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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Nautilus Di | LSE:NUS | London | Ordinary Share | CA6390971043 | COM SHS NPV (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 23.75 | 0.00 | 00:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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RNS Number:0943U
Nautilus Minerals Inc.
30 March 2007
NAUTILUS MINERALS INC.
1050 - 625 Howe Street
Vancouver, British Columbia
V6C 2T6
NEWS RELEASE
Press Release Number 2007-11
Financial Results for the year ended December 31, 2006
Vancouver B.C., March 30, 2007 - Nautilus Minerals Inc. (TSXV: NUS, AIM:NUS &
NUSR) (the "Company" or "Nautilus") announces the release of its audited
consolidated financial results for the year ended December 31, 2006, reported
under Canadian GAAP and IFRS, together with Management's discussion and
analysis.
2006 Highlights
* Reverse Takeover and C$25 million private placement completed with
Company listing on TSX-V in May 2006
* Conversion of Barrick Gold's joint venture interest into equity
* Private placements with major mining investors including Teck Cominco
and Anglo American totaling approximately US$100 million
* Heads of Agreement with Jan De Nul to build, in relation to the
provision of and operation of, a mining vessel
* Additional exploration applications lodged in Papua New Guinea, Fiji and
Tonga increasing the area covered by exploration licenses and applications
to over 276,000 km2
2007 Highlights
* US$100 million private placement completed with Company listing on AIM
* US$75 million private placement in north America
* Commencement of world's largest commercial exploration program for high
grade seafloor massive sulphide systems
David Heydon, CEO of the Company, commented: "These results reflect a very
successful year for the Company which is now well positioned to execute its
business plan. In the eight months of 2006 since listing in May, the Company
raised approximately US$100 million in private placements and introduced a
number of major mining investors to the Company. The 2007 year has already seen
an additional US$175 million raised and a major exploration program launched
allowing the Company to maintain the momentum established in 2006."
Heydon added - "as reported on March 21, 2007, the Company has launched the
world's largest commercial exploration program for high grade seafloor massive
sulphide systems based around the 141 meter vessel "Wave Mercury". This major
program will involve 180 days on site, incorporating geophysical surveys,
sampling, drilling and environmental studies to support the Solwara 1 mine
plan."
The Financial Statements and Management's Discussion and Analysis follow.
Options
The Company has cancelled 400,000 options previously issued to an employee of
the Company and granted 694,025 options to an employee and director of the
Company effective from March 29, 2007 at a price of C$4.83 for 400,000 options,
C$4.72 for 29,365 options and C$4.79 for 264,660 options for a term of three
years vesting as to 20% every six months for a period of 30 months starting six
months from the date of grant for 400,000 and for the remainder, vesting as to
25% on grant and 25% each six months thereafter.
Clarification of Directors' Holdings
As at March 30, 2007, the interests of the Directors in the share capital of the
Company are as follows:
Director Number of Percentage of
common shares common shares
held held
A. Geoffrey Loudon 1,535,175 1.18%
David J. Heydon 3,298,625 2.53%
David E. De Witt 324,437 0.25%
Russell S. Debney 478,300 0.37%
About Nautilus Minerals Inc.
Nautilus is the first company to commercially explore the ocean floor for high
grade gold-copper-zinc-silver seafloor massive sulphide deposits and is
positioned to become a world leader in underwater mineral exploration. The
Company's main focus for 2007 is the Solwara 1 Project, located in the
territorial waters of Papua New Guinea in the western Pacific Ocean. The four
largest shareholders of the Company are resource companies Anglo American, Teck
Cominco, Epion and Barrick Gold.
For more information please refer www.nautilusminerals.com or contact:
Investor Relations President & CEO
Nautilus Minerals Inc. (Vancouver) Mr. David Heydon,
Email: investor@nautilusminerals.com Email:ceo@nautilusminerals.com
Tel: +1 (778) 785 7591 Tel: +1 (778) 785 7591
Numis Securities Limited (NOMAD) Parkgreen Communications
John Harrison/James Black Clare Irvine/Justine Howarth
Tel: +44 (0) 20 7260 1000 +44 (0) 20 7851 7480
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(US dollars, in accordance with Canadian GAAP)
The following discussion includes references to United States dollars, Canadian
dollars United Kingdom pounds and Euro. All dollar amounts referenced, unless
otherwise indicated, are expressed in United States dollars and the Canadian
dollars are referred to as C$, United Kingdom pounds are referred to as # and
Euro are referred to as Euro.
The following discussion of the financial condition and results of operations of
Nautilus Minerals Inc. (the "Company", "NMI" or "Nautilus") should be read in
conjunction with the consolidated financial statements and related Notes
prepared as of 28 March 2007 for the year ended 31 December 2006. This section
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from those discussed in
forward-looking statements as a result of various factors, including those
described under "Forward-Looking Information."
Forward-Looking Information
This management discussion and analysis ("MD&A") contains certain
forward-looking statements and information relating to the Company that are
based on the beliefs of its management as well as assumptions made by and
information currently available to the Company. When used in this document, the
words "anticipate", "believe", "estimate", "expect" and similar expressions, as
they relate to the Company or its management, are intended to identify
forward-looking statements. Such forward-looking statements relate to, among
other things, regulatory compliance, the sufficiency of current working capital,
the estimated cost and availability of funding for the continued exploration of
the Company's exploration property. Such statements reflect the current views of
the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievement of the Company to be materially different from any
future results, performance or achievements that may be expressed or implied by
such forward-looking statements.
Our business
Overview
Nautilus Minerals Inc. (TSX-V:NUS and AIM:NUS and NUSR) is exploring the ocean
floor for gold and copper seafloor massive sulphide deposits. The Company's main
focus for 2006 was the Solwara 1, 2 3 and 4 Projects, located in the territorial
waters of Papua New Guinea in the western Pacific Ocean.
History and Corporate Structure
The Group as it is currently structured was formed on 8 May 2006 when the
Company acquired all of the issued and outstanding shares of Nautilus Minerals
Niugini Limited ("NMN") (formerly Nautilus Minerals Corporation) and Nautilus
Minerals Oceania Limited ("NMO"), by issuing 30,519,541 common shares to the
shareholders of NMN and NMO. Since the shareholders of NMN and NMO acquired in
excess of 90% of the outstanding common shares of Nautilus, the transaction is
accounted for as a reverse take-over ("RTO"). As a result, the results included
in the MD&A are those of NMN and NMO for the period from 1 January 2006 to 31
December 2006 and those of NMI from the date of the RTO, 8 May 2006 to 31
December 2006, giving effect to the share exchange between NMO, NMN and NMI.
In connection with the reverse takeover transaction, the Company changed its
name from Orca Petroleum Inc. to Nautilus Minerals Inc.
2006 Highlights
* RTO completed and Company listed on Toronto Stock Exchange - Venture
* Barrick Gold Corporation converted its joint venture interest in to
equity
* Private placements with major mining investors including Teck and Anglo
totaling approximately US$120 million
* Heads of Agreement with Jan De Nul to build mining vessel
* Additional exploration applications lodged in Papua New Guinea, Fiji
and Tonga increasing the area covered by exploration licences and applications
to over 276,000km2
Corporate Developments
Reverse Take Over
On 9 May 2006, the Company announced the completion of the acquisition of all of
the securities of NMN and NMO, and related transactions. The securities of NMN
and NMO were acquired in exchange for 30,519,541 common shares; 900,000 stock
options; and 98,028 share purchase warrants of Nautilus. In addition, the
Company completed a private placement of 12,500,000 shares at C$2.00 per share
for gross proceeds of C$25 million.
Barrick Gold Corporation ("Barrick")
In July, 2006, the Company entered into an agreement with Barrick Gold
Corporation ("Barrick") whereby Barrick converted its interest in the Papua New
Guinea Solwara Joint Venture, which it owned through its subsidiary Placer Dome
Oceania, in to an equity stake in the Company. Under the agreement, affiliates
of Barrick transferred all their right, title and interest in the exploration
data, engineering data, software and equipment, including a trial seafloor
cutting machine and an airlift riser test rig, to Nautilus. Barrick released all
contractors, consultants and relevant staff so they could work with Nautilus
directly. On closing, the Solwara Joint Venture terminated and Placer Dome
transferred all its interests in the tenements to NMN. To preserve Nautilus's
first mover advantage of commercial seafloor sulphide exploration, Barrick
agreed to certain non-competition terms for a period of five years. Barrick also
agreed that, if a takeover bid is made for Nautilus which is recommended by the
Directors, it will either accept the bid or within 21 days, acting in a bona
fide manner, announce its intention to make its own bid for the outstanding
shares of Nautilus. Furthermore, if Barrick wishes to sell the shares to a third
party, other than through the facilities of a stock exchange, it will provide
Nautilus with 28 days notice of intention to sell and agrees to sell to a third
party introduced by Nautilus in that time frame on the same terms.
Nautilus issued to Barrick a special warrant that automatically converted into
4,783,163 common shares of Nautilus on 11 September 2006 which provided Barrick
with a 9.59% stake in the Company at that time. As at 28 March 2007 Barrick
holds a 3.7% stake in the Company.
Private Placements
(i) On 3 November 2006, the Company closed a non-brokered private placement of
22,833,334 common shares at a price of $3.00 per common share for gross proceeds
to the Company of $68.5 million. All securities are subject to a four-month hold
period in Canada that expired on 3 March 2007.
One of the placees was a wholly owned subsidiary of Anglo American PLC ("Anglo")
which invested $25 million.
In addition, the Company and Anglo signed a Heads of Agreement under which Anglo
may assist the Company in its development of Solwara and other projects by
seconding personnel with specialist skills to the project at Anglo's cost. The
seconded personnel would continue to be employed by Anglo but would report to
and be under the direction of the Company. Technical input by Anglo may take the
form of advice and expertise in exploration, geophysics, metallurgy, mining, sub
sea diamond mining technology and equipment and operating experience related
thereto. For the five year term of the Agreement, and subject to Anglo entering
in to a non-compete agreement, the Company would offer to Anglo the opportunity
to enter in to a joint venture should the Company consider entering into a joint
venture on any areas over which it held exploration rights or applications for
such rights on 20 October 2006.
Anglo was granted an anti-dilution right permitting Anglo to subscribe for
shares representing up to 11.1% of the issued shares on 31 October 2008. The
purchase price for the additional shares issued pursuant to this anti-dilution
right shall be: (a) for than number of addition shares that would provide Anglo
with a proportionate shareholding which represents 8.9% of the issued share
capital of the Company, the greater of the closing price of the Common Shares on
the TSX-V on 31 October 2008 less a 15% discount and 1.1 times the volume
weighted average trading price of all the shares traded during the month of
October 208 on all exchanges on which the Company's securities are traded; and
(b) for the remainder of the additional shares, a 10% premium to the price
determined under (a).
The Company also granted anti-dilution rights to Epion Holdings which would
allow the investor to maintain a 19.9% shareholding. In addition, the Company
granted certain price protection rights to Epion that will be triggered if the
Company issues common shares at a price less than US$3.00. These rights have
since lapsed.
The Company issued 1,450,000 warrants exercisable at US$3.00 per warrant within
2 years from the date of the private placement as part of a Finder's Fee
Agreement for the above placement.
(ii) On 12 December 2006, the Company closed a non-brokered private placement of
9,425,758 common shares at a price of $3.30 per common share for gross proceeds
to the Company of US$31.1 million. All securities are subject to a four-month
hold period in Canada that expires on 12 April 2007.
One of the placees was Teck Cominco Limited ("Teck") which invested $25 million.
In addition the Company issued to Teck 3,750,000 warrants exercisable at US$5.00
per warrant until 1 June 2008. An additional 185,000 warrants exercisable at
US$3.00 within 2 years from the date of the private placement were also issued
as a Finders' Fee pursuant to the Agreement referred to above.
The Company granted to Teck an anti-dilution right that enabled it to elect to
subscribe for shares to maintain its percentage ownership in the Company at the
lesser of 8.08% and Teck's actual percentage shareholding immediately prior to a
diluting issue of shares. The anti-dilution right shall terminate if the Company
is subject of a successful takeover or when Teck owns less than 5% of the issued
shares.
Further to the private placement, Teck has committed to pay US$12 million as
part of an option to form joint ventures with the Company. To exercise the
option, Teck Cominco must, before 1 June 2008, purchase an additional US$15
million of shares by either exercising all of its US$5.00 warrants or
subscribing for a US$15 million private placement of shares at the volume
weighted average price of those shares for the 30 days prior to Teck making its
election.. Upon exercise and commitment to a minimum exploration spend, Teck
Cominco will have the exclusive right, for a term of five years, to form joint
ventures on tenements acquired by Nautilus in certain countries since 20 October
2006 ("New Tenements"). Teck Cominco can earn a 40% interest in New Tenements in
each of the following four areas: Bismark Sea Papua New Guinea, Solomon Sea
Papua New Guinea, Fiji and Tonga, by spending US$25 million in each such chosen
area within 2 years of making such choice. Once Teck Cominco has chosen an area,
it would be obliged to spend not less than US$12.5 million in such area before
it can withdraw with no residual interest. Upon earning a 40% interest in an
area, Teck Cominco may earn an additional 10.1% in each selected Project Area
(defined as an area 100 sq km to 200 sq km) within the New Tenements by spending
US$10 million on each Project Area within 18 months of earning a 40% interest.
