TIDMGSL
Greystar Resources Ltd. Q2
Greystar Resources Ltd.: Unaudited Q2 Financial Statements
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 13, 2010) - Greystar Resources Ltd. (TSX:GSL)(AIM:GSL) -
Unaudited Interim Consolidated Financial Statements
For the Six Months Ended June 30, 2010 and 2009
(In Canadian Dollars, unless otherwise noted)
Management's Comments on Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements of Greystar Resources Ltd., for the
three and six months ended June 30, 2010, have been prepared by management and approved by the Audit
Committee and the Board of Directors of the Company. These statements have not been reviewed by the
Company's external auditors.
GREYSTAR RESOURCES LTD.
Consolidated Balance Sheets (unaudited)
(Expressed in Canadian Dollars)
As at June 30, 2010 and December 31, 2009
=------------------------------------------------------------------------------------------------------
June 30, December 31,
2010 2009
=------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents (note 6) $ 116,367,503 $ 81,583,304
Restricted cash (note 3) 637,100 -
Accounts receivable and prepaids 1,063,016 585,340
=------------------------------------------------------------------------------------------------------
118,067,619 82,168,644
Equipment 1,048,795 1,033,517
Mineral properties (note 4) 19,125,542 18,590,951
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$ 138,241,956 $ 101,793,112
=------------------------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,117,998 $ 2,764,557
Amounts payable on mineral property acquisition 1,127,574 568,346
Asset retirement obligation 815,402 713,666
=------------------------------------------------------------------------------------------------------
6,060,974 4,046,569
Amounts payable on mineral property acquisition - 445,640
Asset retirement obligation 390,920 629,189
=------------------------------------------------------------------------------------------------------
6,451,894 5,121,398
=------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares (note 5(b)) 266,504,544 207,735,611
Warrants (note 5(d)) 4,013,808 15,277,614
Contributed surplus (note 5(c)) 13,307,849 10,880,978
Deficit (152,036,139) (137,222,489)
=------------------------------------------------------------------------------------------------------
131,790,062 96,671,714
=------------------------------------------------------------------------------------------------------
Nature of operations (note 1)
Contingencies (notes 1 and 3)
Subsequent event (note 1)
$ 138,241,956 $ 101,793,112
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=------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited interim consolidated financial statements.
Approved on behalf of the Board:
Signed: "David B. Rovig" Director
Signed: "Brian E. Bayley" Director
GREYSTAR RESOURCES LTD.
Consolidated Statements of Operations, Comprehensive Loss and Deficit (unaudited)
(Expressed in Canadian Dollars)
For the three and six months ended June 30, 2010 and 2009
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
=------------------------------------------------------------------------------------------------------
Exploration expenditures (note 4):
Feasibility and pre-feasibility studies $ 1,965,501 $ 1,452,742 $ 3,110,861 $ 2,895,598
Other exploration expenditures 3,864,973 2,867,729 6,068,002 4,534,626
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5,830,474 4,320,471 9,178,863 7,430,224
=------------------------------------------------------------------------------------------------------
General and administrative expenses:
Amortization 84,895 64,162 159,455 127,968
Audit, legal and other professional fees 125,630 186,646 268,131 257,836
Investor relations 25,948 29,416 52,666 60,931
Management and consulting fees (note 7) 558,433 90,428 1,037,806 162,518
Office and administration (note 7) 109,925 49,895 209,503 94,152
Salaries and benefits 435,755 76,867 1,083,073 158,288
Stock-based compensation (note 5(c)) 1,860,025 1,311,757 2,899,084 1,509,373
Transfer agent, listing and filing fees 58,838 38,509 127,627 98,254
Travel 136,514 69,721 239,537 114,621
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3,395,963 1,917,401 6,076,882 2,583,941
=------------------------------------------------------------------------------------------------------
Loss before other items 9,226,437 6,237,872 15,255,745 10,014,165
Other items:
Interest income (284,896) (28,104) (552,635) (107,940)
Foreign exchange (gain) loss (7,496) (159,790) 110,540 (212,256)
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(292,392) (187,894) (442,095) (320,196)
=------------------------------------------------------------------------------------------------------
Loss and comprehensive loss for the period 8,934,045 6,049,978 14,813,650 9,693,969
Deficit, beginning of period 143,102,094 116,840,652 137,222,489 113,196,661
=------------------------------------------------------------------------------------------------------
Deficit, end of period $152,036,139 $122,890,630 $152,036,139 $122,890,630
=------------------------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share $ 0.11 $ 0.11 $ 0.18 $ 0.19
=------------------------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------------------------
Weighted-average number of common shares
outstanding 84,159,434 52,680,397 83,346,635 49,826,563
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=------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited interim consolidated financial statements.
GREYSTAR RESOURCES LTD.
Consolidated Statements of Cash Flows (unaudited)
(Expressed in Canadian Dollars)
For the three and six months ended June 30, 2010 and 2009
=------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
=------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Loss for the period $ (8,934,045) $ (6,049,978) $ (14,813,650) $ (9,693,969)
Asset retirement obligation
expenditures (102,926) - (116,200) -
Items not involving cash:
Amortization 84,895 64,162 159,455 127,968
Accretion expense on asset
retirement obligation 35,760 (38,817) 72,063 (169,469)
Decrease in asset retirement
obligation expense - - (187,035) -
Interest accretion on amounts
payable on mineral
property acquisition 16,516 - 46,017 -
Stock-based compensation 1,860,025 1,311,757 2,899,084 1,509,373
Unrealized foreign exchange
loss (gain) 115,539 (11,798) 162,210 (11,798)
Changes in non-cash working capital:
Amounts receivable and prepaids (415,332) 70,033 (477,676) 273,733
Accounts payable and
accrued liabilities 1,806,562 33,797 1,995,041 310,047
=------------------------------------------------------------------------------------------------------
(5,533,006) (4,620,844) (10,260,691) (7,654,115)
=------------------------------------------------------------------------------------------------------
Investing activities:
Mineral property acquisition costs (301,481) (700,712) (534,591) (759,506)
Purchase of equipment (134,816) (4,269) (174,733) (60,559)
Deposit on property acquisition - (86,736) - (86,736)
Restricted cash (note 3) (637,100) - (637,100) -
=------------------------------------------------------------------------------------------------------
(1,073,397) (791,717) (1,346,424) (906,801)
=------------------------------------------------------------------------------------------------------
Financing activities:
Common shares and warrants issued on
private placement - - - 12,039,865
Issue costs related to equity issuance (190,387)
Common shares issued on exercise
of warrants - - 46,062,723 -
Common shares issued on exercise of
stock options 300,410 72,447 328,591 72,447
=------------------------------------------------------------------------------------------------------
300,410 72,447 46,391,314 11,921,925
=------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and
cash equivalents (6,305,993) (5,340,114) 34,784,199 3,361,009
Cash and cash equivalents,
beginning of period 122,673,496 35,963,269 81,583,304 27,262,146
=------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 116,367,503 $ 30,623,155 $ 116,367,503 $ 30,623,155
=------------------------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------------------------
Supplementary cash flow information (note 6)
See accompanying notes to unaudited interim consolidated financial statements.
