.9
=----------------------------------------------------
/T/
Using a base case gold price of US$700 per ounce in the first three years of operation and US$650 per ounce
thereafter, the study envisions average annual production of 511,000 ounces of gold and 2.3 million ounces of
silver over a 15 year mine life. The base case pretax after government royalty net present value ("NPV") at a
6% discount rate is US$558 million generating an internal rate of return of 19%. Using a gold price of US$750
per ounce for the life of mine, the NPV at a 6% discount rate is US$942 million with an internal rate of return
of 24.9%. The study entails a 70,000 tonne per day ("tpd") conventional heap-leach operation producing a total
of 4.2 million ounces of gold over the mine life, plus a 5,200 tpd conventional milling and flotation process
producing a total of 3.5 million ounces of gold in concentrates over the mine life. The average cash operating
costs for life of mine ("LOM"), excluding by product credits is US$391 per ounce and start-up capital costs are
US$638 million, with an accuracy of +/- 25%, and additional sustaining capital of US$307 million including the
construction of a concentrator.
Since the completion of the PFS, the Company has identified a number of engineering firms qualifying to receive
the tender documents for various components of the DFS. One of the firms selected thus far is Gradex Ingenieria
S.A., a Bucaramanga-based company, who has been engaged to perform the Second Phase of the Base Line Study.
This work started in the month of March in order to cover the first rainy season of the region.
Angostura Project Mineral Resources
/T/
--------------------------------------------------------------
CATEGORY
Measured Indicated Measured + Indicated Inferred
=--------------------------------------------------------------------------
Kt 148,900 182,006 330,907 90,779
Au (g/t) 0.8 1.3 1.1 1.2
Ag (g/t) 4 7 6 6
Au (koz) 3,736 7,813 11,549 3,472
Ag (koz) 20,000 41,000 61,000 18,000
=--------------------------------------------------------------------------
Cut off grades: 0.3 g/t Au for oxides; and 0.45 g/t Au for sulphides.
/T/
Angostura Project Mineral Reserves
/T/
=--------------------------------------------------------------------------
Process / Category Proven Probable Total
=--------------------------------------------------------------------------
kt 174,923 118,563 293,486
Au (g/t) 0.5 0.7 0.6
Heap Ag (g/t) 3 5 4
Leach Au (koz) 2,912 2,551 5,463
Ag (koz) 19,289 18,783 38,071
=--------------------------------------------------------------------------
kt 4,317 14,554 18,871
Au (g/t) 4.9 5.2 5.1
Flotation Ag (g/t) 13 23 21
Au (koz) 676 2,448 3,123
Ag (koz) 1,820 10,836 12,656
=--------------------------------------------------------------------------
kt 179,240 133,117 312,357
Au (g/t) 0.6 1.2 0.9
Total Ag (g/t) 4 7 5
Au (koz) 3,588 4,998 8,586
Ag (koz) 21,109 29,618 50,727
=--------------------------------------------------------------------------
/T/
Fifty-five additional drill holes, comprising 24,574 meters, have been completed after the cutoff date for the
data incorporated in the December Resource study, which was used in the PFS. This drilling was done on 25 meter
line centers in order to improve the confidence level of high grade structures.
Mining
The pit design completed by Metalica minimizes waste extraction and results in a mine plan containing 331
million tonnes grading 0.9 g/t gold and 5.3 g/t silver. Total gold and silver production over a 15 year mine
life is estimated to be 7.7 million ounces of gold and 34.5 million ounces of silver. The life of mine waste
stripping ratio is estimated at 2.25:1.
Conventional open pit mining equipment will be used and a combination of hydraulic shovels (29 cuyd) and wheel
loaders (22 cuyd) have been considered, loading off-the-road trucks (190 tonnes). Pit design is based in a 3
dimensional geotechnical model, as product of the geotechnical study carried out by iC Consulenten and reviewed
by GeoBlast S.A. A bench height of 6.25 meters has been selected, as a result of the trade-off study by
Metalica optimizing the mine operations to minimize the ore dilution by maintaining selectivity, while
utilizing an efficiency fleet of the loading and haulage equipment.
Metallurgy and Processing
The PFS contemplates using both a conventional heap leach process and a conventional flotation process. The
initial start up (scheduled to be 2012) would entail the processing of oxides, transitional and low sulphide
material by heap leaching. In year three (scheduled to be 2014) the operation would also start producing
flotation sulphide concentrates from higher grade, high sulfur mineralization comprising 22.6 million tonnes
grading 5.1 grams gold per tonne for sale to external sources. The oxide, transitional and low sulphide
material is optimally treated at a rate of 70,000 tpd and would be processed using a conventional valley-fill
heap leach operation with crushing to a nominal 19mm feed size. Oxides and transitional material will be
conveyed and stacked by trucks on two heap leach pads; Angostura and Paez. The pregnant leach solutions ("PLS")
will be treated in a Merrill Crowe process plant for metal production.
Starting in year 3, the primary sulphide material would be treated at a rate of 5,200 tpd with crushing,
grinding to a nominal 106 microns feed size, flotation, thickening and filtering for the production of a gold-
silver concentrate. The shipping and treatment of the flotation concentrates to a smelter is currently being
considered as the economic option by the study, however other more likely options are currently being
considered. Flotation tailings would be dewatered; agglomerated and added to the heap for leaching. Under this
scenario, a tailings treatment facility will not be necessary, thereby eliminating a significant cost for the
project.
The process flow sheet selection is a consequence of detailed metallurgy studies, where a variety of tests have
been carried out on 209 composites made from 9,789 meters of drill core and 26 tonnes of bulk samples. The test
work involved 253 bottle roll tests, 88 column leach tests, 133 flotation tests, 21 mineralogy analyses and 59
bio-oxidation tests. The test-work results were used for several trade-off studies by Minproc, in order to
define the best combination of process routes for the Angostura mineralization.
The oxide, transitional and low sulphide material have been confirmed to be amenable to simulated heap leaching
treatment at 19mm feed size and follow-up testing is currently being initiated to include the evaluation of run-
of-mine heap leaching. Meanwhile, the high-sulphide material with high gold values responded well to
conventional flotation processing.
Environmental and Social Considerations
Ingetec Ingenieria y Diseno S.A. ("Ingetec"), an independent Colombian firm based in Bogota, undertook the
Environmental and Social base line for the project, as well as the hydrology and hydro-geology investigations.
This Study addressed all of the requirements established by the Colombian regulations and is to World Bank
Group standards. Findings reported include vegetation, animal life, climate and meteorology, air quality,
soils, hydrology and water quality. No important issues were reported as impediment for the project
development. The archeology study is currently being developed and the Company has obtained the permit to do
this study from the ICAN (Colombian Institute of Archeology).
The social base line study shows that the surrounding communities have a strong commitment to the project,
which is not surprising as the area is a historical mining district. Several socialization meetings have been
carried out with all the communities directly influenced by the project. There are also no conflicts between
the Company and the small miners in the area of the project.
The Company has also obtained the terms of reference for the Environmental Impact Study from the Ministry of
Environment.