Teck Cominco may also earn a 50.1% interest in New Tenements in certain other
countries and an additional 9.9% in selected project areas in these countries
for the same expenditures detailed above.
AIM Admission
On 30 January 2007 the Company announced that it had entered into an agreement
with Numis Securities Limited ("Numis") in which Numis agreed to underwrite the
equity capital offering announced on 22 December 2006 under which the Company
raised gross proceeds of US$100 million through the issue of 27,438,606 common
shares ("New Shares"), including 5,499,109 common shares to Epion Holdings
Limited ("Epion"), at a price of UK185 pence per share (the "Placing"). In
conjunction with the Placing, the Company was admitted for trading of all of its
issued common shares on AIM, a market operated by the London Stock Exchange plc
("Admission") on 2 February 2007.
Numis received a cash commission of 5% of the gross proceeds of the Placing
(excluding the gross proceeds resulting from the shares acquired by Epion) and
broker warrants entitling it to purchase an aggregate of 549,395 common shares
at a price of UK231 pence at any time within 24 months after closing. M&A
Advisors received a 10% cash commission on the gross proceeds resulting from the
common shares acquired by Epion and broker warrants entitling it to purchase an
aggregate of 549,910 commons shares at a price of UK215 pence.
The net proceeds of the offering will be used to advance the Company's
exploration and development activities at the Solwara Projects in Papua New
Guinea and the other areas in the western Pacific Ocean Region, and for general
working capital purposes.
North American Private Placement
On 20 February 2007 the Company and a syndicate of agents led by Salman Partners
Inc. and including BMO Capital Markets, GMP Securities L.P., TD Securities Inc.,
Blackmont Capital Inc. and Westwind Partners Inc. completed a brokered private
placement of 20,344,850 Units at C$4.35 per Unit for gross proceeds of up to
C$88.5 million (the "Offering").
Each Unit consisted of one common share of the Company and one-half of one
warrant of the Company. Each whole warrant ("Warrant") entitles the holder to
purchase one additional common share of the Company at a price of C$5.655 per
share for a period of 24 months following the Closing. In the event that the
volume weighted average price of the Company's common shares on the TSX-V
exceeds C$6.525 for a period of at least 20 trading days, Nautilus will have the
right to give notice to the holders of Warrants that the Warrants will expire if
not exercised within 30 days, provided that such notice may not be given until
the date that is four months and one day after the Closing.
The agents received a 5% cash commission of the gross proceeds of the offering
on the closing and broker warrants exercisable for 368,449 common shares at a
price of C$5.655 per share prior to 21 February, 2009.
The net proceeds of the offering will be used to advance the Company's
exploration and development activities at the Solwara Projects in Papua New
Guinea and the other areas in the western Pacific Ocean Region, and for general
working capital purposes.
Exploration Developments
Exploration License Applications
On 20 November 2006, the Company announced that following a geological targeting
program it has lodged 47 exploration license applications covering prospective
areas of the Bismarck Sea in Papua New Guinea. These new applications cover a
belt of 800km long by up to 500km across being an area of 108,295Km2 which with
the current granted Nautilus titles and previously lodged applications will
provide Nautilus with rights to 122,309 Km2 of prospective acreage in offshore
Papua New Guinea.
On 22 December 2006 the Company announced it had lodged 25 Exploration License
applications covering prospective areas of the Solomon Sea in Papua New Guinea.
These new applications, which were in addition to the 47 applications announced
on 20 November, cover an area of 63,950 km2 and brings to 186,343km2 the total
area held by Nautilus under exploration license or license application in PNG.
On 8 January 2007, the Company announced that, following a geological targeting
program covering the SW Pacific, it has lodged 18 prospecting license
applications within the Exclusive Economic Zone of the Kingdom of Tonga, and a
further two special prospecting licenses within the Exclusive Economic Zone of
Fiji.
The applications cover a combined area of approximately 90,000km2. Approximately
half of the licenses are subject to potential joint venture under the Teck
Cominco deal announced on 7 December 2006.
Drilling Program
On 18 January 2007, the Company announced that it contracted Canyon Offshore, a
member of the Helix Group and a leading service provider to the offshore oil and
gas and telecommunications industries, to provide the vessel, Remote Operated
Vehicle ("ROV"), and drilling equipment for a major exploration, evaluation
drilling and environmental base line study program, which commenced in March
2007, over its Solwara Projects in Papua New Guinea.
The program involves between 160 and 210 days on the water, and started with
environmental baseline studies at the Company's Solwara 1 Prospect before moving
to geophysical target generation throughout the Bismarck and Solomon Seas where
the Company will target further mineralised systems.
Following this work, drilling is planned to start on the Solwara 1 prospect in
July 2007 to generate information for mine planning purposes. This drilling will
utilize two ROV drill units currently being.
Summary of Quarterly Results
The following table sets out selected unaudited quarterly financial information
of Nautilus and is derived from unaudited quarterly consolidated financial
statements prepared by management. The Company's interim consolidated financial
statements are prepared in accordance with Canadian generally accepted
accounting principles and expressed in US dollars.
Period Revenues Income (Loss) Basic and
------------- ---------- from Continuing Diluted Income
Operations and (Loss) per
Net Income Share from
(Loss) in Continued
Millions Operations and
-------------- Net Income
(Loss)
-------------
4th Quarter 2006 Nil $(4.6) $(0.07)
3rd Quarter 2006 Nil $(2.0) $(0.04)
2nd Quarter 2006 Nil $(1.5) $(0.04)
1st Quarter 2006 Nil $(0.7) $(0.01)
4th Quarter 2005 Nil $(0.2) $(0.01)
3rd Quarter 2005 Nil $(0.4) $(0.01)
2nd Quarter 2005 Nil $(0.05) $0.00
1st Quarter 2005 Nil $(0.0) $0.00
4th Quarter 2004 Nil $(0.1) $0.00
3rd Quarter 2004 Nil $(0.1) $0.00
------------- ---------- -------------- -------------
Results of Operations
The following discussion provides an analysis of the financial results of
Nautilus:
For the Year Ended 31 December 2006
Loss for the period
The Company prepares its consolidated financial statements in accordance with
accounting policies and practices generally accepted in Canada ("Canadian GAAP")
and in U.S. dollars. For the year ended 31 December 2006 the Company recorded a
loss of $8.7 million ($0.16 loss per share) as compared to a loss of $0.6
million ($0.01 loss per share) for the same period in 2005. The increase in the
net loss for the period was primarily attributable to an increase in exploration
expenditures and an increase in stock-based compensation. In accordance with the
Company's accounting policy of expensing mineral property costs in the period in
which they occur, the Company recorded an expense of $4.2 million (2005 - $0.1
million) in exploration costs. Additional costs for the period included expenses
associated with the reverse take-over and an increase in general and
administrative costs including non-cash stock compensation expense of $1.9
million (2005 - $0.1 million). Nautilus' expenses increased to $9.9 million for
the year ended 31 December 2006, up from $0.7 million for the same period in
2005.
Operating expenses
General administrative expense in the year ended 31 December 2006 excluding
non-cash stock based compensation expenses was $3.7 million compared with $0.3
million for the year ended 31 December 2005. The Company reported an increase in
expenditures for: professional fees of $1.5 million (2005 - $0.1 million) owing
to increased legal and other advisory fees related to the reverse take-over;
management fees and salaries of $0.4 million (2005 - $0.05 million) as a result
of increased activity at both the corporate and project level and management
fees paid to assist the Company in the listing process; shareholder information
of $0.4 million (2005 - $0.1 million) resulting from increased investor
relations costs; and travel of $0.3 million (2005 - $nil) a result of increased
travel related to corporate development and investor relations activity.
Additionally, the total administrative expenses were offset by $1.2 million
(2005 - $0.01 million) of interest earned on cash balances. The Company
maintains its cash and short-term investments in institutions with high credit
worthiness.
Liquidity and Capital Resources
Cash Flows - 2006
Nautilus had cash and cash equivalents of $112.4 million at 31 December 2006 as
compared with $1.5 million at 31 December 2005. Nautilus had working capital of
$111.6 million and $2.1 million as 31 December 2005.
During the current year, the Company received net cash proceeds of $115.4
million from private placements.
Cash used in operating activities in the year ended 31 December 2006 was $6.3
million as compared to cash flows from operating activities of $0.7 million for
the year ended 31 December 2005. The increase in cash used in operating
activities is a consequence of the expenditures described above.
Cash used in investing activities in the year ended 31 December 2006 was $0.3
million as compared to $nil in the year ended 31 December 2005. The cash used in
investing activities consisted of $0.2 million incurred for purchase of
equipment, primarily to facilitate the set-up of offices in Australia, and $0.1
million in restricted cash used to secure operating leases, offset by $0.04
million of cash acquired on acquisition of Nautilus Minerals Inc.
Cash from financing activities in the year ended 31 December 2006 was $117.6
million as compared to $2.1 million in the year ended 31 December 2005. The cash
from financing activities was comprised of $115.4 million from private
placements and the exercise of stock options, net of share issuance costs and
deferred charges that closed on 8 May 2006, $0.7 million from the repayment of a
note receivable and interest received of $1.2 million offset by $0.2 million of
loan repayments.
Capital Requirements
The Company is involved in mineral exploration which is a high risk activity and
relies on results from each exploration program to determine if particular areas
justify any further exploration and the extent and method of appropriate
exploration to be conducted.
The Company is considering the funding of additional exploration during 2007 on
regional exploration programs in the first half of 2007 and potential drilling
second half 2007which could involve an expenditure of over $10 million .
Based on the current tenements that have been granted as at 28 March 2007, the
Company has minimum expenditure commitments on its tenements in Papua New
Guinea, amounting to approximately 5.5 million Kinas ($1.75 million) during
2007.
If exploration results and engineering studies are positive, the Company may
consider committing to a detailed engineering study. The Company may consider
further increases in staffing levels should the project develop.
The Company may also need to obtain significant additional capital to develop
any of its exploration properties and debt financing may not be obtainable for a
project such as that contemplated. The Company may be forced to rely on the
equity markets for future financing of the Company's development of Solwara 1,
2,3 and 4, or divest equity in the projects or financing from offtake
agreements.
Contractual Arrangements
On 4 October 2006, the Company announced it had entered in to a Heads of
Agreement with Belgium based Jan De Nul ("JDN"), one of the world's leading
international dredging companies. Under the agreement, JDN would construct, at
its cost, a specialized deep sea mining vessel for the Company's Solwara Project
in Papua New Guinea ("PNG"). The 191 metre vessel, to be named the "Jules
Verne", is expected to be completed in 2009 to meet the Company's target of
commencing commissioning of mining operations in late 2009, subject to PNG
government approval.
JDN would build, own and operate the mining ship, and will provide barges, tugs
and operational capability in its role as mining contractor for the Solwara 1
Project. The Company would provide the capital (budget estimate of $120 million)
for two sub sea miners, power umbilicals, pumps, 1,800m riser pipe and related
handling equipment. JDN would reimburse the Company over time for this capital
by rebating 6.5% of each monthly contract mining invoice, effectively purchasing
the equipment from the Company.
Ore production rates, and consequently mining costs, will vary due to natural
variations in material hardness across the deposit, the Heads of Agreement
anticipates a per ton rate of Euro58 for mining and delivery of the ore to the
concentrator, based on an annual production of 1.8 million tons per annum or
6,000 tons per day allowing for two months annual service and maintenance of the
offshore mining spread. The contract mining costs are fixed at 2009 with a 1%
compounding escalation for 2010 onwards. The fuel price component of the above
mining costs is based on an August 2006 price and the terms provide for a
variation, both up and down, from this level. It is proposed to formalize a
detailed Works Contract by 1 July 2007 and the Heads of Agreement contemplates
that the term of the Works Contract could be for an initial 8 million tons,
renewable thereafter annually at the Company's election.
To integrate with the offshore mining, the Company commissioned an
order-of-magnitude (+/-35%) capital and operating cost estimate for a PNG
land-based concentrator by Ausenco, a leading Australian engineering and project
delivery firm. The indicative cost for a 2Mtpa concentrator, associated port
facility and other directly related infrastructure was estimated at $160 million
(excluding land acquisition, site devolvement and access, environmental
requirements and owners costs) with an operating cost of $13.70/t ore treated,
based on recent experience on similar projects and assuming normal recoveries in
a typical flotation plant.