GREYSTAR RESOURCES LTD.
Consolidated Statements of Shareholders' Equity (unaudited)
(Expressed in Canadian Dollars)
For the three and six months ended June 30, 2010 and 2009
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Share Capital
----------------------------
Shares Amount Warrants
=-----------------------------------------------------------------------------------
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 - (546,100) -
Allotment to be issued pursuant
to exercise of warrants - 194,265 -
Stock-based compensation - - -
Net loss and comprehensive loss - - -
=-----------------------------------------------------------------------------------
Balance, December 31, 2009 72,360,764 207,735,611 15,277,614
Expired warrants - - (22,383)
Public offering agents' compensation - - 86,357
Shares issued upon exercise of options 142,672 823,187 -
Shares issued upon exercise of warrants 11,700,261 57,945,746 (11,969,380)
Stock-based compensation - - -
Warrants issued for purchase of land - - 641,600
Net loss and comprehensive loss - - -
=-----------------------------------------------------------------------------------
Balance, June 30, 2010 84,203,697 $266,504,544 $4,013,808
=-----------------------------------------------------------------------------------
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Contributed
Surplus Deficit Total
=------------------------------------------------------------------------------------
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 - - (546,100)
Allotment to be issued pursuant
to exercise of warrants - - 194,265
Stock-based compensation 2,305,684 - 2,305,684
Net loss and comprehensive loss - (24,025,828) (24,025,828)
=------------------------------------------------------------------------------------
Balance, December 31, 2009 10,880,978 (137,222,489) 96,671,714
Expired warrants 22,383 - 0
Public offering agents' compensation - - 86,357
Shares issued upon exercise of options (494,596) - 328,591
Shares issued upon exercise of warrants - - 45,976,366
Stock-based compensation 2,899,084 - 2,899,084
Warrants issued for purchase of land - - 641,600
Net loss and comprehensive loss - (14,813,650) (14,813,650)
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Balance, June 30, 2010 $13,307,849 $(152,036,139) $131,790,062
=------------------------------------------------------------------------------------
See accompanying notes to unaudited interim consolidated financial statements.
GREYSTAR RESOURCES LTD.
Notes to Interim Consolidated Financial Statements (unaudited)
(Expressed in Canadian dollars)
Three and six months ended June 30, 2010
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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.
These unaudited interim consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") for interim financial statements.
Accordingly, they do not include all of the information and disclosures required by GAAP for annual
consolidated financial statements. They have been prepared using the same accounting policies and
methods of application as the latest annual consolidated financial statements, except as discussed
herein. In the opinion of management, all adjustments (consisting of normal and recurring accruals)
considered necessary for fair presentation have been included. The results for interim periods are not
necessarily indicative of results for the entire year. The information contained in the unaudited
interim consolidated financial statements should be read in conjunction with the Company's latest
annual consolidated financial statements for the year ended December 31, 2009, and the notes thereto.
All significant inter-company transactions and balances have been eliminated. Certain amounts in prior
periods have been reclassified to conform to the 2010 presentation.
The preparation of these interim consolidated financial statements in conformity with GAAP 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 interim
consolidated financial statements and the reported amounts of expenses during the period. As a result,
actual amounts may differ from those estimates.
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 or debt 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, the ability of the Company to obtain the necessary mining permits, and future profitable
production or proceeds from the disposition of the mineral properties.
At June 30, 2010, the Company had working capital of $112,006,645 but had not yet achieved profitable
operations and expects to incur further losses in the development of its business. For the six months
ended June 30, 2010, the Company reported a net loss of $14,813,650 and as at June 30, 2010, had an
accumulated deficit of $152,036,139. 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.
In December 2009, the Company filed its Environmental Impact Assessment ("EIA") with the Colombian
Ministry of Environment, Housing and Territorial Development ("MAVDT") in respect to the development
of an open pit gold-silver mine at the Company's Angostura project in Colombia. On April 20, 2010,
the MAVDT requested a new EIA to be filed that conforms to a new regulation which calls for an
adjustment of the occupied area outside of 'paramo', which was interpreted as at an elevation above
3,200 metres. MAVDT's request would have required the Angostura project to be completely redesigned
and would have severely impacted the project schedule and may have had a material effect on its
economic viability.
On April 29, 2010, the Company filed an appeal of the notification from MAVDT. On May 28, 2010, the
Company received a letter from MAVDT that reinstated the Company's EIA as filed. MAVDT will move
forward with a review of the Company's EIA as originally filed. On July 15, 2010, MAVDT issued a
notice to the Company that, at the request of third parties, information meetings for local
communities that were being planned by the Company are to be incorporated into a public hearing
process. The public hearing will hear the views and opinions of certain interested parties on the
environmental impact of the Angostura project. The dates of the information meetings and public
hearing are being established with MAVDT and are steps in the process relating to the decision from
MAVDT on issuing an environmental permit for the Angostura project.
2. New accounting pronouncements
(i) Business Combinations
In October 2008, the CICA issued CICA Handbook Section 1582, "Business Combinations", which
establishes new standards for the recognition, measurement, presentation and disclosure of
business acquisitions. This standard is substantially aligned with International Financial
Reporting Standards. 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. The Company is currently assessing the impact of this accounting standard on the
Company's financial position and results from operations.
(ii)Non-controlling Interests
In October 2008, the CICA issued CICA Handbook Sections 1601, "Consolidated Financial
Statements" and 1602, "Non-controlling Interests", which provide revised guidance on the
presentation of consolidated financial statements and accounting for non-controlling interests
subsequent to a business combination. This guidance is effective for fiscal years beginning on
or after January 2011. The Company is currently assessing the impact of this accounting
standard on the Company's financial position and results from operations.