Definitive Feasibility Study
In June 2009, the Company announced that it has engaged Minproc to prepare the DFS. The DFS includes three well-
defined stages: Optimization, Design and Financials, each looking to improve the technical and financial
parameters defined in the PFS stage, but also to reduce risk on all fronts. The DFS will include basic
engineering in all disciplines and is expected to have a level of accuracy of +/- 15%. The final DFS report
will provide the basis for project financing. During the fourth quarter of 2009, approximately $2 million was
spent on the various components of the DFS, including assay and metallurgical analysis.
During the fourth quarter, the Company made the decision to initiate a program of metallurgical testing aimed
at investigating the application of agitation leach and/or flotation as processing methods for intermediate
sulphide ore at the Angostura project. Initial testing from both processing methods have shown promising
results and further testing is warranted. In the PFS published in May 2009, the intermediate sulphide ore
(representing approximately 17% of the recovered gold in the mine plan) was designed to be heap leached which
resulted in low recoveries of precious metals. Recent column testing using the intermediate sulphide ore to
simulate heap leach conditions returned recoveries that question the use of heap leaching on this ore type. It
is important to point out that column testing to simulate heap leach conditions on oxide and transitional ores
continue to show very positive results. In addition, flotation testing for treatment of the higher grade
sulphide ore to produce a gold bearing concentrate also continues to show excellent results. A total of 245
metallurgical composites are being considered for the DFS, including 253 bottle roll test, 95 column tests and
133 flotation tests.
The PFS was based on a gold price of US$700 per ounce during the first three years of operation and US$650 per
ounce for the remaining twelve years. These gold prices limited the options for processing the intermediate
sulphide ore at Angostura. In the current gold environment, both agitated leach and/or flotation offer the
potential to increase recoveries and improve the economics of this ore type and the project as a whole. If
either process is adopted, design modifications would need to be incorporated into the DFS. Given the
improvement in the long term outlook for gold, the Company believes that the intermediate sulphide ore may be
able to support a more robust processing method which may lead to higher economic returns for this ore type.
The Company has initiated BIOX and roasting test work to treat gold concentrates in Colombia. The PFS
envisioned that gold rich pyrite flotation concentrates from high grade sulphide ore would be shipped to
overseas smelters for treatment. While the shipment of concentrates remains an alternative, treatment of
concentrates in Colombia may provide better economic returns. In addition, if concentrates are treated in
Colombia, it is possible that larger volumes of lower grade sulphide ore could be processed via flotation.
The BIOX and roasting test programs are underway and the results of the test programs will be incorporated in
the DFS, which is expected to be completed in the second half of 2010. The Company will continue with the
design of the heap leach facilities for treating oxide and transitional ore, as well as the design of the
grinding and flotation circuit for the higher-grade sulphide ore. Furthermore, the Company will continue to
move forward with all other aspects of the project, including geotechnical evaluations, social and
environmental studies, permitting, infrastructure construction and project finance.
Permitting
On December 22, 2009, the Company filed an Environmental Impact Assessment ("EIA") with the Ministry of the
Environment, Housing and Territorial Development ("MAVDT") to initiate the environmental permitting process for
the development of an open pit gold and silver mine at the Angostura project in Colombia. Subsequently on
January 13, 2010, the EIA (1,814 pages) was accepted for review by the MAVDT. The EIA, which is based on the
PFS, covers all environmental and social aspects of the proposed mine development including baseline data and
end of mine life mitigation plans.
The environmental permitting process for Angostura involves a review process to which the MAVDT names a review
team, and requests input from the regional environment authority. The permitting process should take
approximately six months, however it is customary that the environmental authorities require additional data
and changes to the EIA prior to issuing an environmental license. Therefore, the permitting process may take
nine to twelve months.
The Company has also submitted an application for a Work and Investment Plan (PTO) based on the PFS. The PTO
was submitted to the Ingeominas, a division in the Ministry of Mines and Energy, on October 23, 2009. The PTO
is the operating plan for Angostura which must be approved by Ingeominas in a parallel process to the
environmental permitting. Both the EIA and the PTO must be approved for the issuance of a mining license.
Exploration
During the fourth quarter, the Company initiated two exploration drill programs to investigate both the
extensions of high grade mineralization at the Angostura gold-silver deposit and near surface oxide gold
mineralization recently discovered at the Mongora prospect. In addition, the Company entered into a binding
purchase agreement with Sociedad Minera La Plata Ltda., a private Colombian company, for an exclusive option to
acquire a 100% working interest in the La Plata property ("La Plata").
High Grade Drill Program
The high grade drill program will focus on targeting extensions of high grade shoots that exist within the
Angostura deposit. In addition, the drill program will probe the unexplored potential for feeder mineralization
underlying Angostura. The first drill holes will target the Los Laches area were previously drilled core holes
LL08-24 and QP08-03 returned excellent results.
Mongora Drill Program
Similar to the Angostura deposit, the Mongora prospect hosts higher-grade gold mineralization including 16.3
grams gold per tonne over 1.05 metres and 12.35 grams over 1.6 metres within broader zones of lower-grade gold
mineralization. The delineation of oxide gold mineralization at the Mongora area could be very important for
the Angostura project. The potential of outlining a new oxide resource that could be added to the 2.26 million
ounce oxide resource (measured and indicated) already defined at the Angostura deposit could have favorable
implications for the overall economics of the entire Angostura project. Preliminary metallurgical evaluations
are underway.
La Plata Acquisition
La Plata is located in the California mining district of Colombia. La Plata comprises 78 hectares of mineral
rights contiguous on the majority of its borders with existing Greystar holdings.
The La Plata property lies within a mineralized belt related to the northeast-southwest trending La Baja Fault,
which has given rise to a number of mineralized occurrences. This mineralization, which has traditionally been
mined by local artisanal miners, is now the focus of more modern exploration methods. Within the La Baja
structural domain, gold and silver mineralization is associated with flexures along the main fault.
Exploration carried out by the Company during the second quarter of 2009 identified vein and stockwork
mineralization associated with strong alteration hosted in a dacite porphyry. Rock samples from mine tunnels on
site returned gold assays ranging from no significant gold up to 9.66 grams per tonne gold and silver assays
ranging from no significant silver up to 94.3 grams per tonne silver. A drill program was initiated with one
drill rig in February 2010.
The above information has been reviewed and approved by Mr. Frederick Felder, P.Geo., a "qualified person" as
that term is defined in National Instrument 43-101 and Guidance Note for Mining, Oil and Gas Companies issued
by the London Stock Exchange in respect of AIM companies, which outline standards of disclosure for mineral
projects. Mr. Felder is a geologist with more than 40 years of industry experience and a member in good
standing with the Association of Professional Engineers and Geoscientists of British Columbia.