Outlook
We expect that the cash and cash equivalents will be sufficient to pay for the
continued budgeted exploration and general and administrative costs of the
Solwara 1 Project through the end of 2007. Depending upon future events, the
rate of expenditures and other general and administrative costs could increase
or decrease. Other than as disclosed above, we have not attempted to source
additional financing to fund future expenditures extending beyond 2007.
However, in the event that the pace of expenditures increases, we may secure
future financing from the issuance of additional equity, debt, or from other
sources.
Risks
Nautilus' opinion concerning liquidity and its ability to avail itself in the
future of the financing options mentioned in the above forward-looking
statements are based on currently available information. To the extent that this
information proves to be inaccurate, future availability of financing may be
adversely affected. Factors that could affect the availability of financing
include Nautilus' performance (as measured by various factors including the
progress and results of its exploration work), the state of international debt
and equity markets, investor perceptions and expectations of past and future
performance, the global financial climate, metal and commodity prices political
events in the south Pacific, and drilling and metallurgical testing results.
Foreign Currency Exchange Rate Risk
The Company's business activities are located in several different countries,
including Canada, Australia and Papua New Guinea. Nautilus' future profitability
could be affected by fluctuations in foreign currencies relative to the United
States dollar, Canadian dollar, Australian dollar, Euro and Papua New Guinea
Kina. The Company has not entered into any foreign currency contracts or other
derivatives to establish a foreign currency protection program.
Related Party Transactions
Included in directors' and management fees is $0.2 million (2005: $0.03 million)
for management fees paid to a company controlled by a director.
Included in professional fees is $0.07 million (2005 - $0.07 million) for legal
fees paid to a company controlled by a director.
Included in accounts payable and accrued liabilities is $0.01 million (2005 -
$nil) for amounts owed to a company controlled by a director of the Company for
management fees.
Critical Accounting Policies
The details of the Company's accounting policies are presented in Note 2 of the
consolidated financial statements for the year ended 31 December 2006. The
following policies are considered by management to be essential to understanding
the processes and reasoning that go into the preparation of the Company's
financial statements and the uncertainties that could have a bearing on its
financial results:
Resource Properties
Acquisition costs are capitalized as incurred. Exploration costs are expensed as
incurred since the Company is in the process of exploring its mineral tenements
and has not yet determined whether these properties contain ore reserves that
are economically recoverable. If and when Nautilus' management determines that
economically extractable mineral reserves have been established, the subsequent
costs incurred to develop such property, including costs to further delineate
the ore body will be capitalized.
Disclosure Controls and Procedures
Management has evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures during the period covered by this
Management Discussion and Analysis and has concluded that they provide
reasonable assurance that information required to be disclosed by the Company is
recorded, processed, summarized and reported within the appropriate timescales
Internal Control Over Financial Reporting
Management has evaluated the design of the Company's internal controls over
financial reporting during the period covered by this Management Discussion and
Analysis, and has determined that the internal controls over financial reporting
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP.
Outstanding Share Data
The following is a summary of the Company's outstanding share data as of 28
March 2007.
Common Shares
A total of 130,166,284 common shares are outstanding.
Convertible Securities
The Company now has 7,881,298 options and 17,171,818 warrants outstanding.
A total of 17,171,818 warrants are issued and outstanding, with each warrant
entitling the holder to purchase one common share of the Company with expiry
dates ranging from 3 May 2008 through to 21 February 2009 at prices ranging from
C$1.10 to C$5.66 per share, US$3.00 to US$5.00 and #2.15 to #2.31 .
A total of 7,881,298 stock options are issued and outstanding, with expiry dates
ranging from 2 November 2007 through November 13, 2010. The weighted average
exercise price for all stock options is C$2.90. All stock options entitle the
holders to purchase common shares of the Company.
Additional Sources of Information
Additional sources of information regarding Nautilus Minerals Inc. is on SEDAR
at www.sedar.com and is on the Company's website www.nautilusminerals.com
NAUTILUS MINERALS INC.
Audited Consolidated Financial Statements for the Year 31 December 2006
(US dollars, in accordance with Canadian GAAP)
AUDITORS' REPORT
To the Shareholders of Nautilus Minerals Inc.
We have audited the consolidated balance sheet of Nautilus Minerals Inc. as at
December 31, 2006 and 2005 and the consolidated statements of income, retained
earnings and cash flows for the years then ended. These consolidated 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, 2006
and 2005 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
(Signed) PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C. Canada
March 28, 2007
Consolidated Balance Sheets
----------- -----------
31 December 31 December
2006 2005
$ $
(note 1)
----------- -----------
Assets
Current assets
Cash and cash equivalents 112,356,865 1,475,512
Promissory note (note 7) - 730,100
Prepaid expenses and advances 285,178 14,816
----------- -----------
112,642,043 2,220,428
Restricted cash (note 2) 101,674 -
Property, plant and equipment, 212,564 -
(net of accumulated amortization of $27,567) (note 5)
Mineral properties (note 6) 12,213,367
Deferred charges - 285,807
----------- -----------
125,169,648 2,506,235
=========== ===========
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 8) 998,207 100,108
----------- -----------
Shareholders' Equity
Share capital (note 9) 126,257,367 4,472,809
Contributed surplus (note 9) 8,960,282 239,738
Deficit (11,046,208) (2,306,420)
----------- -----------
124,171,441 2,406,127
----------- -----------
125,169,648 2,506,235
=========== ===========
Commitments (note 11)
Subsequent events (note 12)
On behalf of the Board:
Signed: David De Witt
--------------------------------
Signed: David Heydon
--------------------------------
Consolidated Statements of Operations and Deficit
----------- ----------
Year Year
ended ended
31 December 31 December
2006 2005
$ $
----------- ----------
Expenses
Exploration costs 3,280,937 283,918
Stock-based compensation (note 9(d)) 3,001,000 131,830
Professional fees 1,523,096 137,099
Management fees and salaries 423,410 49,769
Shareholder information 376,509 61,263
Travel 291,518 -
Wages and salaries 365,965 -
General administrative 222,590 59,490
Listing and filing fees 158,277 -
Depreciation 27,567 -
Foreign exchange loss (gain) 277,115 (36,372)
----------- ----------
9,947,984 686,997
----------- ----------
Other Income
Interest income 1,158,196 7,920
Recovery of exploration costs 50,000 67,339
----------- ----------
1,208,196 75,259
Loss for the year 8,739,788 611,738
Deficit - Beginning of year 2,306,420 1,694,682
----------- ----------
Deficit - End of year 11,046,208 2,306,420
=========== ==========
Loss per share - basic and diluted $0.16 $0.01
=========== ==========
Weighted average number of shares outstanding 53,513,241 50,190,917
=========== ==========
Consolidated Statements of Cash Flows
----------- ---------
Year Year
ended ended
31 December 31 December
2006 2005
$ $
----------- ---------
Cash flows used in operating activities
Loss for the year (8,739,788) (611,738)
Interest income (1,158,196) (7,920)
Items not affecting cash
Stock-based compensation 3,001,000 131,830
Shares issued for services - 33,886
Depreciation 27,567 -
Change in non-cash working capital items
Prepaid expenses and advances (261,580) (14,816)
Accounts payable and accrued liabilities 802,406 (191,238)
----------- ---------
(6,328,591) (659,996)
----------- ---------
Cash flows from financing activities
Share capital issued 115,412,755 3,143,495
Deferred financing costs 445,552 (285,807)
Loan payable (199,213) -
Promissory note receivable 730,100 (730,100)
Interest income 1,158,196 7,920
----------- ---------
117,547,390 2,135,500
----------- ---------
Cash flows used in investing activities
Cash acquired on acquisition of Nautilus Minerals
Inc. 4,359 -
Restricted cash (101,674) -
Purchase of equipment (240,131) -
----------- ---------
(337,446) -
----------- ---------
Increase in cash and cash equivalents 110,881,353 1,475,512
-
Cash and cash equivalents - Beginning of year 1,475,512 -
----------- ---------
Cash and cash equivalents - End of year 112,356,865 1,475,512
=========== =========
Non-cash investing and financing activities
Shares issued for acquisition of Nautilus Minerals
Inc. (749,299) -
=========== =========
Stock-based compensation 3,001,000 131,830
=========== =========
Common shares issued for mineral properties 12,213,367 -
=========== =========
Notes to Consolidated Financial Statements
1. Basis of Presentation, Operations and Subsidiaries
Basis of Presentation
These consolidated financial statements have been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("Canadian GAAP").
These consolidated financial statements are presented in United States Dollars
("USD"), the functional and presentational currency of the Group. They are
prepared on a historical cost basis and do not take into account changing money
values or, except where stated, current valuations of non-current assets.
Operations
Nautilus Minerals Inc. (the "Company", "Nautilus" or "NMI") is engaged in the
exploration of the ocean floor for gold - copper and zinc seafloor massive
sulphide deposits. The Company is an enterprise in the exploration stage. The
exploration activity involves exploration of underwater gold - copper and zinc
deposits in the western Pacific Ocean. The Company's main focus for 2006 was the
Solwara Project, Papua New Guinea. The planned principal operations of the
Company will be the production of gold and copper deposits where there are
economically viable discoveries.
On 8 May 2006, the Company acquired all of the issued and outstanding shares of
Nautilus Minerals Niugini Limited ("NMN") (formerly Nautilus Minerals
Corporation) and Nautilus Minerals Oceania Limited ("NMO"), by issuing
30,519,541 common shares to the shareholders of NMN and NMO. NMN and NMO are
treated as the combined acquirer, as they were under common control at the time
of acquisition, and were issued an equal amount of shares. Since the
shareholders of NMN and NMO acquired 94.5% of the outstanding common shares of
Nautilus, the transaction is accounted in accordance with Canadian Institute of
Chartered Accountants' Emerging Issues Committee Abstract 10 - Reverse Takeover
Accounting. Accordingly:
* The transaction shares were recorded at the fair value of the net assets
of NMI, which has been determined to be the net book value of NMI.
* The consolidated financial statements of the combined entity are issued
under the name of the legal parent, being NMI, but are a continuation of the
historical combined financial statements of the NMN and NMO.
* NMN and NMO is deemed to be the acquirer for accounting purposes and, as
such, its assets and liabilities are included in the consolidated financial
statements of the combined entity at their historical carrying values.
* The accumulated deficit of NMI as at 8 May 2006 has been eliminated.
* The capital structure of the Company is that of NMI, but the dollar
amount of the issued share capital in the consolidated balance sheet immediately
prior to the acquisition is that of NMN and NMO, plus the value of shares issued
by NMI to acquire NMN and NMO, plus the value of any shares issued by the
Company subsequent to the transaction.
* For the results of operations for the year ended 31 December 2006, NMN
and NMO results are included from 1 January 2006 to 31 December 2006, for NMI
from 9 May 2006 to 31 December 2006.
* At the date of the acquisition, the value of the identifiable net assets
of NMI was as follows:
Assets
Cash $ 4,359
Prepaid expenses and advances 8,782
----------
13,141
----------
Liabilities
Accounts payable and accrued liabilities 95,693
Loans payable 199,213
----------
294,906
----------
Net Assets Acquired $ (281,765)
==========
In connection with the reverse takeover transaction, the Company changed its
name from Orca Petroleum Inc. to Nautilus Minerals Inc.
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of
more than one half of the voting rights or otherwise has power to govern the
financial and operating policies, are consolidated. The existence and effect of
potential voting rights that are presently exercisable or presently convertible
are considered when assessing whether the Group controls another entity.
Intercompany transactions, balances, income and expenses are eliminated on
consolidation.
These consolidated financial statements include the accounts of the Company
(Canada) and its wholly owned subsidiaries NMN (Papua New Guinea), NMO
(Vanuatu), Nautilus Minerals Pacific Pty Ltd. (Australia), Nautilus Minerlas
Niugini 2 Limited (Papua New Guinea), Nautilus Minerals Niugini 3 Limited (Papua
New Guinea), Nautilus Minerals Niugini 4 Limited (Papua New Guinea), Nautilus
Minerals Niugini 5 Limited (Papua New Guinea), Nautilus Minerals Offshore
Limited (Vanuatu), Nautilus Minerals Offshore 1 Limited (Vanuatu), Nautilus
Minerals Offshore 2 Limited (Vanuatu), Nautilus Minerals Offshore 3 Limited
(Vanuatu), Nautilus Minerals Offshore 4 Limited (Vanuatu), Nautilus Minerals
Offshore 5 Limited (Vanuatu), Nautilus Minerals Offshore 6 Limited (Vanuatu),
Nautilus Minerals Offshore 7 Limited (Vanuatu), Nautilus Minerals Offshore 8
Limited (Vanuatu), Nautilus Minerals Offshore 9 Limited (Vanuatu), Nautilus
Minerals Offshore 10 Limited (Vanuatu), Nautilus Minerals Offshore 11 Limited
(Vanuatu), Nautilus Minerals Offshore 12 Limited (Vanuatu), Nautilus Minerals
Fiji Pty Ltd. (Fiji) and Nautilus Minerals USA (USA).