(iii) International Financial Reporting Standards ("IFRS")
In February 2008, the AcSB confirmed 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 our 2010 comparatives to be presented according to IFRS.
Key dates:
- January 1, 2010 (transition date): An opening statement of financial position according to IFRS
will be prepared as at this date to facilitate the changeover to IFRS in 2011. The Company will
continue to report its fiscal 2010 and comparative 2009 results according to Canadian GAAP.
- January 1, 2011 (changeover date): The date after which the Company will prepare and report
interim and annual 2011 financial statements with 2010 comparatives according to IFRS.
While the Company continues to perform detailed assessments of the impact of adopting IFRS,
the full impact of the transition to IFRS cannot be reasonably estimated at this time.
3. Restricted cash
Pursuant to the land acquisition agreement, the Company was required to make a progress payment of
$637,100 in April 2010 for the Las Puentes land parcel it acquired in June 2009. However, certain of
the original Las Puentes vendors are currently in a title dispute with another unrelated group. The
Company believes that its title to the Las Puentes land parcel is not at risk, but has placed the
$637,100 progress payment into an escrow account pending settlement of the title dispute amongst the
vendors and the unrelated group. The Company expects this dispute to be settled within the next 12
months.
4. Mineral Properties
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
=------------------------------------------------------------------------------------------------------
Acquisition costs, beginning of period $ 18,824,061 $ 14,477,041 $ 18,590,951 $ 14,418,247
Additions during the period 301,481 2,984,124 534,591 3,042,918
=------------------------------------------------------------------------------------------------------
Acquisition costs, end of period $ 19,125,542 $ 17,461,165 $ 19,125,542 $ 17,461,165
=------------------------------------------------------------------------------------------------------
=------------------------------------------------------------------------------------------------------
The details of exploration expenditures expensed during the three and six months ended June 30, 2010
and 2009 on mineral properties are as follows:
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------------------------------
Exploration expenditures:
General and administrative costs
(Angostura project in Columbia) $ 963,009 $ 986,952 $ 2,000,483 $ 1,716,329
Assay and metallurgy 538,790 635,152 542,399 718,281
Consulting and geology 75,881 28,134 136,695 62,799
Drilling and field costs 1,780,026 673,525 2,877,523 1,247,063
Environmental 96,962 5,633 23,144 24,326
Equipment rentals, repairs,
maintenance and supplies 21,949 15,799 47,520 56,396
Feasibility and pre-feasibility
studies 1,965,501 1,452,742 3,110,861 2,895,598
Taxes and surface rights 388,356 522,534 440,238 709,432
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5,830,474 4,320,471 9,178,863 7,430,224
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Cumulative exploration expenditures,
beginning of period 109,920,378 90,491,251 106,571,989 87,381,498
----------------------------------------------------------------------------------------------------
Cumulative exploration expenditures,
end of period $ 115,750,852 $ 94,811,722 $115,750,852 $ 94,811,722
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During the three and six months ended June 30, 2010, the Company's payments totaled $244,990 and
$466,320 respectively, pursuant to its option/agreement to acquire a 100% working interest in the La
Plata property.
Other payments on mineral properties during the three and six months totaled $56,491 and $68,271
respectively.
5. Share Capital
(a) Authorized
Unlimited common shares without par value
(b) Issued and outstanding
As of June 30, 2010, the Company had 84,203,697 common shares issued and outstanding as compared
to 72,360,764 as of December 31, 2009.
During the six months ended June 30, 2010, a total of 11,700,261 shares of the Company were issued
upon the exercise of warrants at prices between $2.47 and $4.30 per share for total proceeds of
$46,062,723. As a result of these exercises, $11,969,380 previously recorded as warrants in
shareholders' equity was transferred to share capital. No warrants were exercised in the three
months ended June 30, 2010.
During the six months ended June 30, 2010, a total of 142,672 shares of the Company were issued
upon the exercise of options at prices between $0.85 and $4.71 per share for total proceeds of
$328,591. As a result of these exercises, $494,596 was transferred from contributed surplus to
share capital. During the three months ended June 30, 2010, a total of 111,042 shares of the
Company were issued upon the exercise of options for total proceeds of $300,410.
(c) Stock options
During the six months ended June 30, 2010, changes in the number of share options outstanding were
as follows:
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Share options outstanding, beginning of period 4,499,285
Granted 2,300,750
Exercised (258,969)
Forfeited (167,500)
Expired (6,450)
------------
Outstanding, end of period 6,367,116
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Weighted average exercise price at June 30, 2010 $ 5.49
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During the three months ended June 30, 2010, the Company granted a total of 1,400,750 options with
vesting periods ranging from immediate vesting, to annual vesting of one third over three years.
The options are exercisable for up to five years from date of grant. The estimated fair value of
stock options granted at the date of grant is $3,567,390 of which $1,311,111 has been recorded in
stock-based compensation during the three months ended June 30, 2010. The weighted average
assumptions used to estimate the fair value of options granted were: risk-free interest rate of
2.8%, expected life of 5 years, 78% volatility and no expected dividends.
For the six months ended June 30, 2010, the Company granted a total of 2,300,750 options with an
estimated fair value at the date of grant of $6,667,890, of which $2,209,127 has been recorded in
stock-based compensation during the six months ended June 30, 2010.