4. RESULTS OF OPERATIONS
The following table sets forth selected financial data for the periods indicated:
/T/
Three Months Ended Years Ended
December 31 December 31
---------------------------------------------
2009 2008 2009 2008
---------------------------------------------
Exploration expenditures:
Feasibility and
pre-feasibility studies $1,784,605 $1,243,852 $8,582,734 $3,675,791
Other exploration
expenditures 3,626,777 4,285,152 10,607,757 16,754,951
=--------------------------------------------------------------------------
5,411,382 5,529,004 19,190,491 20,430,742
General and administrative
expenses:
Amortization 72,921 59,115 266,142 155,209
Administrative expenses 752,716 449,805 2,374,754 1,362,840
Stock-based compensation 388,428 181,810 2,305,684 1,402,085
=--------------------------------------------------------------------------
1,214,065 690,730 4,946,580 2,920,134
Interest income (192,331) (276,536) (337,782) (1,406,784)
Foreign exchange and other
loss (gain) 70,471 64 226,539 1,053
=--------------------------------------------------------------------------
Loss for the period $6,503,587 $5,943,262 $24,025,828 $21,945,145
=--------------------------------------------------------------------------
Loss per share $0.09 $0.13 $0.43 $0.48
=--------------------------------------------------------------------------
/T/
Three months ended December 31, 2009
Total exploration expenditures were $5.4 million for the three months ended December 31, 2009, compared to $5.5
million for the three months ended December 31, 2008. Costs related to feasibility and pre-feasibility studies
were $1.8 million for the three months ended December 31, 2009, compared to $1.2 million for the comparative
period in 2008. This increase is due to a shift in the Company's primary activities, from drilling and
exploration in 2008 to preparing the definitive feasibility study in 2009. The increase in study costs has been
offset by a decrease in other exploration expenditures, which were $3.6 million for the three months ended
December 31, 2009, compared to $4.3 million for the comparative period in 2008.
General and administrative expenses have increased by $523,000 for the three months ended December 31, 2009,
compared to the three months ended December 31, 2008. The following explains the increase in the comparative
quarters:
- Amortization was up $14,000 in 2009 compared to 2008, due to capital additions throughout 2008 and 2009.
- Other administrative expenditures were up $303,000 in 2009 compared 2008, primarily due to the following:
=- Management and consulting fees were up $180,000 in 2009 compared to 2008, due primarily to the engagement of
consultants to recruit corporate management staff.
=- Salaries and benefits were up $129,000 in 2009 compared to 2008, due primarily to the hiring of additional
corporate management staff during the second half of 2009.
=- Audit, legal and other professional fees were down $46,000 in 2009 compared to 2008 primarily due to
reductions in costs for documentation of internal controls and audit fees.
- Stock-based compensation increased by $207,000 in 2009 compared to 2008, due to the increase in the number of
stock options issued to directors, officers and certain employees during 2009 and to the amortization of the
cost of prior period awards that vested during the period.
Interest income for the three months ended December 31, 2009, decreased by $84,000 from the comparative quarter
in 2008, primarily due to the lower interest rates prevailing in the fourth quarter of 2009 versus the fourth
quarter of 2008.
The Company had a foreign exchange loss of $70,000 for the three months ended December 31, 2009, compared to
$13,000 for the three months ended December 31, 2008. Losses recorded in the current year periods can primarily
be attributed to the effect of the Canadian dollar's strengthening against the US dollar on US dollar
denominated assets. There was a $13,000 gain on sale of assets recorded for the three months ended December 31,
2008.
Year ended December 31, 2009
Total exploration expenditures were $19.2 million for the year ended December 31, 2009, compared to $20.4
million for the year ended December 31, 2008. Costs related to feasibility and pre-feasibility studies were
$8.6 million for the year ended December 31, 2009, compared to $3.7 million for 2008. This increase is due to a
shift in the Company's primary activities, from drilling and exploration in 2008 to preparing the definitive
feasibility study in 2009. The increase in study costs has been offset by a decrease in other exploration
expenditures, which were $10.6 million for the year ended December 31, 2009, compared to $16.8 million for
2008.
General and administrative expenses have increased by $2 million for the year ended December 31, 2009, compared
to the year ended December 31, 2008. The following explains the increase in the comparative years:
- Amortization was up $111,000 in 2009 compared to 2008, due to capital additions throughout 2008 and 2009.
- Other administrative expenditures were up $1.9 million in 2009 compared 2008, primarily due to the following:
=- Audit, legal and other professional fees were up $391,000 in 2009 compared to 2008. The increase is
primarily due to: management's tax planning initiatives involving the engagement of Canadian and Colombian tax
advisors; the hiring of advisors relating to the Company's review of internal controls and the remediation of
internal control deficiencies; legal reviews of service contracts entered into with various suppliers; and the
engagement of advisors to explore a listing on the Colombian stock exchange.
=- Salaries and benefits were up $314,000 in 2009 compared to 2008, due primarily to the hiring of additional
corporate management staff during the second half of 2009.
=- Management and consulting fees were up $299,000 in 2009 compared to 2008, due primarily to the engagement of
consultants to recruit management staff.
- Stock-based compensation increased by $904,000 in 2009 compared to 2008, due to the increase in the number of
stock options issued to directors, officers and certain employees during 2009 and to the amortization of the
cost of prior years' awards that vested during the 2009.
Interest income for the year ended December 31, 2009, decreased by $1.1 million from 2008, primarily due to the
lower interest rates prevailing during 2009 versus 2008.
The Company had a foreign exchange loss of $227,000 for the year ended December 31, 2009, compared to $14,000
for the year ended December 31, 2008. Losses recorded in the current year periods can primarily be attributed
to the effect of the Canadian dollar's strengthening against the US dollar on US dollar denominated assets.
There was a $13,000 gain on sale of assets recorded for the year ended December 31, 2008.
5. QUARTERLY INFORMATION
/T/
Administrative Basic
Expenses and
------------------- Dil-
General Stock- uted
and based Loss
Exploration Amortiz- Compens- Interest per
Expenditures ation ation Income Net Loss Share
------------ -------- ---------- --------- ----------- -----
Q4 - December
31, 2009 $5,411,382 $825,637 $ 388,428 $(192,331) $6,503,587 $0.09
Q3 - September
30, 2009 $6,348,885 $740,692 $ 407,883 $ (37,511) $7,828,273 $0.15
Q2 - June 30,
2009 $4,320,471 $605,644 $1,311,757 $ (28,104) $6,049,978 $0.11
Q1 - March 31,
2009 $3,109,753 $468,924 $ 197,616 $ (76,836) $3,643,991 $0.08
Q4 - December
31, 2008 $5,529,004 $508,920 $ 181,810 $(276,536) $5,943,262 $0.13
Q3 - September
30, 2008 $5,524,291 $275,874 $ 250,220 $(271,498) $5,777,239 $0.13
Q2 - June 30,
2008 $5,046,420 $302,499 $ 799,887 $(345,114) $5,804,074 $0.13
Q1 - March 31,
2008 $4,331,027 $430,756 $ 170,168 $(513,636) $4,420,570 $0.09
/T/
Notes and Factors Affecting Comparability of Quarters:
1. The Company is a mineral exploration and development company and has no operating revenue. Interest is from
funds on deposit. The amount of interest earned is a function of the amount of funds on deposit and interest
rates. Interest rates on term deposits dropped significantly in 2009. This, combined with reduced levels of
cash, contributed to decreasing levels of quarterly interest income in 2009 compared to 2008.