2. Significant Accounting Policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to prior periods, unless otherwise stated.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include amounts held in banks and highly liquid investments with
maturities at point of purchase of 90 days or less. The Company places its cash
with institutions of high credit worthiness.
Restricted Cash
Restricted cash of $101,674 has been provided as security for two leases.
$50,248 is being held on deposit at the National Australian Bank as security for
the office lease for Nautilus Minerals Pacific Pty Ltd. $51,426 is being held on
deposit at the Australia New Zealand Banking Group Limited in Papua, New Guinea
as security for a vehicle that has been leased by the Company. The funds are
restricted until the expiration of the leases being 30 May 2009 and 10 August
2009 respectively.
Mineral Properties
The Group expenses all exploration and evaluation expenditures until management
conclude that a future economic benefit is more likely than not of being
realised, ie. probable. In evaluating if expenditures meet this criterion to be
capitalised, management utilise several different sources of information
depending on the level of exploration. While the criteria for concluding that an
expenditure should be capitalised is always probable the information that
management use to make that determination depends on the level of exploration.
Costs relating to property acquisitions are capitalised. These costs are
capitalised within development costs.
Costs for a producing prospect are amortised on a unit-of-production method
based on the estimated life of the ore reserves, while those costs for the
prospects abandoned are written off.
The recoverability of the amounts capitalised for the undeveloped mineral
properties is dependent upon the determination of economically recoverable ore
reserves, confirmation of the Company's interest in the underlying mineral
claims, the ability to obtain the necessary financing to complete their
development, and future profitable production or proceeds from the disposition
thereof.
The Company assesses its capitalised resource property costs on a regular basis.
An impairment loss is recognised for the amount by which the carrying amount of
the asset exceeds its recoverable amount, which is the higher of fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets
are grouped at the lowest level for which there are separately identifiable cash
flows.
Property, Plant and Equipment
Equipment is carried at cost and depreciation is calculated over the estimated
useful life of the assets on a straight-line basis as follows:
----------------
Estimated useful life
(in years)
----------------
Leasehold improvements 3
Computer equipment 3
Computer software 1 - 2.5
Office equipment (Australia) 10 - 20
Tradeshow display equipment (Canada) 4
----------------
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of the
asset. Gains and losses on disposals are determined by comparing the proceeds
received with the carrying amount of the asset and are included in the income
statement. Any gain or loss on derecognition of the asset and are included in
the income statement in the period of derecognition.
Repairs and maintenance are charged to the income statement during the financial
period in which they are incurred. The cost of major renovations is included in
the carrying amount of the asset when it is probable that future economic
benefits in excess of the originally assessed standard of performance of the
existing asset will flow to the Group. Major renovations are depreciated over
the remaining useful life of the related asset.
Impairment of Non-current Assets Other than Mineral Properties
Property, plant and equipment and intangible assets (excluding goodwill), are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the carrying amount of
the asset exceeds its recoverable amount, which is the higher of fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets
are grouped at the lowest level for which there are separately identifiable cash
flows.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Any
impairment loss is recognised immediately in the income statement.
Deferred Charges
Deferred charges include expenditures incurred in connection with the
acquisition of NMI and have been included in the cost of acquisition of NMI.
Management's Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of accrued liabilities, share capital, contributed
surplus, share issuance costs and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
stock-based compensation during the reported periods. Actual results could
differ from those estimates.
Foreign Currency Translation
Functional and presentation currency
The consolidated financial statements are presented in United States Dollars,
which is the functional and presentation currency of Nautilus Minerals Inc.
Transactions and balances
Foreign currency transactions are accounted for at the rates of exchange ruling
at the date of the transaction. Monetary assets and liabilities are translated
at year-end exchange rates. Gains and losses arising on settlement of such
transactions and from the translation of foreign currency monetary assets and
liabilities are recognized in the income statement.
Income Taxes
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. Deferred income tax is
measured at tax rates that are expected to apply in periods in which the
temporary differences reverse based on tax rates and law enacted or
substantively enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries, associates and joint ventures, except where the timing of the
reversal of the temporary difference can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable future.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income (or loss)
attributable to common shareholders by the weighted average number of common
shares outstanding during the period. The computation of diluted earnings per
share assumes the conversion, exercise or contingent issuance of securities only
when such conversion, exercise or issuance would have a dilutive effect on
earnings per share. The dilutive effect of outstanding options and warrants and
their equivalents is reflected in diluted earnings per share by application of
the treasury stock method. During years when the Company has generated a loss,
the potential shares to be issued from the assumed exercise of options and
warrants are not included in the computation of diluted per share amounts since
the result would be anti-dilutive.
Share Capital
Ordinary shares are classified as equity.
Incremental external costs directly attributable to the issue of new ordinary
shares, other than in connection with business combinations, are shown in equity
as a deduction, net of tax, from the proceeds.
Stock Based Compensation
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date at which they are granted and is recognised as an
expense over the vesting period.
None of the Group's equity-settled transactions have any market based
performance conditions.
Fair value for equity-settled share based payments is estimated by use of the
Black-Scholes pricing model.
At each balance sheet date, before vesting, the cumulative expense is calculated
based on management's best estimate of the number of equity instruments that
will ultimately vest. The movement in this cumulative expense is recognised in
the income statement, with a corresponding entry in equity.
Where an equity-settled award is cancelled by the Group, it is treated as if it
had vested on the date of cancellation and any cost not yet recognised in the
income statement for the award is expensed immediately. Any compensation paid up
to the fair value of the award at the cancellation or settlement date is
deducted from equity, with any excess over fair value being treated as an
expense in the income statement.
The proceeds from the exercise of stock options and warrants, in addition to the
estimated fair value attributable to those options and warrants exercised, are
recorded as share capital in the amount for which the options or warrants were
exercised.
Segment Reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments.
A geographical segment is engaged in providing products or services within a
particular economic environment that are subject to risks and returns which are
different from those of segments operating in other economic environments.
Due to the nature of the Group's operations, the Company has one business
segment, which operates in two different geographic locations.
3. Fair Value of Financial Instruments
Financial assets are classified, as appropriate, as financial assets at fair
value through profit or loss; loans and receivables; held to maturity
investments or as available for sale. The Company's financial instruments
consist of cash, accounts receivable, notes receivable and accounts payable.
Unless otherwise noted, it is management's opinion that the Company is not
exposed to significant interest currency or credit risks arising from the
financial instruments. The fair value of these financial instruments
approximates their carrying value due to their short-term maturity or capacity
of prompt liquidation.
The Group determines the classification of its financial assets at initial
recognition. When financial assets are recognised initially, they are measured
at fair value, normally being the transaction price plus, in the case of
financial assets not at fair value through profit or loss, directly attributable
transaction costs. The subsequent measurement of financial assets depends on
their classification, as follows:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market, do not qualify as
trading assets and have not been designated as either fair value through profit
or loss or available-for-sale. Such assets are carried at amortised cost using
the effective interest method. Gains and losses are recognised in the income
statement when the loans and receivables are derecognised or impaired, as well
as through the amortisation process.
Financial liabilities
When a financial liability is recognised initially, the Group measures it at its
fair value plus, in the case of a financial liability not measured at fair value
with changes in value through profit or loss, transaction costs that are
directly attributable to the issue of the financial liability. Financial
liabilities include trade payables, other payables and accrued liabilities.
Fair values
The fair value of quoted investments is determined by reference to appropriate
market prices at the close of business on the balance sheet date. Where there is
no active market, fair value is determined using valuation techniques. These
include using pricing models and discounted cash flow analysis. Otherwise assets
are carried at cost.
Interest rate risk
The Company holds cash and cash equivalents whch earn interest at variable rates
as determined by financial institutions.
Credit risk
The Company only places its cash with institutions of high credit worthiness.
Foreign exchange risk
The Company holds cash balances and incurs payables that are denominated in
multiple foreign currencies, including Papua New Guinea Kinas, Australian
Dollars and Canadian Dollars. These balances are subject to changes in the
exchange rate between these currencies and the U.S. Dollar, which would result
in a currency gain or loss to the Company.
4. Income Tax
In Australia, Canada and Papua New Guinea, the Company has non-capital losses
for income tax purposes of approximately $4,020,920, which expire between 2014
and 2026.
The Company has incurred certain resource related expenditures of approximately
$2,180,978, which may be carried forward indefinitely and used to reduce
prescribed taxable income in future years.
Future income tax assets are not recorded for the above tax loss carry-forwards
due to complete uncertainty of their recovery. The tax losses may be subject to
audit and adjustment by local tax authorities as well as other local
regulations. Significant components of the Company's future income tax assets,
after applying enacted corporate income tax rates are as follows:
2006 2005
$ $
Non-capital losses 1,364,109 101,429
Unamortized share issue costs 1,042,194 -
Tax value of resource properties and plant and
equipment costs in excess of net book value of
resource property and plant and equipment 654,294 439,793
---------- --------
3,060,597 541,222
Less: Valuation allowances (3,060,597) (541,222)
---------- --------
- -
---------- --------
5. Equipment
Details are as follows:
-------- --------- --------- --------
Cost Accumulated 31 December 31 December
$ Amortization 2006 2005
$ $ $
---------- ---------- ---------- ---------
Leasehold improvements 71,133 11,725 59,408 -
Office equipment 39,265 1,010 38,255 -
Computer hardware 75,716 9,624 66,092 -
Computer software 50,141 4,627 45,514 -
Tradeshow display equipment 3,876 581 3,295 -
---------- ---------- ---------- ---------
240,131 27,567 212,564 -
========== ========== ========== =========
6. Mineral Properties
The Company has titles granted and applications lodged that provide the Company
with rights to 122,309 Km2 of prospective acreage in offshore Papua New Guinea.
In addition, the Company has lodged exploration applications in the exclusive
economic zones of Fiji and Tonga.
Farm-In Agreement with Placer Dome Oceania Limited and subsequent conversion to
Equity Interest
Pursuant to a farm-in agreement dated 12 October 2004, between Placer Dome and
NMN, Placer Dome provided Nautilus with access to its technical expertise and,
following Placer Dome's acquisition by Barrick Gold Inc, to the technical
expertise of one of the world's largest gold miners. Placer Dome has advised the
Company, they have spent over US$12.2 million in project expenditure under the
farm-in agreement which included mining trials and the completion of a major
drilling and sampling programme during January - February 2006 at Solwara 1, the
Company's most advanced project.
In August 2006 the Company entered into an agreement with Placer Dome to
terminate the farm-in agreement and convert its joint venture interest into an
equity interest in the Company. Pursuant to the terms of this termination
agreement, NMN acquired the remaining interest which Barrick held in the PNG
Licences in return for Barrick being issued with Common Shares representing what
was then a 9.59% stake in the Company. The Company thereby secured a 100%
interest in all the PNG Licences. In addition, pursuant to the terms of the
termination arrangements, Barrick transferred all of Placer Dome's expertise,
intellectual property, know-how, key consultants and relevant business
relationships to the Company, allowing the Company to itself thereafter manage
and operate the Solwara Projects. The value of the special warrants issued to
Barrick and exchanged for shares of the Company representing the 9.59% interest
in the Company have been determined to be $12,213,367, which was capitalized as
mineral property acquisition costs in the period.
7. Promissory Note
At 31 December 2005, the Company held a Promissory Note dated 20 May 2005 from a
significant shareholder whereby the shareholder agreed to pay the Company
AUD$1,000,000 by 30 June 2006 in return for common shares of each of NMN and
NMO.
On 4 July 2006, the Company issued a 60-day demand letter with regard to the
promissory note. In August of 2006, payment of the promissory note, plus accrued
interest, was received in full.
8. Related Party Transactions
Except as noted elsewhere in these financial statements, related party
transactions are as follows:
a) Included in management fees is $197,317 (2005: $28,185) for management
fees paid to a company controlled by a director.
b) Included in professional fees is $65,566 (2005 - $108,941) for legal
fees paid to firms in which a director is a partner.
c) Included in accounts payable and accrued liabilities is $9,738 (2005: $nil)
for amounts owed to a company controlled by a director of the Company for
management and consulting fees and $nil (2005: $14,632) for amounts owed to
firms in which a director is a partner for legal fees.
9. Share Capital
a) Details of share capital are as follows:
Authorized:
Unlimited common shares without par value
Shares Amount
$
------------- ---------
Issued and allotted
Balance 31 December 2005 4,472,809
Balance NMI shares pre-acquisition 12,442,892 -
Adjustment to shares issued in NMI as (10,369,076) -
at acquisition (6 for 1 consolidation) ------------- ---------
2,073,816 4,472,809
Shares issued on acquisition of NMI 30,519,541 (281,765)
(note 1)
Shares issued for cash - Private 44,759,092 117,411,234
placement
Fractional shares issued 51 -
Shares issued on exercise of options 220,250 272,680
Shares issued on exercise of special 4,783,163 12,213,367
warrant
Fair market value of options exercised - 139,104
Share issuance costs - (7,970,062)
------------- ---------
Balance - 31 December 2006 82,355,913 126,257,367
============= =========
b) The Company received shareholder and TSX-V approval to complete a one-for six
stock consolidation. All share information prior to the consolidation has been
restated to reflect the effects of the share consolidation.