(d) Share purchase warrants
The continuity of share purchase warrants for the six months ended June 30, 2010, and the year
ended December 31, 2009, is as follows:
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Balance Balance
Exercise December 31, June 30,
Expiry date price 2009 Issued Exercised Expired 2010
----------------------------------------------------------------------------------------------------
January 11, 2012 $7.10 40,000 - - - 40,000
January 10, 2013 $6.30 100,000 - - - 100,000
September 29, 2010 $3.50 106,607 - (106,607) - -
September 29, 2010 $4.30 9,094,695 53,303 (9,126,469) (21,529) -
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
November 13, 2013 $6.22 160,000 160,000
November 13, 2013 $6.10 15,000 15,000
March 20, 2014 $2.47 4,934,371 - (2,467,185) - 2,467,186
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14,729,173 228,303 (11,700,261) (21,529) 3,235,686
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Balance Balance
Exercise December 31, December 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, 2013 $ 6.30 100,000 - - - 100,000
September 29, 2010 $ 3.50 - 903,571 (796,964) - 106,607
September 29, 2010 $ 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
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149,178 15,725,637 (1,136,464) (9,178) 14,729,173
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6. Supplementary cash flow information
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
------------------------------------------------------------------------------------------------------------
Cash amount of payments received:
Interest received $ 284,896 $ 28,104 $ 552,635 $ 107,940
Non-cash investing and financing activities:
Fair value of stock options transferred
to share capital from contributed
surplus on exercise of options 363,524 270,817 494,596 270,817
Fair value of warrants transferred to
share capital on exercise of warrants - - 11,883,023 -
Fair value of additional warrants
granted upon exercise of agents' warrants - - 86,357 -
Fair value of share purchase warrants
issued on mineral property acquisition 641,600 973,215 641,600 973,215
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Cash and cash equivalents are comprised of:
------------------------------------------------------------------------------------------------------------
June 30, December 31,
2010 2009
------------------------------------------------------------------------------------------------------------
Cash $ 17,312,004 $ 11,966,396
Cash equivalents 99,055,499 69,616,908
------------------------------------------------------------------------------------------------------------
$ 116,367,503 $ 81,583,304
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7. Related party transactions
For the three months ended June 30, 2010, the Company was charged a total of $126,394 (2009 - $94,647)
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.
During the six months ended June 30, 2010, the Company was charged a total of $434,778 (2009 -
$182,083) for office and administration fees, management and consulting fees and reimbursement of
expenses, by directors and by companies with common directors.
Included in the accounts payable and accrued liabilities balance is a total of $6,037 (2009 - $6,610)
owing to companies with common directors.
8. Segment disclosures
The Company operates in a single segment, being resource exploration and development. Other
geographic information is as follows:
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Canada Colombia Total
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Three months ended June 30, 2010
Loss before other items $ 4,946,726 $ 4,279,711 $ 9,226,437
Interest income 265,638 19,258 284,896
Total assets 122,913,859 15,328,097 138,241,956
Three months ended June 30, 2009
Loss before other items $ 551,148 $ 5,686,724 $ 6,237,872
Interest income 25,751 2,353 28,104
Total assets 30,291,610 19,113,871 49,405,481
Six months ended June 30, 2010
Loss before other items $ 8,289,826 $ 6,965,919 $ 15,255,745
Interest income 531,067 21,568 552,635
Total assets 122,913,859 15,328,097 138,241,956
Six months ended June 30, 2009
Loss before other items $ 2,215,649 $ 7,798,516 $ 10,014,165
Interest income 103,807 4,133 107,940
Total assets 30,291,610 19,113,871 49,405,481
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GREYSTAR RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010
INTRODUCTION
The following information of Greystar Resources Ltd. (the "Company" or "Greystar"), prepared as of August
11, 2010, should be read in conjunction with the Company's unaudited interim consolidated financial
statements for the six months ended June 30, 2010, and the 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, is available 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. HIGHLIGHTS
2. ANGOSTURA GOLD-SILVER PROJECT UPDATE, COLOMBIA
3. RESULTS OF OPERATIONS
4. QUARTERLY INFORMATION
5. LIQUIDITY AND CAPITAL RESOURCES
6. FINANCIAL INSTRUMENTS
7. TRANSACTIONS WITH RELATED PARTIES
8. CRITICAL ACCOUNTING ESTIMATES
9. NEW ACCOUNTING POLICIES
10. OFF-BALANCE SHEET ARRANGEMENTS
11. OUTSTANDING SHARE DATA
12. RISKS AND UNCERTAINTIES
13. INTERNAL CONTROL OVER FINANCIAL REPORTING
14. FORWARD-LOOKING STATEMENTS
15. QUALIFIED PERSONS
1. HIGHLIGHTS
Results of Operations
The net loss for the three months ended June 30, 2010, was $8.9 million compared to $6.0 million for the
comparative period in 2009. Loss per share for the three months ended June 30, 2010, was $0.11 compared to
$0.11 for the comparative period in 2009.
The net loss for the six months ended June 30, 2010, was $14.8 million compared to $9.7 million for the
comparative period in 2009. Loss per share for the six months ended June 30, 2010, was $0.18 compared to
$0.19 for the comparative period in 2009.
On April 20, 2010, the Colombian Ministry of Environment, Housing and Territorial Development ("MAVDT")
requested a new Environmental Impact Assessment ("EIA") to be filed that conforms to a new regulation which
calls for an adjustment of the occupied area outside of 'paramo', which was interpreted as at an elevation
above 3,200 metres. On April 29, 2010, Greystar filed an appeal on the rejection of its EIA from MAVDT. On
May 28, 2010 the Company received a letter from MAVDT that reversed its April 20th letter and reinstates
the December 22, 2009 EIA as filed. MAVDT will move forward with a review of the Company's EIA as
originally filed. On July 15, 2010, MAVDT issued a notice to the Company that, at the request of third
parties, information meetings for local communities that were being planned by the Company are to be
incorporated into a public hearing process. The public hearing will hear the views and opinions of certain
interested parties on the environmental impact of the Angostura project. The dates of the information
meetings and public hearing are being established with MAVDT and are steps in the process relating to the
decision from MAVDT on issuing an environmental permit for the Angostura project.
Management Changes
Mr. Steve Kesler assumed the President and Chief Executive Officer role following the retirement of Mr.
David Rovig who has assumed the position of Non-Executive Chairman of the Board. In July 2010, the Company
announced the appointment of David Newbold as Chief Financial Officer, effective August 3, 2010. Geoff
Chater stepped down from the position of Vice President Corporate Development effective June 30, 2010.
2. ANGOSTURA GOLD-SILVER PROJECT UPDATE, COLOMBIA
On March 25, 2009, the Company announced that GRD Minproc Ingeniería y Construcción Ltda. Chile ("Minproc")
completed a prefeasibility study ("PFS") 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 Metálica Consultores S.A. from Chile. The updated NI 43-101 resource estimate is available for
review on SEDAR at www.sedar.com.
On June 1, 2009, the Company announced that Minproc will prepare a feasibility study ("FS"). The FS 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 FS will also include
the basic engineering of the project and continue to refine work completed during the prefeasibility phase.
Feasibility Study
The FS includes three well-defined stages: Optimization, Design and Economics, each looking to improve the
technical and financial parameters defined in the PFS stage, but also to reduce risk on all fronts. The FS
will include basic engineering in all disciplines and is expected to have a level of accuracy of +/- 15%.