2. Stock-based compensation costs are a non-cash expense and represent the amortization of the estimated fair
value of stock options granted determined using the Black-Scholes option pricing model.
3. Exploration and other project-related activities in Colombia shut down each year for a Christmas break which
extends into January. As a result of this shut-down, exploration and project-related expenditures for the
December 31 quarter and the March 31 quarter tend to be lower than the preceding September 30 quarter. For the
quarter ended December 31, 2008, the reduction in costs for the Christmas break was partially offset by
increased costs for the PFS which commenced in August 2008. For the quarters ended March 31, 2009 and June 30,
2009, the reduction of costs can be attributed to the time lag between the completion of the PFS and the start
of the DFS in late June 2009. For the second half of 2009, costs increased significantly due to efforts being
placed on the DFS.
4. There has been a general trend for increased administrative general costs over the eight quarters. This can
be attributed to increased compliance and reporting costs, professional fees, inflation, and a significant
increase in staffing at the senior management level during the second half of 2009.
6. LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flow Information
At December 31, 2009, cash and cash equivalents were $81.6 million, up from $27.3 million at December 31, 2008.
The increase in cash and cash equivalents can primarily be attributed to the receipt of gross proceeds of $75.3
million from equity issuances completed in 2009, including:
- $12 million in gross proceeds from a private placement of 6,579,161 units completed on March 20, 2009. Each
unit consisted of one common share and three-quarters of a transferable common share purchase warrant. Each
whole warrant entitles the holder to purchase one common share at a price of $2.47 per share at any time during
a five-year period ending March 20, 2014. Upon certain conditions being met, the Company can give notice to
accelerate the expiry date of 2,467,185 warrants (or less) to 60 days following the date of such notice. The
Company gave notice of acceleration of expiry of the warrants in December, 2009 and in February 2010, the
Company received proceeds of $6.1 million from the exercise of 2,467,185 common share purchase warrants at an
exercise price of $2.47 per share; and
- $63.3 million in gross proceeds from a public offering of 18,071,429 units completed on September 29, 2009.
Each unit consisted of one common share and one-half of a transferable common share purchase warrant. Each
whole warrant entitles the holder to purchase one common share at a price of $4.30 per share during the one-
year period ending September 29, 2010. If at any time, the closing price of the Company's common shares on the
Toronto Stock Exchange is greater than $5.00 for 20 or more consecutive trading days, the Company can give
notice to accelerate the expiry date of the warrants to 20 days following the date of such notice. In addition,
the Company issued 903,571 agents' warrants as compensation to agents assisting with the offering that entitle
the holder to purchase one unit at a price of $3.50 per unit during the one-year period ending September 29,
2010, with each unit comprised of one common share and one-half of a transferable common share purchase warrant
and having the same terms as the units subscribed to as part of the September 29, 2009 offering. The Company
gave notice of acceleration of expiry of the warrants in December 2009 and during 2009 and January 2010, the
Company received proceeds of $43.3 million from the exercise of these warrants.
The Company's cash resources are invested in short term financial instruments issued by major Canadian
chartered banks. These instruments mature at various dates over the current operating period and are normally
cashable on a designated monthly date. The Company does not invest in asset-backed commercial paper.
Cash used in operations including changes in non-cash working capital was $20 million for the year ended
December 31, 2009, compared to $19.3 million for 2008. For the year ended December 31, 2009, exploration-
related expenditures, including scoping and feasibility study costs, were $19.2 million and represent the major
use of corporate funds for the year. Additionally, $1.5 million of cash payments were made for mineral property
acquisitions and deposits with a smaller amount paid for purchases of fixed assets ($173,000).
At December 31, 2009, the Company had working capital of $79.2 million, but had not yet achieved profitable
operations and expects to incur further losses in the development of its business. For the year ended December
31, 2009, the Company reported a net loss of $24 million and as at December 31, 2009, had an accumulated
deficit of $137.2 million. The ability of the Company to continue as a going concern is dependent upon the
Company's ability to arrange additional funds to complete the development of its property and upon future
profitable operations.
Management of the Company believes that with the proceeds from the March 20, 2009 private placement and the
September 29, 2009 public offering, there are sufficient funds to pay for anticipated project and
administrative costs to the end of 2010. However, additional financing will be required to fund equipment
acquisitions and early-phase construction anticipated for late 2010. Management continues to explore
alternative financing sources in the form of equity, debt or a combination thereof; however, the current
economic uncertainty and financial market volatility make it difficult to predict success. Risk factors
potentially influencing the Company's ability to raise equity or debt financing include: mineral prices, the
results and recommendations of the feasibility studies, the political risk of operating in a foreign country,
and the buoyancy of the credit and equity markets. For a more detailed list of risk factors, refer to the
Company's Annual Information Form for the year ended December 31, 2009, which is filed on SEDAR. Management
intends to continue discussions with potential debt and equity investors.
Due to the low interest rates currently being paid by financial institutions, interest income is not expected
to be a significant source of income or cash flow. Management intends to monitor spending and assess results on
an ongoing basis and will make appropriate changes as required and in response to results from financing
efforts.
Commitments
The Company's commitments related to its mineral property acquisitions are discussed below.
(a) Mineral Property Commitments
The Company holds mineral exploration rights covering approximately 1,833 hectares located adjacent to
Integration Mining Concession No. 3452, including exploitation licenses 101-68, 127-68, and 6979 covering an
area of 49 hectares. Certain other contracts requiring annual fee payments based on the number of hectares and
a Colombian wage factor which fluctuates on an annual basis are as follows:
/T/
=--------------------------------------------------------------
Contract Area (Ha) Expiration date Annual fee
=--------------------------------------------------------------
22346 1,184.1 September 18, 2032 $ 10,387
343 600.0 February 08, 2037 5,263
=--------------------------------------------------------------
/T/
The Company has the following concession contracts that require annual fee payments based on the number of
hectares and a Colombian wage factor, which fluctuates on an annual basis.
/T/
=--------------------------------------------------------------
Contract Area (Ha) Expiration date Annual fee
=--------------------------------------------------------------
3452 5,244.9 August 08, 2027 $ 138,026
EJI-159 814.9 March 08, 2037 7,149
EJI-163 8,424.66 May 15, 2037 221,708
EJI-164 1,439.34 May 23, 2037 12,626
AJ5-142 4,061.1 November 14, 2034 71,250
AJ5-143 3,890.5 June 21, 2037 68,256
AJ5-144 4,336.0 February 11, 2038 76,072
=--------------------------------------------------------------
/T/
Each of the contracts above is for an initial exploration period of three years from the date of registration,
with an option to extend for an additional two years. The total period of these concession contracts is
approximately 30 years.