On 8 May 2006, the Company completed a private placement of 12,500,000 common
shares at C$2 per share for gross proceeds of C$25,000,000. The shares were
subject to a four month hold period.
On 3 November 2006, the Company completed a private placement of 22,833,334
common shares at C$3.37 per share for gross proceeds of C$76,948,332. The shares
were subject to a four month hold period.
On 12 December 2006, the Company completed a private placement of 9,425,758
common shares at C$3.76 per share for gross proceeds of C$35,440,850. The shares
were subject to a four month hold period.
c) Details of contributed surplus:
---------
Amount
$
---------
Balance - 31 December 2005 239,738
Fair value of stock-based compensation 3,001,000
Fair value of warrants issued 5,858,648
Fair value of exercised options (139,104)
Issue of special warrant (note 4) 12,213,367
Transferred to share capital on exchange of special warrant for
common shares (12,213,367)
---------
Balance - 31 December 2006 8,960,282
=========
d) Share Purchase Options
The Company has established a share purchase option plan whereby the board of
directors may, from time to time, grant options to directors, officers,
employees or consultants. Options granted must be exercised no later than five
years from the date of grant or such lesser period as determined by the
Company's board of directors. The exercise price of an option must be determined
in accordance with the share purchase option plan. The board of directors must
determine the vesting period in accordance with the share purchase option plan.
Details of the plan are as follows:
--------- --------- ---------
Number of Weighted Expiry
options
average
exercise price
(in C$)
--------- --------- ---------
Balance - 31 December 2005 1,800,000 0.63 2007 to 2009
Acquired on acquisition of Orca 100,500 1.99 2007 to 2009
Granted 5,997,964 2.71 2007 to 2010
Exercised (220,250) 1.43 2009
Expired/cancelled (350,000) 2.20 2007 to 2009
--------- ---------
Balance - 31 December 2006 7,328,214 2.76 2007 to 2010
========= ========= =========
The following table summarizes information about stock options outstanding to
directors, officers, employees and consultants at 31 December 2006:
--------- --------- ---------
Expiry date Exercise price Number Number
exercisable
(in C$) outstanding
--------- --------- ---------
26 March 2007 2.40 26,917 26,917
2 November 2007 1.10 100,000 -
2 November 2007 1.50 50,000 -
8 May 2008 2.20 647,964 323,982
20 June 2008 1.10 150,000 37,500
20 June 2008 1.50 450,000 112,500
8 May 2009 2.20 2,190,000 458,000
25 June 2009 1.68 3,333 3,333
4 August 2009 2.20 250,000 -
5 September 2009 2.20 235,000 -
21 September 2009 1.94 20,000 -
6 November 2009 3.20 200,000 -
14 December 2009 5.80 20,000 -
20 December 2009 6.49 150,000 -
27 December 2009 6.22 400,000 -
13 November 2010 3.20 650,000 -
13 November 2010 3.20 1,560,000 -
1 August 2011 2.20 225,000 -
--------- ---------
7,328,214 962,232
========= ========= =========
On 8 May 2006, the Company granted 4,087,964 stock options to directors,
officers, consultants and employees of the Company. The stock options granted
entitle the holder to purchase common shares at various prices from C$1.10 to
$2.20 per common share. The stock options have various expiry dates between 2
November 2007 and 8 May 2009. 350,000 of these stock options were cancelled in
August 2006. The estimated value of the remaining stock options was C$3,470,840.
Of the estimated fair value, C$2,273,970 has been recognized to date.
On 1 August 2006, the Company granted 225,000 stock options to an officer of the
Company. The stock options granted entitle the holder to purchase common shares
at a price of C$2.20 per common share. The stock options have an expiry date of
1 August 2011. The estimated value of the stock options granted was C$261,908.
Of the estimated fair value, C$101,426 has been recognized to date.
On 4 August 2006, the Company granted 250,000 stock options to an employee of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$2.20 per common share. The stock options have an expiry
date of 4 August 2009. The estimated value of the stock options granted was
C$234,597. Of the estimated fair value, C$90,850 has been recognized to date.
On 5 September 2006, the Company granted 235,000 stock options to a consultant
and employee of the Company. The stock options granted entitle the holder to
purchase common shares at a price of C$2.20 per common share. The stock options
have an expiry date of 5 September 2009. The estimated value of the stock
options granted was C$243,556. Of the estimated fair value, C$94,319 has been
recognized to date.
On 21 September 2006, the Company granted 20,000 stock options to a consultant
of the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$1.94 per common share. The stock options have an expiry
date of 21 September 2009. The estimated value of the stock options granted was
C$17,823. Of the estimated fair value, C$6,902 has been recognized to date.
On 6 November 2006, the Company granted 200,000 stock options to a consultant of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$3.20 per common share. The stock options have an expiry
date of 6 November 2009. The estimated value of the stock options granted was
C$260,620. Of the estimated fair value, C$40,371 has been recognized to date.
On 13 November 2006, the Company granted 2,210,000 stock options to directors,
officers, consultants and employees of the Company. The stock options granted
entitle the holder to purchase common shares at a price of $3.20 per common
share. The stock options have an expiry date of 13 November 2010. The estimated
value of the stock options granted was C$4,201,041. Of the estimated fair value,
C$936,645 has been recognized to date.
On 15 December 2006, the Company granted 20,000 stock options to a consultant of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$5.80 per common share. The stock options have an expiry
date of 14 December 2009. The estimated value of the stock options granted was
C$47,448. Of the estimated fair value, C$7,350 has been recognized to date.
On 21 December 2006, the Company granted 150,000 stock options to consultants of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$6.49 per common share. The stock options have an expiry
date of 20 December 2009. The estimated value of the stock options granted was
C$398,512. Of the estimated fair value, C$61,731 has been recognized to date.
On 28 December 2006, the Company granted 400,000 stock options to a consultant
of the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$6.20 per common share. The stock options have an expiry
date of 27 December 2009. The estimated value of the stock options granted was
C$1,017,238. Of the estimated fair value, C$157,574 has been recognized to date.
The fair value of the options granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
------------
Options Issued
In 2006
------------
Expected dividend yield Nil
Expected stock price volatility 75%
Risk-free interest rate 4.13%
Expected life of options in years 3.13
------------
The weighted average fair value of the options granted was C$1.45.
Option pricing models require the input of highly subjective assumptions
including the estimate of the share price volatility. Changes in the subjective
input assumptions can materially affect the fair value estimate, and therefore,
the existing models do not necessarily provide a reliable single measure of the
fair value of the Company's stock options.
h) Warrants
As at 31 December 2006, the following share purchase warrants were outstanding:
Number Price per Share Expiry Date
--------- -------------------------- ------------
3,750,000 US$5.00 6 January 2008
98,028 C$1.10 3 May 2008
48,611 C$1.50 8 May 2008
1,450,000 US$3.00 2 November 2008
185,000 US$3.00 7 December 2008
---------
5,531,639
========= ========================== ============
The estimated value of the warrants granted in Nautilus prior to the reverse
take-over was C$168,625. Of the estimated fair value, all had been recognized by
Nautilus prior to the reverse take-over.
10. Segmented Information
The Company has one operational segment, being exploration. Details on a
geographical basis on a region basis are as follows:
-------- --------- --------
Oceania North America Total
$ $ $
-------- --------- --------
31 December 2006
Assets 13,350,545 111,819,103 125,169,648
Loss for the year ended 31 Dec 2006 2,531,640 6,208,148 8,739,788
31 December 2005
Assets 1,030,723 1,475,512 2,506,235
Loss for the year ended 31 Dec 2005 611,738 - 611,738
-------- --------- --------
11. Commitments
a) By agreement dated 2 November 2005, the Company entered into a consulting
agreement for corporate marketing services. Compensation will be C$5,000 per
month. This agreement is effective from 1 November 2005 and will continue for a
term of eighteen months.
b) By agreement dated 24 April 2006, the Company has entered into a consulting
agreement with an investor relations firm. Consulting fees will be C$5,000 per
month. This agreement is effective from 24 April 2006 and will continue for a
term of eighteen months.
c) The Company has been a party to a consultancy agreement with the Commonwealth
Scientific and Industrial Research Organization ("CSIRO") since 5 November 1997.
On 22 August 2005 this agreement was amended to agree that the Company would pay
the following amounts in Australian dollars:
(i) $166,667(K420,346) on 1 April 2006: (paid)
(ii) $166,667(K420,346) on 1 April 2007;
(iii) $166,667(K420,346) on 1 April 2008;
(iv) $500,000 (K1,261,034) when Net Income first exceeds $10 million (K25.22
million); and
(iv) a further $500,000 (K1,261,034) when Net Income first exceeds
$20 million(K50.44 million);
The payments would be for use by CSIRO to conduct research projects that will be
mutually agreed upon by the Company and CSIRO. If agreement on those projects
can not be reached, then CSIRO may conduct such research projects that it
considers, in its sole discretion, may assist in the Company's mining and
exploration activities.
d) The Company has signed an operating lease agreement, which expires 30 May
2009. The total minimum lease payments are AUD115,000 ($83,000) per annum.
e) In order to maintain its current granted exploration tenements in Papua New
Guinea in good standing, the Company must spend, at its option, PGK5.5 million
($1.75 million) in exploration in 2006 and 2007.
f) By agreement dated 31 May 2006, the Company entered into a research program
with a research institute. The total committed cost at the time of the agreement
was $963,000. At 31 December 2006 $255,770 remained outstanding.
12. Subsequent Events
a) Prospecting License Applications
On 8 January 2007, the Company announced that, following a geological targeting
program covering the SW Pacific, it has lodged 18 Prospecting Licence
applications within the Exclusive Economic Zone of the Kingdom of Tonga and a
further two Special Prospecting Licenses within the Exclusive Economic Zone of
Fiji. These new applications cover a combined area of approximately 90,000 KM2.
Approximately half of the licenses may be subject to joint venture with Teck
Cominco.
b) Stock Options
On 10 January 2007, the Company granted 200,000 incentive stock options to an
employee of the Company at a price of C$5.13 for a term of three years, vesting
as to 20% every six months for a period of 30 months starting six months after
the date of grant.
On 16 January 2007, the Company granted 50,000 incentive stock options to an
employee of the Company at a price of C$4.99 for a term of three years, vesting
as to 20% every six months for a period of 30 months starting six months after
the date of grant.
On 12 February 2007, the Company granted 255,000 incentive stock options to
employees of the Company at a price of C$4.85 for a term of three years, vesting
as to 20% every six months for a period of 30 months starting six months after
the date of grant.
On 7 March 2007, the Company granted 75,000 incentive stock options to a
consultant of the Company at a price of C$4.83 for a term of three years,
vesting as to 20% every six months for a period of 30 months starting six months
after the date of grant.
c) Exercise of Options
On 2 February, 2007, the Company issued 10,250 common shares to a previous
officer of the Company, upon exercise of options granted to him under a share
option scheme which was in place prior to the Reverse Takeover.
On 19 March, 2007, the Company issued 3,333 common shares to a previous officer
of the Company, upon exercise of options granted to him under a share option
scheme which was in place prior to the Reverse Takeover.
On 26 March, 2007, the Company issued 13,333 common shares to a previous officer
of the Company, upon exercise of options granted to him under a share option
scheme which was in place prior to the Reverse Takeover.
d) Drilling Program
On January 18, 2007, the Company announced that it has contracted Canyon
Offshore, a member of the Helix Group and a leading service provider to the
offshore oil and gas and telecommunications industries, to provide the vessel,
remote operated vehicle ("ROV"), and drilling equipment for a major exploration,
evaluation drilling and environmental base line study program, commencing in
March 2007, over its Solwara Projects in Papua New Guinea.
The program, which will involve between 160 and 210 days on the water, will
commence with environmental baseline studies at the Company's Solwara 1 Prospect
then move to geophysical target generation throughout the Bismarck and Solomon
Seas where the Company will target further mineralised systems.