The FS report will provide the basis for project financing. During the first half of 2010, approximately
$3.1 million was spent on the various components of the FS, including assay and metallurgical analysis.
Resource Update
On July 15, 2010, Greystar announced an updated resource calculation for the Angostura project. The
resource study is based on updated 3D geological and mineral models, and includes all of the technical data
available as of January 2010, including 179,813 core assays from 938 drill holes representing 302,834
metres, and 1,768 muck samples from the exploration tunnels. The resource study was developed by Greystar
under the overall supervision of consulting company NCL Ingeniería y Construcción S.A. ("NCL") from
Santiago, Chile.
Additional drilling carried out in 2008 and the rigorous evaluation of the resource by Greystar's
geological staff working closely with NCL has provided a robust resource model for the FS. Greystar has
initiated the evaluation of underground resources that lie beyond the FS pit boundary but within a
proximity to allow exploitation utilizing the pit infrastructure either during or after completing the open
pit operation. As the cut-off date for the data employed in this resource study was January 2010, not all
of the recent Los Laches drilling data has been included. The evaluation of underground potential at
Angostura is a work in progress; however, early indications are that underground resources could have a
meaningful impact on the project.
Resource Highlights:
This resource statement was made using a gold price of US$850/oz and a silver price of US$12/oz. In
developing this resource for the FS, a more conservative view was taken on higher grade material, which
included grade capping and reduced search area to make the resource more robust in support of project
financing. Details of the operational pit and underground resources are provided in the tables below:
Operational Pit Resource
-------------------------------------------------------------
Category
-------------------------------------------------------------
Measured Indicated Total Inferred
(Meas. + Ind.)
=--------------------------------------------------------------------------------------
OXIDES
=--------------------------------------------------------------------------------------
Kt 79,160 26,597 105,757 6,306
=--------------------------------------------------------------------------------------
Au (g/t) 0.39 0.45 0.41 0.44
=--------------------------------------------------------------------------------------
Ag (g/t) 3 3 3 3
=--------------------------------------------------------------------------------------
Au (koz) 998 389 1,387 88
=--------------------------------------------------------------------------------------
Ag (koz) 8,521 2,787 11,308 555
=--------------------------------------------------------------------------------------
TRANSITION
=--------------------------------------------------------------------------------------
Kt 104,003 20,758 124,761 5,523
=--------------------------------------------------------------------------------------
Au (g/t) 0.61 0.89 0.66 0.84
=--------------------------------------------------------------------------------------
Ag (g/t) 6 6 6 6
=--------------------------------------------------------------------------------------
Au (koz) 2,039 594 2,633 149
=--------------------------------------------------------------------------------------
Ag (koz) 19,373 4,163 23,536 1,111
=--------------------------------------------------------------------------------------
SULPHIDES
=--------------------------------------------------------------------------------------
Kt 94,505 33,540 128,045 14,519
=--------------------------------------------------------------------------------------
Au (g/t) 1.00 1.75 1.20 1.43
=--------------------------------------------------------------------------------------
Ag (g/t) 5 8 6 6
=--------------------------------------------------------------------------------------
Au (koz) 3,036 1,885 4,921 666
=--------------------------------------------------------------------------------------
Ag (koz) 16,118 8,635 24,753 2,996
=--------------------------------------------------------------------------------------
TOTAL RESOURCES IN OPERATIONAL PIT
=--------------------------------------------------------------------------------------
Kt 277,668 80,895 358,563 26,348
=--------------------------------------------------------------------------------------
Au (g/t) 0.68 1.10 0.78 1.07
=--------------------------------------------------------------------------------------
Ag (g/t) 5 6 5 6
=--------------------------------------------------------------------------------------
Au (koz) 6,074 2,868 8,942 903
=--------------------------------------------------------------------------------------
Ag (koz) 44,012 15,585 59,597 4,662
=--------------------------------------------------------------------------------------
Underground Resource
-------------------------------------------------------------
Category
-------------------------------------------------------------
Measured Indicated Total Inferred
(Meas. + Ind.)
=--------------------------------------------------------------------------------------
SULPHIDES
=--------------------------------------------------------------------------------------
Kt 1,283 4,761 6,044 3,762
=--------------------------------------------------------------------------------------
Au (g/t) 3.95 4.36 4.28 3.61
=--------------------------------------------------------------------------------------
Ag (g/t) 17 20 19 16
=--------------------------------------------------------------------------------------
Au (koz) 163 668 831 437
=--------------------------------------------------------------------------------------
Ag (koz) 718 3,067 3,785 1,992
=--------------------------------------------------------------------------------------
On July 15, 2010, Greystar announced an updated metallurgical recovery model ("FS Recovery Model") and
process flow for the Angostura project. The updated model, which will be incorporated into the FS
scheduled for publication in the second half of 2010, replaces the metallurgical model used in the May 2009
Preliminary Feasibility Study ("PFS Recovery Model").
The results of the metallurgical testing have the following average gold recoveries by ore type.
=---------------------------------------------------------------------------------------------------------
Process Ore Type Average Metallurgical Average Metallurgical Test
Test Results - PFS1) Results - FS6)
--------------------------
19 mm2) 38 mm3)
=---------------------------------------------------------------------------------------------------------
Heap Leach Oxide 90% 91% 91%
-----------------------------------------------------------------------------
Transitional 73% 74% 70%
-----------------------------------------------------------------------------
Low Grade Sulphide 39% 33% 30%
=---------------------------------------------------------------------------------------------------------
Flotation/BIOX/ High Grade Sulphide 94%4) 86%5)
CIP/Heap Leach
FlotationTails
=---------------------------------------------------------------------------------------------------------
1. Heap Leach average metallurgical results in the PFS Recovery Model based on 18 Column Leach Test
("CLT") at 19 mm.
2. Heap Leach average metallurgical results in the FS Recovery Model based on 77 CLT at 19 mm
(includes all the samples tested at 38 mm).
3. Heap Leach average metallurgical results in the FS Recovery Model based on 11 CLT at 38 mm.
4. High grade ore circuit average metallurgical results in the PFS Recovery Model based on 90%
flotation gold recovery, 98.5% Smelter Recovery, 54% heap leaching recovery of flotation tails
agglomerates.
5. High grade ore circuit average metallurgical results in the FS Recovery Model based on 91%
flotation gold recovery, 90% BIOX® /CIP recovery, and 50% heap leaching recovery of flotation tails
agglomerates.