In June 2009, the Company acquired the "Las Puentes" land parcel with an area of 1,034 hectares for $2,037,000
(COP4,010,000,000), of which $1,098,000 (COP2,150,000,000) remains payable at December 31, 2009, and due at
varying amounts in April 2010 and April 2011. The cash payment made on the acquisition date was $1,017,920
(COP1,860,000,000). The future obligations have been recorded as amounts payable on mineral property
acquisition on the consolidated balance sheet and have been discounted to reflect the non-interest bearing
feature of this obligation. The discounted value of the future payments recognized on the date of acquisition
was $1,019,000 and is being accreted to earnings at a rate of 12%. The Company also issued 300,000 share
purchase warrants exercisable into common shares at a price of $2.30 per share, exercisable until June 29,
2013. The fair value of these share purchase warrants was estimated to be $650,000 using the Black-Scholes
valuation model.
In June 2009, the Company entered into an agreement to acquire the "Laguna de la Virgen" land parcel comprised
of approximately 189 hectares. The Company has made a cash deposit of approximately $82,000 and has agreed to
make further payments of approximately $199,000 and to issue 60,000 share purchase warrants having an exercise
price of $2.30 expiring four years following the closing of the transaction. This transaction had not closed as
at December 31, 2009, but is expected to close in early 2010.
In November 2009, the Company entered into a binding purchase agreement with a private Colombian company for an
exclusive option to acquire a 100% working interest in the 78 hectares La Plata property ("La Plata"). The
terms of the purchase agreement include staged payments totaling US$1,900,000; the issuance of 160,000 share
purchase warrants and minimum annual work commitments, all over a four year period to acquire a 100% working
interest in the property. In addition, if Greystar develops an economically viable ore body at La Plata, the
Company will pay a one-time payment of US$7 per ounce of gold and US$0.10 per ounce of silver for extractable
reserves up to a maximum of 750,000 ounces. As at December 31, 2009, the Company has made cash deposits of
$303,000 (US$300,000) and expects to issue warrants, which are valued at $594,000 using the Black-Scholes
option pricing model, early in 2010. The remaining payments are contingent on achievement of specific
performance criteria.
In December 2009, the Company entered into an agreement to acquire the "San Julian" land parcel with an area of
18 hectares. The terms of the agreement include a cash deposit of approximately $72,000 with a final payment of
approximately $31,000 due when title transfers, and the issuance of 15,000 share purchase warrants exercisable
at a price of $6.10 per share until November 27, 2013. The Company used the Black-Scholes option pricing model
to estimate the value of the warrants at $48,000, which has been accrued in accounts payable and the Company
expects to issue the warrants early in 2010.
Pursuant to the applicable mining laws of Colombia, the Government of Colombia currently receives royalty taxes
on gold production equal to a net of 3.2% of the total metal gross value of sales.
(b) Other Commitments
The Company has entered into an office operating lease for its corporate office in Vancouver with aggregate
future rental payments approximating $382,356 for the term of three years starting February 1, 2010. Office
lease payments are recorded as rental expenditures and paid on a monthly basis.
During the year ended December 31, 2009, the Company entered into an agreement with a third party that will
assist municipalities close to the Angostura Project in developing managerial competences to be ready for
managing royalties investments and additional alternative sources of income, so as to contribute to maximize
the positive impact on the living standards of their populations. As part of the terms of the agreement, the
Company is committed to future payments consisting of US$75,000 in November 2010 and US$17,000 in November
2011.
The Company is from time to time involved in various claims, legal proceedings and complaints arising in the
ordinary course of business. The Company does not believe that adverse decisions in any pending or threatened
proceedings related to any matter, or any amount which it may be required to pay by reason thereof, will have a
material effect on the financial condition or future results of operations of the Company.
7. FINANCIAL INSTRUMENTS
The Company's financial instruments are exposed to certain financial risks, including currency risk, credit
risk, liquidity risk, interest risk and price risk.
(a) Currency risk:
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company
operates in Canada and Colombia and a large portion of its expenses are incurred in Colombian Pesos. A
significant change in the currency exchange rates between the Canadian Dollar relative to the Colombian Peso
could have an effect on the Company's results of operations, financial position or cash flows. The Company has
not hedged its exposure to currency fluctuations.
The Company's exposure, expressed in Canadian dollars, to the Colombian Peso on financial instruments is as
follows:
/T/
Currency Risk December 31
=-----------------------------------------------------------------
2009 2008
=-----------------------------------------------------------------
Cash and cash equivalents $ 598,289 $ 205,425
Accounts receivable and prepaids 337,783 355,797
Accounts payable and accrued liabilities 1,761,310 536,735
=-----------------------------------------------------------------
$ 2,697,382 $ 1,097,957
=-----------------------------------------------------------------
/T/
As at December 31, 2009, with other variables unchanged, a 10% depreciation or appreciation of the Canadian
dollar against the Colombian Peso would change the values of the Colombian Peso denominated financial
instruments and would affect the consolidated statement of operations and comprehensive loss by approximately
$270,000.
The Company's exposure to the Colombian Peso on annual exploration expenditures as at December 31, 2009 was
$12,981,000. A 10% depreciation of the Canadian dollar against the Colombian Peso would affect the consolidated
statement of operations and comprehensive loss by approximately $1,298,000.
(b) Credit risk:
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its
contractual obligations. The Company manages its credit risk through its counterparty ratings and credit
limits.
The Company's cash and cash equivalents and short term investments are held through large Canadian financial
institutions. Short-term investments are composed of financial instruments issued by Canadian banks and
companies with high investment-grade ratings. These instruments mature at various dates over the current
operating period and are normally cashable on a designated monthly date. Amounts receivable primarily consists
of GST receivables with expected payment from the Canadian government.
The total cash and cash equivalents and amounts receivable represent the maximum credit exposure. The Company
limits its credit risk exposure by holding bank accounts and any short term investments with reputable banks
with high credit ratings.
(c) Liquidity risk:
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short and long term
business requirements. The Company believes that these sources will be sufficient to cover its cash
requirements for the upcoming year. The Company's cash is invested in liquid investments with quality financial
institutions and is available on demand for the Company's programs and is not invested in any asset backed
commercial paper.
As at December 31, 2009, the Company's liabilities have contractual maturities as summarized below:
/T/
=--------------------------------------------------------------------------
Less than 1 - 3 After
Total 1 year years 3 years
=--------------------------------------------------------------------------
Accounts payable and accrued
liabilities $2,764,557 $2,764,557 $ - $ -
Accounts payable on mineral
properties 1,098,650 587,650 511,000 -
Other commitments (see
Commitments section above) 478,366 195,326 283,040 -
=--------------------------------------------------------------------------
$4,341,573 $3,547,533 $ 794,040 $ -
=--------------------------------------------------------------------------
/T/
(d) Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Company's bank accounts earn interest income at
variable rates. The Company's future interest income is exposed to changes in short-term rates. An increase or
decrease in the annual interest rate of 1% would result in a corresponding increase or decrease of annual
interest income by $690,000.
(e) Fair value of financial instruments:
The fair values of amounts receivable and accounts payable and accrued liabilities approximate their carrying
values due to the short-term nature of these instruments. The fair value of the amounts payable on mineral
property acquisition approximates their carrying value as there was no material change to the discount rate
used to calculate the fair value since initial recognition.