Following this work, drilling is planned to commence on the Solwara 1 prospect
in early July 2007 to generate information for mine planning purposes. This
drilling will utilise two ROV drill units currently being built by Perry
Slingsby Systems Inc (one of the world's leading providers of ROVs) under
contract to Canyon Offshore.
e) AIM Admission
On January 30, 2007 the Company entered into an agreement with Numis Securities
Limited ("Numis") in which Numis agreed to underwrite an equity capital offering
announced on December 22, 2006 under which the Company raised gross proceeds of
US$100 million through the issue of 27,438,606 common shares ("New Shares"),
including 5,499,109 common shares to Epion Holdings Limited ("Epion"), at a
price of UK185 pence per share (the "Placing"). In conjunction with the Placing,
the Company was admitted for trading of all of its issued common shares on AIM,
a market operated by the London Stock Exchange plc ("Admission") on February 2,
2007.
f) North American Private Placement
On February 20, 2007 the Company closed a private placement brokered by a
syndicate of agents led by Salman Partners Inc. and including BMO Capital
Markets, GMP Securities L.P., TD Securities Inc., Blackmont Capital Inc. and
Westwind Partners Inc. Under the private placement, including the overallotment
option exercised by the agents, the Company issued 20,344,850 Units at C$4.35
per unit for gross proceeds of C$88.5 million.
Each Unit will consists of one common share of the Company and one-half of one
warrant of the Company. Each whole warrant ("Warrant") entitles the holder to
purchase one additional common share of the Company at a price of C$5.655 per
share until February 20, 2009. In the event that the volume weighted average
price of the Company's common shares on the TSX Venture Exchange exceeds C$6.525
for a period of at least 20 trading days, Nautilus will have the right to give
notice to the holders of Warrants that the Warrants will expire if not exercised
within 30 days, provided that such notice may not be given until the date that
is four months and one day after the Closing.
The net proceeds of the Offering are planned to be used to advance the Company's
exploration and development activities at the Solwara Projects in Papua New
Guinea and the other areas in the western Pacific Ocean Region, and for general
working capital purposes.
NAUTILUS MINERALS INC.
Audited Consolidated Financial Statements for the Year 31 December 2006
(US dollars, in accordance with IFRS)
AUDITORS' REPORT
To the Directors of Nautilus Minerals Inc.
We have audited the consolidated balance sheet of Nautilus Minerals Inc. as at
December 31, 2006 and 2005 and the consolidated statements of income, retained
earnings and cash flows for the years then ended. These consolidated 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, 2006
and 2005 and the results of its operations and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
(Signed) PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, British Columbia
March 28, 2007
Consolidated Balance Sheets
----------- -----------
31 December 31 December
2006 2005
$ $
(note 1)
----------- -----------
Assets
Current assets
Cash and cash equivalents 112,356,865 1,475,512
Promissory note (note 7) - 730,100
Prepaid expenses and advances 285,178 14,816
----------- -----------
112,642,043 2,220,428
Restricted cash (note 2) 101,674 -
Property, plant and equipment, 212,564 -
(net of accumulated amortization of $27,567) (note 5)
Mineral properties (note 6) 12,213,367
Deferred charges - 285,807
----------- -----------
125,169,648 2,506,235
=========== ===========
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 8) 998,207 100,108
----------- -----------
Shareholders' Equity
Share capital (note 9) 126,257,367 4,472,809
Contributed surplus (note 9) 8,960,282 239,738
Deficit (11,046,208) (2,306,420)
----------- -----------
124,171,441 2,406,127
----------- -----------
125,169,648 2,506,235
=========== ===========
Commitments (note 11)
Subsequent events (note 12)
On behalf of the Board:
Signed: David De Witt
--------------------------------
Signed: David Heydon
--------------------------------
Consolidated Statements of Operations and Deficit
----------- ----------
Year Year
ended ended
31 December 31 December
2006 2005
$ $
----------- ----------
Expenses
Exploration costs 3,280,937 283,918
Stock-based compensation (note 9(d)) 3,001,000 131,830
Professional fees 1,523,096 137,099
Management fees and salaries 423,410 49,769
Shareholder information 376,509 61,263
Travel 291,518 -
Wages and salaries 365,965 -
General administrative 222,590 59,490
Listing and filing fees 158,277 -
Depreciation 27,567 -
Foreign exchange loss (gain) 277,115 (36,372)
----------- ----------
9,947,984 686,997
----------- ----------
Other Income
Interest income 1,158,196 7,920
Recovery of exploration costs 50,000 67,339
----------- ----------
1,208,196 75,259
Loss for the year 8,739,788 611,738
Deficit - Beginning of year 2,306,420 1,694,682
----------- ----------
Deficit - End of year 11,046,208 2,306,420
=========== ==========
Loss per share - basic and diluted $0.16 $0.01
=========== ==========
Weighted average number of shares outstanding 53,513,241 50,190,917
=========== ==========
Consolidated Statements of Cash Flows
----------- ---------
Year Year
ended ended
31 December 31 December
2006 2005
$ $
----------- ---------
Cash flows used in operating activities
Loss for the year (8,739,788) (611,738)
Interest income (1,158,196) (7,920)
Items not affecting cash
Stock-based compensation 3,001,000 131,830
Shares issued for services - 33,886
Depreciation 27,567 -
Change in non-cash working capital items
Prepaid expenses and advances (261,580) (14,816)
Accounts payable and accrued liabilities 802,406 (191,238)
----------- ---------
(6,328,591) (659,996)
----------- ---------
Cash flows from financing activities
Share capital issued 115,412,755 3,143,495
Deferred financing costs 445,552 (285,807)
Loan payable (199,213) -
Promissory note receivable 730,100 (730,100)
Interest income 1,158,196 7,920
----------- ---------
117,547,390 2,135,500
----------- ---------
Cash flows used in investing activities
Cash acquired on acquisition of Nautilus Minerals
Inc. 4,359 -
Restricted cash (101,674) -
Purchase of equipment (240,131) -
----------- ---------
(337,446) -
----------- ---------
Increase in cash and cash equivalents 110,881,353 1,475,512
-
Cash and cash equivalents - Beginning of year 1,475,512 -
----------- ---------
Cash and cash equivalents - End of year 112,356,865 1,475,512
=========== =========
Non-cash investing and financing activities
Shares issued for acquisition of Nautilus Minerals
Inc. (749,299) -
=========== =========
Stock-based compensation 3,001,000 131,830
=========== =========
Common shares issued for mineral properties 12,213,367 -
=========== =========
Notes to Consolidated Financial Statements
1. Basis of Presentation, Operations and Subsidiaries
Basis of Presentation - International Financial Reporting Standards and currency
of presentation
These consolidated financial statements are presented in accordance with
International Financial Standards (IFRS). The Company reports normally under
Canadian Generally Accepted Accounting Principles ("Canadian GAAP") and
consolidated financial statements as at and for the same periods as presented
herein have been prepared for distribution to the shareholders of the Company
and for filing with Canadian regulatory authorities. For the purposes of
reporting in certain regulatory jurisdictions outside of Canada, the Company is
required to prepare its financial statements in accordance with International
Financial Reporting Standards ("IFRS"). There are no significant measurement
differences which arise between IFRS and Canadian GAAP for the purposes of these
financial statements, however, there can be no assurance that measurement
differences will not arise in the future.
These consolidated financial statements are presented in United States Dollars
("USD"), the functional and presentational currency of the Company. They are
prepared on a historical cost basis and do not take into account changing money
values or, except where stated, current valuations of non-current assets.
Operations
Nautilus Minerals Inc. (the "Company", "Nautilus" or "NMI") is engaged in the
exploration of the ocean floor for gold - copper and zinc seafloor massive
sulphide deposits. The Company is an enterprise in the exploration stage. The
exploration activity involves exploration of underwater gold - copper and zinc
deposits in the western Pacific Ocean. The Company's main focus for 2006 was the
Solwara Project, Papua New Guinea. The planned principal operations of the
Company will be the production of gold and copper deposits where there are
economically viable discoveries.
On 8 May 2006, the Company acquired all of the issued and outstanding shares of
Nautilus Minerals Niugini Limited ("NMN") (formerly Nautilus Minerals
Corporation) and Nautilus Minerals Oceania Limited ("NMO"), by issuing
30,519,541 common shares to the shareholders of NMN and NMO. NMN and NMO are
treated as the combined acquirer, as they were under common control at the time
of acquisition, and were issued an equal amount of shares. Since the
shareholders of NMN and NMO acquired 94.5% of the outstanding common shares of
Nautilus, the transaction is accounted in accordance with Canadian Institute of
Chartered Accountants' Emerging Issues Committee Abstract 10 - Reverse Takeover
Accounting. Accordingly:
* The transaction shares were recorded at the fair value of the net assets
of NMI, which has been determined to be the net book value of NMI.
* The consolidated financial statements of the combined entity are issued
under the name of the legal parent, being NMI, but are a continuation of the
historical combined financial statements of the NMN and NMO.
* NMN and NMO is deemed to be the acquirer for accounting purposes and, as
such, its assets and liabilities are included in the consolidated financial
statements of the combined entity at their historical carrying values.
* The accumulated deficit of NMI as at 8 May 2006 has been eliminated.
* The capital structure of the Company is that of NMI, but the dollar
amount of the issued share capital in the consolidated balance sheet
immediately prior to the acquisition is that of NMN and NMO, plus the value
of shares issued by NMI to acquire NMN and NMO, plus the value of any shares
issued by the Company subsequent to the transaction.
* For the results of operations for the year ended 31 December 2006, NMN
and NMO results are included from 1 January 2006 to 31 December 2006, for
NMI from 9 May 2006 to 31 December 2006.
* At the date of the acquisition, the value of the identifiable net assets
of NMI was as follows:
Assets
Cash $ 4,359
Prepaid expenses and advances 8,782
----------
13,141
----------
Liabilities
Accounts payable and accrued liabilities 95,693
Loans payable 199,213
----------
294,906
----------
Net Assets Acquired $ (281,765)
==========
In connection with the reverse takeover transaction, the Company changed its
name from Orca Petroleum Inc. to Nautilus Minerals Inc.
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of
more than one half of the voting rights or otherwise has power to govern the
financial and operating policies, are consolidated. The existence and effect of
potential voting rights that are presently exercisable or presently convertible
are considered when assessing whether the Group controls another entity.
Intercompany transactions, balances, income and expenses are eliminated on
consolidation.
These consolidated financial statements include the accounts of the Company
(Canada) and its wholly owned subsidiaries NMN (Papua New Guinea), NMO
(Vanuatu), Nautilus Minerals Pacific Pty Ltd. (Australia), Nautilus Minerlas
Niugini 2 Limited (Papua New Guinea), Nautilus Minerals Niugini 3 Limited (Papua
New Guinea), Nautilus Minerals Niugini 4 Limited (Papua New Guinea), Nautilus
Minerals Niugini 5 Limited (Papua New Guinea), Nautilus Minerals Offshore
Limited (Vanuatu), Nautilus Minerals Offshore 1 Limited (Vanuatu), Nautilus
Minerals Offshore 2 Limited (Vanuatu), Nautilus Minerals Offshore 3 Limited
(Vanuatu), Nautilus Minerals Offshore 4 Limited (Vanuatu), Nautilus Minerals
Offshore 5 Limited (Vanuatu), Nautilus Minerals Offshore 6 Limited (Vanuatu),
Nautilus Minerals Offshore 7 Limited (Vanuatu), Nautilus Minerals Offshore 8
Limited (Vanuatu), Nautilus Minerals Offshore 9 Limited (Vanuatu), Nautilus
Minerals Offshore 10 Limited (Vanuatu), Nautilus Minerals Offshore 11 Limited
(Vanuatu), Nautilus Minerals Offshore 12 Limited (Vanuatu), Nautilus Minerals
Fiji Pty Ltd. (Fiji) and Nautilus Minerals USA (USA).
3. Significant Accounting Policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to prior periods, unless otherwise stated.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include amounts held in banks and highly liquid investments with
maturities at point of purchase of 90 days or less. The Company places its cash
with institutions of high credit worthiness.
Restricted Cash
Restricted cash of $101,674 has been provided as security for two leases.
$50,248 is being held on deposit at the National Australian Bank as security for
the office lease for Nautilus Minerals Pacific Pty Ltd. $51,426 is being held on
deposit at the Australia New Zealand Banking Group Limited in Papua, New Guinea
as security for a vehicle that has been leased by the Company. The funds are
restricted until the expiration of the leases being 30 May 2009 and 10 August
2009 respectively.
Mineral Properties
The Group expenses all exploration and evaluation expenditures until management
conclude that a future economic benefit is more likely than not of being
realised, ie. probable. In evaluating if expenditures meet this criterion to be
capitalised, management utilise several different sources of information
depending on the level of exploration. While the criteria for concluding that an
expenditure should be capitalised is always probable the information that
management use to make that determination depends on the level of exploration.
Costs relating to property acquisitions are capitalised. These costs are
capitalised within development costs.
Costs for a producing prospect are amortised on a unit-of-production method
based on the estimated life of the ore reserves, while those costs for the
prospects abandoned are written off.
The recoverability of the amounts capitalised for the undeveloped mineral
properties is dependent upon the determination of economically recoverable ore
reserves, confirmation of the Company's interest in the underlying mineral
claims, the ability to obtain the necessary financing to complete their
development, and future profitable production or proceeds from the disposition
thereof.