6. Heap leach feed size sensitivity (38mm vs. 19mm) employed for the FS Recovery Model was determined
considering only samples tested at both feed sizes, rather than average results as presented in the table
shown above.
Updates to the recovery model include:
- A coarsening of the planned heap leach feed size to 38mm.
- A new geo-metallurgical model to project heap leach recoveries.
- A revision to the high grade recovery circuit to include stirred tank bio-oxidation and carbon-in-pulp
cyanidation of the flotation concentrate.
The FS metallurgical processing routes for the Angostura ore will be driven by the FS Recovery Model with:
- Oxide, transitional and low-grade sulphide ore processed by conventional cyanide heap leach and
agglomerated flotation tailings heap leach.
- High grade sulphide mineralization treated via milling, flotation, stirred tank bio-oxidation, carbon
in pulp cyanidation of bio-oxidized residue and pulp agglomeration heap leaching of flotation tailings.
The flotation plant size will be increased above the 5,200 tonnes per day identified in the PFS to
treat the higher quantity of sulphides that are now economic through use of BIOX(R).
Stirred-tank bio-oxidation of the Angostura flotation concentrate followed by cyanidation of the oxidized
residue was found to be more solid and economically attractive than direct shipment of the flotation
concentrate to a smelter (PFS Recovery Model), roasting of the flotation concentrate with agitated
cyanidation of the roasted calcine, or pressure oxidation ("POX") treatment with agitated cyanidation of
the POX residue. The comparative process routes were analyzed in GRD Minproc/AMEC/NCL/Greystar trade-off
studies. Ultra-fine grinding and leaching of flotation concentrate was also evaluated during metallurgical
testing at G&T Metallurgical, but the resulting gold and silver recoveries were too low for consideration
in the trade-off study. A preliminary stirred-tank test at McClelland Laboratories, confirmed the
amenability of the Angostura flotation concentrate to bio-oxidation with subsequent carbon-in-leach
cyanidation of the bio-oxidation residue. Based on these positive results, Greystar contracted Gold Fields
Limited, the world leader in tank bio-oxidation processing, for a continuous BIOX(R) mini-pilot plant run
using bulk flotation concentrate from the Angostura deposit. Flotation concentrate preparation and testing
associated with the BIOX® pilot plant is being done at SGS Lakefield Research Africa in Johannesburg under
the direction of Gold Fields Technical Division, BIOX® Department. This test program, to be completed by
October 2010, will provide the necessary data for designing the commercial bio-oxidation treatment plant,
establishing optimum conditions for gold recovery, recycling of toxin-free solution from the BIOX® plant
and generating an environmentally stable solid waste product.
The results of the bio-oxidation test programs will be incorporated in the FS. The Company will continue
with the design of the heap leach facilities for treating oxide and transitional ore, and low grade
sulphides, 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
=----------------------------------------------------------------------------------------------------------
Date: Event:
=----------------------------------------------------------------------------------------------------------
October 23, 2009 The Company 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.
=----------------------------------------------------------------------------------------------------------
December 22, 2009 The Company filed the EIA with MAVDT to initiate the environmental permitting
process for the development of an open pit gold and silver mine at the Angostura
project in Colombia. 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.
=----------------------------------------------------------------------------------------------------------
April 20, 2010 MAVDT requested a new EIA to be filed. MAVDT requested that the new EIA conform
to new regulation Law 1382 of 2010 (Modified Mining Code) which requires that
mining and exploration activity must be excluded from the "Paramo" ecosystem.
=----------------------------------------------------------------------------------------------------------
April 29, 2010 The Company filed an appeal of the April 20th notification from MAVDT
=----------------------------------------------------------------------------------------------------------
May 28, 2010 The Company received a letter from MAVDT that reversed its April 20th letter and
reinstates the December 22, 2009 EIA as filed. MAVDT will move forward with a
review of the EIA.
=----------------------------------------------------------------------------------------------------------
July 15, 2010 MAVDT issued a notice to the Company that, at the request of third parties,
information meetings for local communities that were being planned by the
Company are to be incorporated into a public hearing process. The public hearing
will hear the views and opinions of certain interested parties on the
environmental impact of the Angostura project. The dates of the information
meetings and public hearing are being established with MAVDT and are steps in
the process relating to the decision from MAVDT on issuing an environmental
permit for the Angostura project.
=----------------------------------------------------------------------------------------------------------
Exploration
In December 2009, the Company initiated an exploration drill program to investigate the La Plata mineral
property that was acquired in the La Baja Valley, located southwest of the Angostura deposit, and continued
with its program of exploring the potential of high grade mineralization at the Angostura gold-silver
deposit and near surface oxide gold and deeper sulphide mineralization discovered in 2008 at the Mongora
prospect.
Los Laches Drill Program
The Company announced additional assay results from the targeted drill program at the Los Laches area of
the Angostura gold-silver deposit. The new drill results from the Los Laches Area, whose geology is
structurally complex, continue to provide positive results showing the potential of high grade
mineralization at depth below the envisioned Preliminary Feasibility Study open pit.
Mongora Drill Program
Greystar started 44 drill holes on the Mongora target, of which 21 have been completed so far in 2010,
bringing the total to 15,490 meters drilled as of July 29, 2010. Similar to the Angostura deposit, the
Mongora prospect hosts higher-grade gold mineralization including 116 grams gold over 2.0 metres, 22.2
grams gold per tonne over 2.0 metres and 12.35 grams over 1.6 metres within broader zones of lower-grade
gold mineralization. The delineation of significant oxide gold mineralization at the Mongora area could be
very important for the Angostura project.
La Plata
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 information under the heading "Exploration" 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.
Resource information under the heading "Feasibility Study - Resource Highlights" has been reviewed and
approved by Mr. Rodrigo Mello, Senior Geologist with NCL Ingeniería y Construcción S.A., Santiago, Chile 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.