The following table illustrates the classification of the Company's financial instruments recorded at fair
value within the fair value hierarchy as at December 31, 2009.
/T/
=--------------------------------------------------------------------------
Financial assets at fair value
---------------------------------------------------
Le-
vel December December
Level 1 Level 2 3 31, 2009 31, 2008
=--------------------------------------------------------------------------
Cash and cash equiv-
alents $81,583,304 $ - $ - $81,583,304 $27,262,146
=--------------------------------------------------------------------------
Held for trading 81,583,304 - - 81,583,304 27,262,146
Amounts receivable 585,340 - - 585,340 449,090
=--------------------------------------------------------------------------
Financial assets 585,340 - - 585,340 449,090
=--------------------------------------------------------------------------
Total financial asset
at fair value $82,168,644 $ - $ - $82,168,644 $27,711,236
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
Financial inputs liabilities at fair value
---------------------------------------------------
Le-
vel December December
Level 1 Level 2 3 31, 2009 31, 2008
=--------------------------------------------------------------------------
Accounts payable and
accrued liabilities $ 2,764,557 $ - $ - $ 2,764,557 $ 1,280,801
Amounts payable on
mineral property
acquisition - 1,013,986 - 1,013,986 -
=--------------------------------------------------------------------------
Total financial asset
at fair value $ 2,764,557 $1,013,986 $ - $ 3,778,543 $ 1,280,801
=--------------------------------------------------------------------------
=--------------------------------------------------------------------------
/T/
8. TRANSACTIONS WITH RELATED PARTIES
Pursuant to a service agreement, the Company pays Rovig Minerals, Inc., a company owned by the Company's
president for services provided in relation to this role. Amounts paid include reimbursement for certain
personal insurance expenses and costs for office facilities in Billings, Montana. The service agreement will
expire on the earlier of the date of appointment of a new president of the Company and December 31, 2010.
The Company pays Ionic Management Corp. ("Ionic"), a company related by virtue of a director and two officers
in common, for accounting, corporate secretarial, regulatory services and other office services in Vancouver,
BC. In addition, Ionic bills the Company for consulting services provided by a staff geologist. These services
are provided on a month-to-month basis and may be cancelled by either party on one month's notice.
In the third quarter of 2009, the Company paid Namron Advisors, a company owned by a former director of the
Company, for investor relations advisory services. This was an interim arrangement that concluded when this
former director assumed the role of Vice President, Corporate Development with the Company in early October
2009.
These transactions were in the normal course of operations and are measured at an exchange amount established
and agreed to by the related parties.
In addition to the above, the Company reimburses Rovig Minerals, Inc. and Ionic for out-of-pocket direct costs
incurred on behalf of the Company. Such costs include travel, postage, courier charges, printing and long
distance telephone charges.
Related party expenditures recorded for the year ended December 31, 2009 were:
/T/
Years ended December 31
2009 2008
-----------------------
Rovig Minerals Inc. $ 251,831 $ 162,429
Ionic Management Corp.
- administration $ 66,000 $ 49,500
- consulting $ 50,400 $ 4,000
Namron Advisors $ 14,167 $ -
/T/
9. CRITICAL ACCOUNTING ESTIMATES
Mineral Property and Land Costs
It is the Company's accounting policy that exploration and development expenditures incurred prior to the
determination of the feasibility of mining operations are charged to operations as incurred. The Company's
mineral property account on the balance sheet reflects actual costs incurred by it on acquisition costs of its
properties. The realization of the Company's investment in these exploration projects is dependent upon various
factors, including the discovery of economically recoverable reserves of minerals, the ability to obtain
necessary financings to develop the project's potential, upon future profitable operations, or alternatively
upon the disposal of interests on an advantageous basis. The Company reviews the carrying values of its
projects on a quarterly basis and if required, makes an adjustment to reflect the project's realizable value.
Capitalized costs will be amortized over the estimated useful life of the properties following the commencement
of production. As at December 31, 2009, amounts capitalized to mineral properties total approximately $17.5
million.
Amounts Payable on Mineral Property Acquisition
Included in the Company's balance sheet is the fair value of the amounts payable on mineral property
acquisition. The fair value of the amounts payable on mineral property acquisition was determined by
discounting the stream of future cash payments at the estimated prevailing market rate for a debt instrument of
comparable maturity and credit quality. Changes in assumptions can materially affect the fair value estimate,
and therefore, the existing models do not necessarily provide a reliable single measure of the fair value.
Asset Retirement Obligation
The asset retirement obligation has been estimated based on the Company's interpretation of current regulatory
requirements and have been measured at fair value. Fair value is determined based on the net present value of
expected future cash expenditures upon reclamation and closure. Environmental rehabilitation costs are charged
to exploration costs. Because the fair value measurement requires the input of subjective assumptions,
including the environmental rehabilitation costs, changes in subjective input assumptions can materially affect
the fair value estimate.
Income taxes
Future income tax assets and liabilities are computed based on differences between the carrying amounts of
assets and liabilities on the balance sheet and their corresponding tax values using substantively enacted
income tax rates at each balance sheet date. Future income tax assets also result from unused loss carry-
forwards and other deductions. The valuation of future income tax assets is reviewed quarterly and adjusted, if
necessary, by use of a valuation allowance to reflect the estimated realizable amount.
Fair value of stock-based compensation and warrants issued
The fair value of stock-based compensation and warrants issued are subject to the limitation of the Black-
Scholes option pricing model that incorporates market data and involves uncertainty in estimates used by
management in the assumptions. Because the Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the volatility of share price, changes in subjective input assumptions can
materially affect the fair value estimate.
10. NEW ACCOUNTING POLICIES
Effective January 1, 2009, the Company adopted, on a prospective basis, the following new accounting standards
issued by the Canadian Institute of Chartered Accountants (CICA):
(a) Credit Risk and the Fair Value of Financial Assets and Financial Liabilities:
In January 2009, the CICA issued EIC-173 "Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities". This guidance clarified that an entity's own credit risk and the credit risk of the counterparty
should be taken into account in determining the fair value of financial assets and financial liabilities
including derivative instruments. This guidance is applicable to financial statements issued on or after
January 12, 2009. The application of this EIC had no material effect on the Company's financial position and
results from operations.
(b) Mining Exploration Costs:
In March 2009, the CICA issued EIC-174, "Mining Exploration Costs." The EIC provides guidance on accounting for
capitalization and impairment of exploration costs. This standard was effective for the fiscal year beginning
January 1, 2009. The application of this EIC had no effect on the Company's financial position and results from
operations.
(c) CICA 3064 Goodwill and Intangible Assets:
The CICA has issued Handbook Section 3064 "Goodwill and Intangible assets". This Section applies to annual and
interim financial statements relating to fiscal years beginning on or after October 1, 2008. Section 3064
establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and
intangible assets. The application of this standard had no effect on the Company's financial position and
results from operations.