The Company assesses its capitalised resource property costs on a regular basis.
An impairment loss is recognised for the amount by which the carrying amount of
the asset exceeds its recoverable amount, which is the higher of fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets
are grouped at the lowest level for which there are separately identifiable cash
flows.
Property, Plant and Equipment
Equipment is carried at cost and depreciation is calculated over the estimated
useful life of the assets on a straight-line basis as follows:
----------------
Estimated useful life
(in years)
----------------
Leasehold improvements 3
Computer equipment 3
Computer software 1 - 2.5
Office equipment (Australia) 10 - 20
Tradeshow display equipment (Canada) 4
----------------
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of the
asset. Gains and losses on disposals are determined by comparing the proceeds
received with the carrying amount of the asset and are included in the income
statement. Any gain or loss on derecognition of the asset and are included in
the income statement in the period of derecognition.
Repairs and maintenance are charged to the income statement during the financial
period in which they are incurred. The cost of major renovations is included in
the carrying amount of the asset when it is probable that future economic
benefits in excess of the originally assessed standard of performance of the
existing asset will flow to the Group. Major renovations are depreciated over
the remaining useful life of the related asset.
Impairment of Non-current Assets Other than Mineral Properties
Property, plant and equipment and intangible assets (excluding goodwill), are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the carrying amount of
the asset exceeds its recoverable amount, which is the higher of fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets
are grouped at the lowest level for which there are separately identifiable cash
flows.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Any
impairment loss is recognised immediately in the income statement.
Deferred Charges
Deferred charges include expenditures incurred in connection with the
acquisition of NMI and have been included in the cost of acquisition of NMI.
Management's Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of accrued liabilities, share capital, contributed
surplus, share issuance costs and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
stock-based compensation during the reported periods. Actual results could
differ from those estimates.
Foreign Currency Translation
Functional and presentation currency
The consolidated financial statements are presented in United States Dollars,
which is the functional and presentation currency of Nautilus Minerals Inc.
Transactions and balances
Foreign currency transactions are accounted for at the rates of exchange ruling
at the date of the transaction. Monetary assets and liabilities are translated
at year-end exchange rates. Gains and losses arising on settlement of such
transactions and from the translation of foreign currency monetary assets and
liabilities are recognized in the income statement.
Income Taxes
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. Deferred income tax is
measured at tax rates that are expected to apply in periods in which the
temporary differences reverse based on tax rates and law enacted or
substantively enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries, associates and joint ventures, except where the timing of the
reversal of the temporary difference can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable future.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income (or loss)
attributable to common shareholders by the weighted average number of common
shares outstanding during the period. The computation of diluted earnings per
share assumes the conversion, exercise or contingent issuance of securities only
when such conversion, exercise or issuance would have a dilutive effect on
earnings per share. The dilutive effect of outstanding options and warrants and
their equivalents is reflected in diluted earnings per share by application of
the treasury stock method. During years when the Company has generated a loss,
the potential shares to be issued from the assumed exercise of options and
warrants are not included in the computation of diluted per share amounts since
the result would be anti-dilutive.
Share Capital
Ordinary shares are classified as equity.
Incremental external costs directly attributable to the issue of new ordinary
shares, other than in connection with business combinations, are shown in equity
as a deduction, net of tax, from the proceeds.
Stock Based Compensation
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date at which they are granted and is recognised as an
expense over the vesting period.
None of the Group's equity-settled transactions have any market based
performance conditions.
Fair value for equity-settled share based payments is estimated by use of the
Black-Scholes pricing model.
At each balance sheet date, before vesting, the cumulative expense is calculated
based on management's best estimate of the number of equity instruments that
will ultimately vest. The movement in this cumulative expense is recognised in
the income statement, with a corresponding entry in equity.
Where an equity-settled award is cancelled by the Group, it is treated as if it
had vested on the date of cancellation and any cost not yet recognised in the
income statement for the award is expensed immediately. Any compensation paid up
to the fair value of the award at the cancellation or settlement date is
deducted from equity, with any excess over fair value being treated as an
expense in the income statement.
The proceeds from the exercise of stock options and warrants, in addition to the
estimated fair value attributable to those options and warrants exercised, are
recorded as share capital in the amount for which the options or warrants were
exercised.
Segment Reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments.
A geographical segment is engaged in providing products or services within a
particular economic environment that are subject to risks and returns which are
different from those of segments operating in other economic environments.
Due to the nature of the Group's operations, the Company has one business
segment, which operates in two different geographic locations.
3. Fair Value of Financial Instruments
Financial assets are classified, as appropriate, as financial assets at fair
value through profit or loss; loans and receivables; held to maturity
investments or as available for sale. The Company's financial instruments
consist of cash, accounts receivable, notes receivable and accounts payable.
Unless otherwise noted, it is management's opinion that the Company is not
exposed to significant interest currency or credit risks arising from the
financial instruments. The fair value of these financial instruments
approximates their carrying value due to their short-term maturity or capacity
of prompt liquidation.
The Group determines the classification of its financial assets at initial
recognition. When financial assets are recognised initially, they are measured
at fair value, normally being the transaction price plus, in the case of
financial assets not at fair value through profit or loss, directly attributable
transaction costs. The subsequent measurement of financial assets depends on
their classification, as follows:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market, do not qualify as
trading assets and have not been designated as either fair value through profit
or loss or available-for-sale. Such assets are carried at amortised cost using
the effective interest method. Gains and losses are recognised in the income
statement when the loans and receivables are derecognised or impaired, as well
as through the amortisation process.
Financial liabilities
When a financial liability is recognised initially, the Group measures it at its
fair value plus, in the case of a financial liability not measured at fair value
with changes in value through profit or loss, transaction costs that are
directly attributable to the issue of the financial liability. Financial
liabilities include trade payables, other payables and accrued liabilities.
Fair values
The fair value of quoted investments is determined by reference to appropriate
market prices at the close of business on the balance sheet date. Where there is
no active market, fair value is determined using valuation techniques. These
include using pricing models and discounted cash flow analysis. Otherwise assets
are carried at cost.
Interest rate risk
The Company holds cash and cash equivalents which earn interest at variable
rates as determined by financial institutions.
Credit risk
The Company only places its cash with institutions of high credit worthiness.
Foreign exchange risk
The Company holds cash balances and incurs payables that are denominated in
multiple foreign currencies, including Papua New Guinea Kinas, Australian
Dollars and Canadian Dollars. These balances are subject to changes in the
exchange rate between these currencies and the U.S. Dollar, which would result
in a currency gain or loss to the Company.
4. Income Tax
In Australia, Canada and Papua New Guinea, the Company has non-capital losses
for income tax purposes of approximately $4,020,920, which expire between 2014
and 2026.
The Company has incurred certain resource related expenditures of approximately
$2,180,978, which may be carried forward indefinitely and used to reduce
prescribed taxable income in future years.
Future income tax assets are not recorded for the above tax loss carry-forwards
due to complete uncertainty of their recovery. The tax losses may be subject to
audit and adjustment by local tax authorities as well as other local
regulations. Significant components of the Company's future income tax assets,
after applying enacted corporate income tax rates are as follows:
2006 2005
$ $
Non-capital losses 1,364,109 101,429
Unamortized share issue costs 1,042,194 -
Tax value of resource properties and plant and
equipment costs in excess of net book value of
resource property and plant and equipment 654,294 439,793
--------- -------
3,060,597 541,222
Less: Valuation allowances (3,060,597) (541,222)
--------- -------
- -
--------- -------
5. Equipment
Details are as follows:
-------- --------- --------- --------
Cost Accumulated 31 December 31 December
$ Amortization 2006 2005
$ $ $
---------- ---------- ---------- ---------
Leasehold improvements 71,133 11,725 59,408 -
Office equipment 39,265 1,010 38,255 -
Computer hardware 75,716 9,624 66,092 -
Computer software 50,141 4,627 45,514 -
Tradeshow display equipment 3,876 581 3,295 -
---------- ---------- ---------- ---------
240,131 27,567 212,564 -
========== ========== ========== =========
6. Mineral Properties
The Company has titles granted and applications lodged that provide the Company
with rights to 122,309 Km2 of prospective acreage in offshore Papua New Guinea.
In addition, the Company has lodged exploration applications in the exclusive
economic zones of Fiji and Tonga.
Farm-In Agreement with Placer Dome Oceania Limited and subsequent conversion to
Equity Interest
Pursuant to a farm-in agreement dated 12 October 2004, between Placer Dome and
NMN, Placer Dome provided Nautilus with access to its technical expertise and,
following Placer Dome's acquisition by Barrick Gold Inc, to the technical
expertise of one of the world's largest gold miners. Placer Dome has advised the
Company, they have spent over US$12.2 million in project expenditure under the
farm-in agreement which included mining trials and the completion of a major
drilling and sampling programme during January - February 2006 at Solwara 1, the
Company's most advanced project.
In August 2006 the Company entered into an agreement with Placer Dome to
terminate the farm-in agreement and convert its joint venture interest into an
equity interest in the Company. Pursuant to the terms of this termination
agreement, NMN acquired the remaining interest which Barrick held in the PNG
Licences in return for Barrick being issued with Common Shares representing what
was then a 9.59% stake in the Company. The Company thereby secured a 100%
interest in all the PNG Licences. In addition, pursuant to the terms of the
termination arrangements, Barrick transferred all of Placer Dome's expertise,
intellectual property, know-how, key consultants and relevant business
relationships to the Company, allowing the Company to itself thereafter manage
and operate the Solwara Projects. The value of the special warrants issued to
Barrick and exchanged for shares of the Company representing the 9.59% interest
in the Company have been determined to be $12,213,367, which was capitalized as
mineral property acquisition costs in the period.
7. Promissory Note
At 31 December 2005, the Company held a Promissory Note dated 20 May 2005 from a
significant shareholder whereby the shareholder agreed to pay the Company
AUD$1,000,000 by 30 June 2006 in return for common shares of each of NMN and
NMO.
On 4 July 2006, the Company issued a 60-day demand letter with regard to the
promissory note. In August of 2006, payment of the promissory note, plus accrued
interest, was received in full.
8. Related Party Transactions
Except as noted elsewhere in these financial statements, related party
transactions are as follows:
c) Included in management fees is $197,317 (2005: $28,185) for management
fees paid to a company controlled by a director.
d) Included in professional fees is $65,566 (2005 - $108,941) for legal
fees paid to firms in which a director is a partner.
c) Included in accounts payable and accrued liabilities is $9,738 (2005: $nil)
for amounts owed to a company controlled by a director of the Company for
management and consulting fees and $nil (2005: $14,632) for amounts owed to
firms in which a director is a partner for legal fees.
9. Share Capital
a) Details of share capital are as follows:
Authorized:
Unlimited common shares without par value
Shares Amount
$
----------- ---------
Issued and allotted
Balance 31 December 2005 4,472,809
Balance NMI shares pre-acquisition 12,442,892 -
Adjustment to shares issued in NMI as at (10,369,076) -
acquisition (6 for 1 consolidation) ----------- ---------
2,073,816 4,472,809
Shares issued on acquisition of NMI 30,519,541 (281,765)
(note 1)
Shares issued for cash - Private 44,759,092 117,411,234
placement
Fractional shares issued 51 -
Shares issued on exercise of options 220,250 272,680
Shares issued on exercise of special 4,783,163 12,213,367
warrant
Fair market value of options exercised - 139,104
Share issuance costs - (7,970,062)
----------- ---------
Balance - 31 December 2006 82,355,913 126,257,367
=========== =========
b) The Company received shareholder and TSX-V approval to complete a one-for six
stock consolidation. All share information prior to the consolidation has been
restated to reflect the effects of the share consolidation.
On 8 May 2006, the Company completed a private placement of 12,500,000 common
shares at C$2 per share for gross proceeds of C$25,000,000. The shares were
subject to a four month hold period.
On 3 November 2006, the Company completed a private placement of 22,833,334
common shares at C$3.37 per share for gross proceeds of C$76,948,332. The shares
were subject to a four month hold period.
On 12 December 2006, the Company completed a private placement of 9,425,758
common shares at C$3.76 per share for gross proceeds of C$35,440,850. The shares
were subject to a four month hold period.
c) Details of contributed surplus:
----------
Amount
$
----------
Balance - 31 December 2005 239,738
Fair value of stock-based compensation 3,001,000
Fair value of warrants issued 5,858,648
Fair value of exercised options (139,104)
Issue of special warrant (note 4) 12,213,367
Transferred to share capital on exchange of special warrant for
common shares (12,213,367)
----------
Balance - 31 December 2006 8,960,282
==========
d) Share Purchase Options
The Company has established a share purchase option plan whereby the board of
directors may, from time to time, grant options to directors, officers,
employees or consultants. Options granted must be exercised no later than five
years from the date of grant or such lesser period as determined by the
Company's board of directors. The exercise price of an option must be determined
in accordance with the share purchase option plan. The board of directors must
determine the vesting period in accordance with the share purchase option plan.