3. RESULTS OF OPERATIONS
The following table sets forth selected financial data for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------
2010 2009 2010 2009
------------------------------------------------------------
Exploration expenditures:
Feasibility and pre-feasibility costs:
Feasibility and pre-feasibility studies $ 1,965,501 $ 1,452,742 $ 3,110,861 $ 2,895,598
Other exploration expenditures 3,864,973 2,867,729 6,068,002 4,534,626
=----------------------------------------------------------------------------------------------------------
5,830,474 4,320,471 9,178,863 7,430,224
General and administrative expenses:
Amortization 84,895 64,162 159,455 127,968
Administrative expenditures 1,451,043 541,482 3,018,343 946,600
Stock-based compensation 1,860,025 1,311,757 2,899,084 1,509,373
=----------------------------------------------------------------------------------------------------------
3,395,963 1,917,401 6,076,882 2,583,941
Interest income (284,896) (28,104) (552,635) (107,940)
Foreign exchange (gain) loss (7,496) (159,790) 110,540 (212,256)
=----------------------------------------------------------------------------------------------------------
Loss for the period $ 8,934,045 $ 6,049,978 $ 14,813,650 $ 9,693,969
=----------------------------------------------------------------------------------------------------------
Loss per share $ 0.11 $ 0.11 $ 0.18 $ 0.19
=----------------------------------------------------------------------------------------------------------
=----------------------------------------------------------------------------------------------------------
Three months ended June 30, 2010
Total exploration expenditures were $5.8 million for the three months ended June 30, 2010, compared to $4.3
million for the three months ended June 30, 2009. Costs related to feasibility and pre-feasibility
(completed in 2009) studies were $2.0 million for the three months ended June 30, 2010, compared to $1.5
million for the comparative period in 2009. Exploration costs were greater for the three months ended June
30, 2010, due to the drill programs at Los Laches, Christo Rey, Mongora and La Plata properties. These
drilling expenditures totalled $1.8 million in the three months ended June 30, 2010, compared to costs of
$0.6 million in the comparative period of 2009.
General and administrative expenses increased by approximately $1.5 million for the three months ended June
30, 2010, compared to the three months ended June 30, 2009. The increase was a result of the following:
* Management and consulting fees were up $0.5 million in 2010 compared to 2009, due primarily to the
engagement of consultants to recruit the CEO and CFO, tax reorganization consulting and compensation for
management services.
* Salaries and benefits were up $0.4 million in 2010 compared to 2009, due primarily to the hiring
of additional corporate staff during the second half of 2009 and first half of 2010.
* Stock-based compensation increased by $0.5 million in 2010 compared to 2009, due to higher
amortization resulting from the higher number and fair values for stock options granted during the first
half of 2010, and to higher amortization of the cost of prior period awards that vested during the period.
Interest income for the three months ended June 30, 2010, increased by $0.3 million from the comparative
period in 2009, primarily due to the increased cash balances.
The Company had a small foreign exchange gain of $7,000 for the three months ended June 30, 2010, compared
to a $0.2 million gain for the three months ended June 30, 2009.
Six months ended June 30, 2010
Total exploration expenditures were $9.2 million for the six months ended June 30, 2010, compared to $7.4
million for the six months ended June 30, 2009. Costs related to feasibility and pre-feasibility
(completed in 2009) studies were $3.1 million for the six months ended June 30, 2010, compared to $2.9
million for the comparative period in 2009. Exploration costs were greater for the six months ended June
30, 2010, due to the drill programs at Los Laches, Christo Rey, Mongora and La Plata properties. These
drilling expenditures totalled $2.9 million in the first half of 2010, compared to costs of $1.3 million in
the comparative period of 2009.
General and administrative expenses have increased by approximately $3.5 million for the six months ended
June 30, 2010, compared to the six months ended June 30, 2009. The following explains the increase in the
comparative quarters:
* Management and consulting fees were up $0.9 million in 2010 compared to 2009, due primarily to the
engagement of consultants to recruit the CEO and CFO, tax reorganization consulting and compensation for
management services.
* Salaries and benefits were up $0.9 million in 2010 compared to 2009, due primarily to the hiring
of additional corporate staff during the second half of 2009 and bonuses awarded to senior management
during the first quarter of 2010 as compared to no bonuses in the comparative quarter of 2009.
* Stock-based compensation increased by $1.4 million in 2010 compared to 2009, due to higher
amortization resulting from the higher number and fair values for stock options granted during the first
half of 2010, and to higher amortization of the cost of prior period awards that vested during the period.
Interest income for the six months ended June 30, 2010, increased by $0.4 million from the comparative
period in 2009, primarily due to the increased cash balances.
The Company had a foreign exchange loss of $0.1 million for the six months ended June 30, 2010, compared to
a $0.2 million gain for the six months ended June 30, 2009. Losses recorded in the current year period can
primarily be attributed to the effect of the Colombian Peso's strengthening against the Canadian dollar on
Colombian Peso denominated assets.
4. QUARTERLY INFORMATION
Administrative Expenses Basic and
---------------------------- Diluted
Exploration General and Stock-based Interest Net Loss
Expenditures Amortization Compensation Income Loss per Share
=--------------------------------------------------------------------------------------------------------
Q2 - June 30, 2010 $5,830,474 $ 1,535,938 $ 1,860,025 $(284,896) $8,934,045 $ 0.11
Q1 - March 31, 2010 $3,348,389 $ 1,641,860 $ 1,039,059 $(267,739) $5,879,605 $ 0.07
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
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 and remained low
in the first half of 2010. This, however, was offset by the significantly increased levels of cash, which
contributed to increasing level of quarterly interest income in 2010 compared to 2009.
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 FS in late June 2009. For the second half of 2009, costs
increased significantly due to efforts being placed on the FS. Engineering costs for the feasibility study
decreased during the first quarter of 2010 but increased in the second quarter.
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 and first
half of 2010 as the Company anticipates moving into development.
5. LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flow Information
At June 30, 2010, cash and cash equivalents were $116.4 million, up from $81.6 million at December 31,
2009. The increase in cash and cash equivalents is primarily attributed to the receipt of gross proceeds of
$75.3 million from equity issuances completed in 2009 and $46.1 million received from the exercise of
warrants in the first quarter of 2010.
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
generally 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 $5.5 million for the three months
ended June 30, 2010, compared to $4.6 million for the comparative period in 2009. For the three months
ended June 30, 2010, exploration-related expenditures, including feasibility study costs, were $5.8 million
and represent the major use of funds for the year. Additionally, $637,100 was allocated to restricted cash.
Pursuant to the land acquisition agreement, the Company was required to make a progress payment of $637,100
in April 2010 for the Las Puentes land parcel it acquired in June 2009. However, certain of the original
Las Puentes vendors are currently in a title dispute with another unrelated group. The Company believes
that its title to the Las Puentes land parcel is not at risk, but has placed the $637,100 progress payment
into an escrow account pending settlement of the title dispute amongst the vendors and the unrelated group.