(d) Amendment to Financial Instruments - Disclosures ("Section 3862"):
During 2009, CICA Handbook Section 3862, Financial Instruments - Disclosures ("Section 3862"), was amended to
require disclosures about the inputs to fair value measurements, including their classification within a
hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy
are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or
indirectly; and
Level 3 - Inputs that are not based on observable market data.
The application of this standard had no effect on the Company's financial position and results from operations
other than enhanced disclosure under note 2(m) in the consolidated financial statements.
Future pronouncements
(a) Business Combinations:
In October 2008, the CICA issued Handbook Section 1582, "Business Combinations", which establishes new
standards for accounting for business combinations. This is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2011. Should the Company engage in a future business combination, it would consider early adoption
to coincide with the adoption of International Financial Reporting Standards.
(b) Non-controlling Interests:
Also in October 2008, the CICA issued Handbook Section 1602, "Non-controlling Interests", to provide guidance
on accounting for non-controlling interests subsequent to a business combination. This is effective for fiscal
years beginning on or after January 2011.
(c) International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that will significantly
affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the
convergence of Canadian generally accepted accounting principles (GAAP) with IFRS over an expected five year
transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed
companies to use IFRS. The date is for interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2011. The transition date of January 1, 2011, will require the restatement for
comparative purposes of amounts reported by the Company for the year ended December 31, 2010.
While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences in
recognition, measurement and disclosures. The Company, with the assistance of an external advisor, has
completed a review of major differences between Canadian GAAP and IFRS. The Company will implement a
comprehensive IFRS conversion plan, which takes into account matters such as changes in accounting policies,
restatement of comparative periods, organizational and internal controls and any required changes to business
processes.
The Company's conversion plan involves the following phases: 1- scoping and planning, 2- detailed assessment, 3-
implementation and 4- post implementation. In the scoping and planning phase, the Company has prepared an
analysis of the major differences between Canadian GAAP and IFRS. The Company has also set up a project team
and project management plan including oversight of the process. The Company's accounting staff has attended
several training courses on the adoption and implementation of IFRS. The Company has reviewed its current
internal and disclosure control processes and believes they will not need significant modification as a result
of its planned conversion to IFRS. The Company will develop training and communication strategies to ensure
that conversion is understood and managed reasonably.
The detailed assessment phase will involve technical analysis of the potential impacts, quantification of
alternatives where there are accounting policy choices, detailed analysis and decisions taken regarding IFRS 1
("First Time Adoption of IFRS") exemptions and exceptions available to the Company and the drafting of
accounting policies in accordance with IFRS.
In the implementation phase, the Company will apply management's accounting choices under IFRS, prepare
reconciliations, calculate the opening balance sheet at the transition date of January 1, 2010, develop
disclosure requirements and develop sample financial statements.
In the post implementation phase, the Company will continuously monitor changes in IFRS and continue with the
development and training of staff at various levels of the organization.
The Company will disclose its IFRS implementation progress in its Management Discussion and Analysis documents
throughout 2010.
While the Company will be performing a detailed assessment of the impact of adopting IFRS, the following has
been identified as areas where the Company expects differences. However, the full impact of the transition to
IFRS cannot be reasonably estimated at this time.
(a) Valuation and classification of the Company's mineral properties.
(b) Recognition and measurement of stock-based compensation.
(c) Measurement of asset retirement obligation.
(d) Identification of related parties and disclosure of related party transactions.
11. OFF BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
12. OUTSTANDING SHARE DATA
The Company has only one class of share capital, common shares without par value. The number of shares
authorized is unlimited. The Company has issued warrants for the purchase of common shares and also has a stock
option plan.
The following are outstanding at March 25, 2010:
/T/
Common shares 84,067,655
Shares issuable on the exercise of warrants 3,060,686
Shares issuable on the exercise of outstanding stock options 4,492,655
/T/
13. RISKS AND UNCERTAINTIES
The Company competes with other mining companies, some of which have greater financial resources and technical
facilities, for the acquisition of mineral concessions, claims and other interests, as well as for the
recruitment and retention of qualified employees.
The Company is in compliance in all material respects with regulations applicable to its exploration
activities. Existing and possible future environmental legislation, regulations and actions could cause
additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent
of which cannot be predicted. Before production can commence on any properties, the Company must obtain
regulatory and environmental approvals. There is no assurance that such approvals can be obtained on a timely
basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce
the profitability of operations.
The Company's mineral property is located in Colombia. The Company is subject to certain risks, including
currency fluctuations and possible political or economic instability which may result in the impairment or loss
of mining title or other mineral rights, and mineral exploration and mining activities may be affected in
varying degrees by political stability and governmental regulations relating to the mining industry. The
acquisition of mining title in Colombia is a very detailed and time-consuming process. In addition, title to
mining rights may be disputed.
The Company has incurred losses since its inception and will not achieve profitability until such time as the
Angostura Project can be developed into a profitable operation.
For additional information on risk factors, please refer to the Risk Factor section of the Company's Annual
Information Form for the year ended December 31, 2009, which can be found on SEDAR.
14. INTERNAL CONTROL OVER FINANCIAL REPORTING
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed by the Company under Canadian Securities laws is recorded, processed, summarized and reported within
the time periods specified under those laws and include controls and procedures designed to ensure such
information is accumulated and communicated to management, including the Chief Executive Officer ("CEO") and
the Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive Office and the Chief Financial Officer has evaluated
the design and effectiveness of the Company's disclosure controls and procedures as of December 31, 2009, and
based upon this evaluation, the CEO and the CFO have concluded that these disclosure controls and procedures,
as defined by National Instruments 51-109, Certification of Disclosure in Issuers' Annual and Interim Filings,
are effective for the purposes set out above.
Internal Controls over Financial Reporting
Management is responsible for the establishment, maintenance and testing of adequate internal controls over
financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting
and the presentation of financial statements for external purposes in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP").
The Company's management and the Board of Directors do not expect that its disclosure controls and procedures
or internal controls over financial reporting will prevent all errors or all instances of fraud. A control
system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that the
control system's objectives will be met.
Further, the design, maintenance and testing of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control gaps and instances of fraud have been detected. These inherent limitations include
the reality that judgment in decision-making can be faulty, and that simple errors or mistakes can occur.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the controls. The design, maintenance and testing of any system of controls is
based in part upon certain assumptions about the likelihood of future events, and any control system may not
succeed in achieving its stated goals under all potential future conditions.
Over the course of the 2009 fiscal year, significant progress has been made in remediating the material
weaknesses previously identified at December 31, 2008. During the year 2009, the Company's management
considered the remediation of these material weaknesses to be a priority and as a result, significant effort
and attention was given to remediating the weaknesses. Where entity-level controls were reported as deficient
at the December 31, 2008, these were remediated by the implementation of compensating controls, and additional
monitoring and review controls, most particularly in the newly created Vancouver Corporate Office. For a
complete list of material weaknesses previously identified for internal control over financial reporting, refer
to the Management's Discussion and Analysis for the year ended December 31, 2008.