Details of the plan are as follows:
-------- --------- --------
Number of Weighted Expiry
options
average
exercise price
(in C$)
-------- --------- --------
Balance - 31 December 2005 1,800,000 0.63 2007 to 2009
Acquired on acquisition of Orca 100,500 1.99 2007 to 2009
Granted 5,997,964 2.71 2007 to 2010
Exercised (220,250) 1.43 2009
Expired/cancelled (350,000) 2.20 2007 to 2009
-------- ---------
Balance - 31 December 2006 7,328,214 2.76 2007 to 2010
======== ========= ========
The following table summarizes information about stock options outstanding to
directors, officers, employees and consultants at 31 December 2006:
--------- --------- ---------
Expiry date Exercise price Number Number
exercisable
(in C$) outstanding
--------- --------- ---------
26 March 2007 2.40 26,917 26,917
2 November 2007 1.10 100,000 -
2 November 2007 1.50 50,000 -
8 May 2008 2.20 647,964 323,982
20 June 2008 1.10 150,000 37,500
20 June 2008 1.50 450,000 112,500
8 May 2009 2.20 2,190,000 458,000
25 June 2009 1.68 3,333 3,333
4 August 2009 2.20 250,000 -
5 September 2009 2.20 235,000 -
21 September 2009 1.94 20,000 -
6 November 2009 3.20 200,000 -
14 December 2009 5.80 20,000 -
20 December 2009 6.49 150,000 -
27 December 2009 6.22 400,000 -
13 November 2010 3.20 650,000 -
13 November 2010 3.20 1,560,000 -
1 August 2011 2.20 225,000 -
--------- ---------
7,328,214 962,232
========= ========= =========
On 8 May 2006, the Company granted 4,087,964 stock options to directors,
officers, consultants and employees of the Company. The stock options granted
entitle the holder to purchase common shares at various prices from C$1.10 to
$2.20 per common share. The stock options have various expiry dates between 2
November 2007 and 8 May 2009. 350,000 of these stock options were cancelled in
August 2006. The estimated value of the remaining stock options was C$3,470,840.
Of the estimated fair value, C$2,273,970 has been recognized to date.
On 1 August 2006, the Company granted 225,000 stock options to an officer of the
Company. The stock options granted entitle the holder to purchase common shares
at a price of C$2.20 per common share. The stock options have an expiry date of
1 August 2011. The estimated value of the stock options granted was C$261,908.
Of the estimated fair value, C$101,426 has been recognized to date.
On 4 August 2006, the Company granted 250,000 stock options to an employee of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$2.20 per common share. The stock options have an expiry
date of 4 August 2009. The estimated value of the stock options granted was
C$234,597. Of the estimated fair value, C$90,850 has been recognized to date.
On 5 September 2006, the Company granted 235,000 stock options to a consultant
and employee of the Company. The stock options granted entitle the holder to
purchase common shares at a price of C$2.20 per common share. The stock options
have an expiry date of 5 September 2009. The estimated value of the stock
options granted was C$243,556. Of the estimated fair value, C$94,319 has been
recognized to date.
On 21 September 2006, the Company granted 20,000 stock options to a consultant
of the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$1.94 per common share. The stock options have an expiry
date of 21 September 2009. The estimated value of the stock options granted was
C$17,823. Of the estimated fair value, C$6,902 has been recognized to date.
On 6 November 2006, the Company granted 200,000 stock options to a consultant of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$3.20 per common share. The stock options have an expiry
date of 6 November 2009. The estimated value of the stock options granted was
C$260,620. Of the estimated fair value, C$40,371 has been recognized to date.
On 13 November 2006, the Company granted 2,210,000 stock options to directors,
officers, consultants and employees of the Company. The stock options granted
entitle the holder to purchase common shares at a price of $3.20 per common
share. The stock options have an expiry date of 13 November 2010. The estimated
value of the stock options granted was C$4,201,041. Of the estimated fair value,
C$936,645 has been recognized to date.
On 15 December 2006, the Company granted 20,000 stock options to a consultant of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$5.80 per common share. The stock options have an expiry
date of 14 December 2009. The estimated value of the stock options granted was
C$47,448. Of the estimated fair value, C$7,350 has been recognized to date.
On 21 December 2006, the Company granted 150,000 stock options to consultants of
the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$6.49 per common share. The stock options have an expiry
date of 20 December 2009. The estimated value of the stock options granted was
C$398,512. Of the estimated fair value, C$61,731 has been recognized to date.
On 28 December 2006, the Company granted 400,000 stock options to a consultant
of the Company. The stock options granted entitle the holder to purchase common
shares at a price of C$6.20 per common share. The stock options have an expiry
date of 27 December 2009. The estimated value of the stock options granted was
C$1,017,238. Of the estimated fair value, C$157,574 has been recognized to date.
The fair value of the options granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
------------
Options Issued
In 2006
------------
Expected dividend yield Nil
Expected stock price volatility 75%
Risk-free interest rate 4.13%
Expected life of options in years 3.13
------------
The weighted average fair value of the options granted was C$1.45.
Option pricing models require the input of highly subjective assumptions
including the estimate of the share price volatility. Changes in the subjective
input assumptions can materially affect the fair value estimate, and therefore,
the existing models do not necessarily provide a reliable single measure of the
fair value of the Company's stock options.
h) Warrants
As at 31 December 2006, the following share purchase warrants were outstanding:
Number Price per Share Expiry Date
--------- ---------------------------- --------
3,750,000 US$5.00 6 January 2008
98,028 C$1.10 3 May 2008
48,611 C$1.50 8 May 2008
1,450,000 US$3.00 2 November 2008
185,000 US$3.00 7 December 2008
---------
5,531,639
========= ================================== ============
The estimated value of the warrants granted in Nautilus prior to the reverse
take-over was C$168,625. Of the estimated fair value, all had been recognized by
Nautilus prior to the reverse take-over.
10. Segmented Information
The Company has one operational segment, being exploration. Details on a
geographical basis on a region basis are as follows:
-------- --------- ----------
Oceania North America Total
$ $ $
-------- --------- ----------
31 December 2006
Assets 13,350,545 111,819,103 125,169,648
Loss for the year ended 31 Dec 2006 2,531,640 6,208,148 8,739,788
31 December 2005
Assets 1,030,723 1,475,512 2,506,235
Loss for the year ended 31 Dec 2005 611,738 - 611,738
-------- --------- ----------
11. Commitments
a) By agreement dated 2 November 2005, the Company entered into a consulting
agreement for corporate marketing services. Compensation will be C$5,000 per
month. This agreement is effective from 1 November 2005 and will continue for a
term of eighteen months.
b) By agreement dated 24 April 2006, the Company has entered into a consulting
agreement with an investor relations firm. Consulting fees will be C$5,000 per
month. This agreement is effective from 24 April 2006 and will continue for a
term of eighteen months.
c) The Company has been a party to a consultancy agreement with the Commonwealth
Scientific and Industrial Research Organization ("CSIRO") since 5 November 1997.
On 22 August 2005 this agreement was amended to agree that the Company would pay
the following amounts in Australian dollars:
(i) $166,667(K420,346) on 1 April 2006: (paid)
(ii) $166,667(K420,346) on 1 April 2007;
(iii) $166,667(K420,346) on 1 April 2008;
(iv) $500,000 (K1,261,034) when Net Income first exceeds $10 million (K25.22
million); and
(v) a further $500,000 (K1,261,034) when Net Income first exceeds
$20 million(K50.44 million);
The payments would be for use by CSIRO to conduct research projects that will be
mutually agreed upon by the Company and CSIRO. If agreement on those projects
can not be reached, then CSIRO may conduct such research projects that it
considers, in its sole discretion, may assist in the Company's mining and
exploration activities.
d) The Company has signed an operating lease agreement, which expires 30 May
2009. The total minimum lease payments are AUD115,000 ($83,000) per annum.
e) In order to maintain its current granted exploration tenements in Papua New
Guinea in good standing, the Company must spend, at its option, PGK5.5 million
($1.75 million) in exploration in 2006 and 2007.
f) By agreement dated 31 May 2006, the Company entered into a research program
with a research institute. The total committed cost at the time of the agreement
was $963,000. At 31 December 2006 $255,770 remained outstanding.
12. Subsequent Events
b) Prospecting License Applications
On 8 January 2007, the Company announced that, following a geological targeting
program covering the SW Pacific, it has lodged 18 Prospecting Licence
applications within the Exclusive Economic Zone of the Kingdom of Tonga and a
further two Special Prospecting Licenses within the Exclusive Economic Zone of
Fiji. These new applications cover a combined area of approximately 90,000 KM2.
Approximately half of the licenses may be subject to joint venture with Teck
Cominco.
b) Stock Options
On 10 January 2007, the Company granted 200,000 incentive stock options to an
employee of the Company at a price of C$5.13 for a term of three years, vesting
as to 20% every six months for a period of 30 months starting six months after
the date of grant.
On 16 January 2007, the Company granted 50,000 incentive stock options to an
employee of the Company at a price of C$4.99 for a term of three years, vesting
as to 20% every six months for a period of 30 months starting six months after
the date of grant.
On 12 February 2007, the Company granted 255,000 incentive stock options to
employees of the Company at a price of C$4.85 for a term of three years, vesting
as to 20% every six months for a period of 30 months starting six months after
the date of grant.
On 7 March 2007, the Company granted 75,000 incentive stock options to a
consultant of the Company at a price of C$4.83 for a term of three years,
vesting as to 20% every six months for a period of 30 months starting six months
after the date of grant.
g) Exercise of Options
On 2 February, 2007, the Company issued 10,250 common shares to a previous
officer of the Company, upon exercise of options granted to him under a share
option scheme which was in place prior to the Reverse Takeover.
On 19 March, 2007, the Company issued 3,333 common shares to a previous officer
of the Company, upon exercise of options granted to him under a share option
scheme which was in place prior to the Reverse Takeover.
On 26 March, 2007, the Company issued 13,333 common shares to a previous officer
of the Company, upon exercise of options granted to him under a share option
scheme which was in place prior to the Reverse Takeover.
h) Drilling Program
On January 18, 2007, the Company announced that it has contracted Canyon
Offshore, a member of the Helix Group and a leading service provider to the
offshore oil and gas and telecommunications industries, to provide the vessel,
remote operated vehicle ("ROV"), and drilling equipment for a major exploration,
evaluation drilling and environmental base line study program, commencing in
March 2007, over its Solwara Projects in Papua New Guinea.
The program, which will involve between 160 and 210 days on the water, will
commence with environmental baseline studies at the Company's Solwara 1 Prospect
then move to geophysical target generation throughout the Bismarck and Solomon
Seas where the Company will target further mineralised systems.
Following this work, drilling is planned to commence on the Solwara 1 prospect
in early July 2007 to generate information for mine planning purposes. This
drilling will utilise two ROV drill units currently being built by Perry
Slingsby Systems Inc (one of the world's leading providers of ROVs) under
contract to Canyon Offshore.
i) AIM Admission
On January 30, 2007 the Company entered into an agreement with Numis Securities
Limited ("Numis") in which Numis agreed to underwrite an equity capital offering
announced on December 22, 2006 under which the Company raised gross proceeds of
US$100 million through the issue of 27,438,606 common shares ("New Shares"),
including 5,499,109 common shares to Epion Holdings Limited ("Epion"), at a
price of UK185 pence per share (the "Placing"). In conjunction with the Placing,
the Company was admitted for trading of all of its issued common shares on AIM,
a market operated by the London Stock Exchange plc ("Admission") on February 2,
2007.
j) North American Private Placement
On February 20, 2007 the Company closed a private placement brokered by a
syndicate of agents led by Salman Partners Inc. and including BMO Capital
Markets, GMP Securities L.P., TD Securities Inc., Blackmont Capital Inc. and
Westwind Partners Inc. Under the private placement, including the overallotment
option exercised by the agents, the Company issued 20,344,850 Units at C$4.35
per unit for gross proceeds of C$88.5 million.
Each Unit will consists of one common share of the Company and one-half of one
warrant of the Company. Each whole warrant ("Warrant") entitles the holder to
purchase one additional common share of the Company at a price of C$5.655 per
share until February 20, 2009. In the event that the volume weighted average
price of the Company's common shares on the TSX Venture Exchange exceeds C$6.525
for a period of at least 20 trading days, Nautilus will have the right to give
notice to the holders of Warrants that the Warrants will expire if not exercised
within 30 days, provided that such notice may not be given until the date that
is four months and one day after the Closing.
The net proceeds of the Offering are planned to be used to advance the Company's
exploration and development activities at the Solwara Projects in Papua New
Guinea and the other areas in the western Pacific Ocean Region, and for general
working capital purposes.
The TSX Venture Exchange does not accept responsibility
for the adequacy or accuracy of this release.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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