The Company expects this dispute to be settled within the next 12 months.
Cash used in operations including changes in non-cash working capital was $10.3 million for the six months
ended June 30, 2010, compared to $7.7 million for the comparative period in 2009. For the six months ended
June 30, 2010, exploration-related expenditures, including scoping and feasibility study costs, were $9.2
million and represent the major use of funds for the year. Additionally, $0.6 million was allocated to
restricted cash as noted above.
At June 30, 2010, the Company had working capital of $112.0 million, but had not yet achieved profitable
operations and expects to incur further losses in the development of its business. For the six months
ended June 30, 2010, the Company reported a net loss of $14.8 million and as at June 30, 2010, had an
accumulated deficit of $152.0 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 the current level of funds will be sufficient to pay for
anticipated project and administrative costs to the end of 2010. Financial advisors have been appointed to
assist the Company in developing a financing plan for development of the Angostura project. 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: the
outcome of the Company's application for an environmental permit with the MAVDT, mineral prices, the
results and recommendations of the FS, 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 current low interest rate environment, 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.
Commitments
There have been no significant changes to the Company's commitments as of June 30, 2010. For full details
on commitments, refer to the Company's audited financial statements and notes and MD&A for the year ended
December 31, 2009.
6. 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. For full details on the risks and uncertainties, refer
to the Company's audited financial statements and notes and MD&A for the year ended December 31, 2009.
7. TRANSACTIONS WITH RELATED PARTIES
Pursuant to a service agreement, the Company pays Rovig Minerals, Inc., a company owned by the Company's
Chairman 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 May 15, 2011.
The Company pays Ionic Management Corp. ("Ionic"), a company related by virtue of a director and two
officers in common, for corporate and administrative services in Vancouver, BC. These services are provided
on a month-to-month basis and may be cancelled by either party on one month's notice.
Pursuant to a service agreement, the Company paid Mr. Steve Kesler, a director of the Company, for
consulting services. The service agreement terminated on May 16, 2010, after which Mr. Steve Kesler
assumed the role of President and CEO of the Company.
Transactions with related parties 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., Ionic, and Mr. Steve Kesler for out-
of-pocket direct costs incurred on behalf of the Company. Such costs include travel, postage, courier
charges, printing and telephone charges.
Related party expenditures recorded for the following periods were:
Three Months ended Six Months ended
June 30, June 30,
---------------------------------------------------------
2010 2009 2010 2009
---------------------------------------------------------
Rovig Minerals Inc. $ 58,419 $ 70,329 $ 293,198 $ 143,865
Ionic Management Corp.
- administration $ 16,500 $ 16,500 $ 33,000 $ 48,000
- consulting $ - $ - $ - $ 4,200
Steve Kesler (consulting fees) $ 51,475 $ - $ 108,580 $ -
8. 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 June 30, 2010, amounts capitalized to mineral properties
total $19.1 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.
9. NEW ACCOUNTING POLICIES
(a) Business Combinations
In October 2008, the CICA issued CICA Handbook Section 1582, "Business Combinations", which establishes new
standards recognition, measurement, presentation and disclosure of business acquisitions. This standard is
substantially aligned with International Financial Reporting Standards. 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. The Company is currently assessing the impact of this accounting standard on the Company's
financial position and results from operations.
(b) Non-controlling Interests
In October 2008, the CICA issued CICA Handbook Sections 1601, "Consolidated Financial Statements" and 1602,
"Non-controlling Interests", which provide revised guidance on the presentation of consolidated financial
statements and accounting for non-controlling interests subsequent to a business combination. This guidance
is effective for fiscal years beginning on or after January 2011. The Company is currently assessing the
impact of this accounting standard on the Company's financial position and results from operations.
(c) International Financial Reporting Standards ("IFRS")
In February 2008, the AcSB confirmed 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 our 2010 comparatives to be
presented according to IFRS.
Key dates:
* January 1, 2010 (transition date): An opening statement of financial position according to IFRS
will be prepared as at this date to facilitate the changeover to IFRS in 2011. The Company will continue to
report its fiscal 2010 and comparative 2009 results according to Canadian GAAP.
* January 1, 2011 (changeover date): The date after which the Company will prepare and report
interim and annual 2011 financial statements with 2010 comparatives according to IFRS.
While the Company continues to perform detailed assessments of the impact of adopting IFRS, the following
has been identified as key areas where the Company expects differences. However, the full impact of the
transition to IFRS cannot be reasonably estimated at this time.
(a) Functional currency. The Company will assess the principal currency of the economic environment in
which the Company operates.
(b) Measurement and presentation of warrant liability. The Company will assess the measurement and
presentation of its warrants based on the outcome of the functional currency assessment.
(c) Valuation and classification of the Company's mineral properties. Assessment of the classification
of mineral properties as intangible or tangible as appropriate and assessment for impairment when
facts and circumstances suggest that the carrying amount may exceed its recoverable amount.
(d) Recognition and measurement of stock-based compensation. Assessment of the fair value of each
vesting tranche of stock options at the date of grant and their related amortization.
(e) Measurement of asset retirement obligation. Inputs used for measurement such as interest rate and
estimates of costs will be assessed.
10. OFF BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
11. 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 August 11, 2010:
Common shares 84,203,697
Shares issuable on the exercise of warrants 3,235,686
Shares issuable on the exercise of outstanding stock options 6,764,365
12. 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. In particular, the development of the Angostura gold-silver project
may be materially affected by the outcome of the Company's application for an environmental permit with
MAVDT. 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, refer to the Risk Factors section of the Company's Annual
Information Form for the year ended December 31, 2009, which can be found on SEDAR at www.sedar.com.
13. 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.
There has been no change in the Company's disclosure controls and procedures during the three months ended
June 30, 2010, that has materially affected or is reasonably likely to materially affect 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 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.
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.
There has been no change in the Company's internal control over financial reporting during the three months
ended June 30, 2010, that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.
14. 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 resources, success of exploration activities, currency fluctuation, the future price
of gold and silver, governmental regulation of mining operations, and estimated gold recoveries. 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, the
outcome of the Company's application for an environmental permit with the MAVDT, 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 title
disputes; 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 at www.sedar.com. 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.
15. 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.
August 11, 2010
Greystar Resources Ltd.
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