Management, with the participation of the Chief Executive Office and the Chief Financial Officer, has conducted
an evaluation of the design and the effectiveness of the Company's internal control over financial reporting as
of December 31, 2009 based on Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, management concluded that the Company's
internal control over financial reporting, as defined by National Instruments 51-109, Certification of
Disclosure in Issuers' Annual and Interim Filings, is effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with Canadian
GAAP.
Changes in Internal Controls over Financial Reporting
Under the supervision of the Chief Executive Officer and the Chief Financial Officer, the Company implemented
several improvements to the internal controls over financial reporting during the 2009 fiscal year.
Considerable effort was expended during the year on the design and implementation of the changes in controls
over financial reporting at the corporate head office and Colombian branch level that have resulted in the
remediation of the material weaknesses previously reported. Details of these improvements are listing below:
Code of Business Conduct and Ethics and Whistleblower Policy
Since December 31, 2008, several remedial efforts have taken place, including the translation of the Code of
Business Conduct and Ethics and the Whistleblower Policy into Spanish, dissemination of the Code of Business
Conduct and Ethics and Whistleblower Policy among employees, and establishing of a new Spanish-language
whistleblower telephone line which is readily accessible to Colombian employees. All current employees were
required to acknowledge their receipt and understanding of the Code of Business Conduct and Ethics and the
Whistleblower Policy.
Information and Communication
Throughout the year, the Company had made considerable progress in establishing a functional head-office and in
defining the oversight role this office is to play. The Company hired a permanent CFO and additional financial
capacity was added at the corporate level with the addition of a director of finance and an operations
controller. Continued progress has been made in collaborating with Colombian staff on the design and
implementation of appropriate written policies and procedures at the branch level to address financial,
operational and other informational requirements of the corporate office in Vancouver. These policies and
procedures were finalized and fully implemented before the end of the fiscal year, mitigating the risks of
internal inefficiencies and incomplete, and/or inaccurate disclosure in the Company's financial statements.
Segregation of Duties
During the year, the Company had made considerable progress in establishing a corporate finance function in
Vancouver, allowing for appropriate segregation of duties at this level. Management is continuing its efforts
in reviewing opportunities to improve segregation of duties at the Colombia branch and hired a finance manager
at this operation in July 2009. Where segregation of duties is not practical, monitoring controls were designed
and implemented.
Authorization and Approval
Appropriate levels of review and approval over financial information and financial statements preparation, as
well as over purchase orders and invoices, employment contracts, payroll costs and payments, cash requisitions
and cash disbursements, were established during the year. A comprehensive document stating corporate approval
authorities was issued before the end of the fiscal year to enhance the existing controls. It is important to
note that during the year, a Vancouver Corporate Office was created and monitoring and review controls were
implemented to ensure the completeness of financial information being reported in the consolidated financial
statements. These controls were implemented in the fourth quarter. In addition, policies and procedures were
implemented over the whole process of employment, termination, and the maintenance of accounting records.
Reconciliation and Monitoring Controls
In 2009, corporate-level procedures had been implemented that established a defined process including a
cascading review of information transferred between systems and used in the compilation of the financial
statements. In addition, management has involved the Colombian branch auditors in the process, whereby they
have conducted a review engagement on the financial statements of the Colombian branch for the quarters ended
March 31, June 30 and September 30, 2009.
In the newly created Vancouver Corporate Office, controls over spreadsheets were strengthened with the
objective of ensuring that changes were tracked and the integrity of the transfer of information was
maintained.
Taxes
The Company engaged an independent tax consultant that provides assistance to the tax analyst and Finance
Manager when required. Tax expertise was also enhanced through professional development training provided to
Colombian branch's tax analyst. As at the 2009 year end the Colombian branch had sufficient tax expertise to
reasonably complete and review tax filings given the complexity of the Company's current operations. As the
Company progresses through its development strategy and ultimately reaches production, the level of expertise
required to fulfill this requirement will be revaluated and enhanced if considered necessarily.
Accounts Payable and Procurement
During the year, the Colombian branch implemented a process that allows management to track purchase
commitments and accurately accrue costs not invoiced by vendors at each reporting date. New procedures around
the procurement process were documented and disseminated in the Colombian branch.
In addition, a formalized financial close process was documented and implemented in the fourth quarter which
ensures that proper cut off procedures are in place, and that all uninvoiced transactions are properly accrued.
15. FORWARD LOOKING STATEMENTS
Certain statements included or incorporated by reference in this MD&A, including information as to the future
financial or operating performance of the Company, and its projects, constitute forward-looking statements. The
words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget",
"estimate", "may", "will", "schedule" and similar expressions identify forward-looking statements. Forward-
looking statements include, among other things, statements regarding the estimation of mineral reserves and the
timing and amount of estimated future production, the estimated anticipated costs of production, estimated
capital expenditures, estimated internal rates of return, success of exploration activities, currency
fluctuation, the future price of gold and silver, governmental regulation of mining operations and
environmental risks or claims. Forward-looking statements are based upon a number of estimates and assumptions
made by the Company in light of its experience and perception of historical trends, current conditions and
expected future developments, as well as other factors that Greystar believes are appropriate in the
circumstances. While these estimates and assumptions are considered reasonable by the Company, they are
inherently subject to significant business, economic, competitive, political and social uncertainties and
contingencies.
Many factors could cause the Company's actual results to differ materially from those expressed or implied in
any forward-looking statements made by, or on behalf of, the Company. Such factors include, among other things,
risks relating to the Company's ability to obtain adequate financing for the development of the Angostura
Project, conclusions of economic evaluations; changes in project parameters as plans continue to be refined;
future prices of gold and silver, possible variations in ore reserves, grade or recovery rates; risks related
to fluctuations in the currency market, risks related to the business being subject to environmental laws and
regulations which may increase costs of doing business and restrict the Company's operations; risks relating to
all the Company's properties being located in Colombia, including political, economic and regulatory
instability, accidents, labour disputes and other risks of the mining industry; delays in obtaining
governmental approvals or financing or in the completion of development or construction activities. These
factors and others that could affect Greystar's forward-looking statements are discussed in greater detail in
the section headed "Risk Factors" in the Company's Annual Information Form for the year ended December 31,
2009, which can be found on SEDAR. Investors are cautioned that forward-looking statements are not guarantees
of future performance and, accordingly, investors are cautioned not to put undue reliance on forward-looking
statements due to the inherent uncertainty therein. Forward-looking statements are made as of the date of this
MD&A, or in the case of documents incorporated by reference herein, as of the date of such document, and the
Company disclaims any intent or obligation to update publicly such forward-looking statements, whether as a
result of new information, future events or results or otherwise.
16. QUALIFIED PERSONS
The technical information about the Company's mineral properties contained in this Management's Discussion and
Analysis has been prepared under the supervision of Frederick Felder, P. Geo, an officer of the Company, who is
a "qualified person" within the meaning of National Instrument 43-101.
March 25, 2010
-30-
FOR FURTHER INFORMATION PLEASE CONTACT:
Greystar Resources Ltd.
www.greystarresources.com
Greystar Resources Ltd.
Greystar (LSE:GSL)
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