Third Quarter Highlights
------------------------
<<
- Successfully completed IPO; listed on TSX
- Announced Phase One drilling program results at Long Canyon
- Subsequent to quarter-end, NewWest reported multiple high grade
intercepts at its Sandman project and positive results from roadcut
rock-chip samples at Long Canyon
>>
LAKEWOOD, CO, Nov. 9 /CNW/ - NewWest Gold Corporation (TSX:NWG)
("NewWest"), one of the largest holders of precious metals mineral rights
projects in Nevada's gold trends, today announced its third quarter results
for the three months and nine months ended September 30, 2006. The net loss
for the three months ended September 30, 2006 was US$3.1 million or $0.06 per
share, compared to US$1.2 million or $0.02 per share in the comparable period
last year. The net loss for the nine months ended September 30, 2006 was
US 5.3 million or $0.10 per share compared to $4.6 million or $0.09 per share
in the comparable period last year. The increase in losses can primarily be
attributed to increased exploration drilling expenses related to the Sandman
and Long Canyon projects as well as stock-based compensation expense and
bonuses paid in conjunction with the IPO. Total expenses for the quarter were
US$3.3 million, compared to US$1.3 million last year.
On August 29, 2006, NewWest successfully completed an initial public
offering (IPO) raising net proceeds of US$15.8 million to help fund the
advancement of its projects along the pipeline and into production. As a
result of the IPO, NewWest's working capital was US$13.2 million at the end of
the third quarter. The Company anticipates that this level of working capital
will be sufficient to fund its planned exploration activities through 2007.
"Since our IPO, NewWest has made tremendous progress on our active
projects as demonstrated by the results of our Phase One drill programs at
Sandman and Long Canyon," said Steve Alfers, President and Chief Executive
Officer. "The working capital provided by our IPO positions us to aggressively
pursue our Phase Two drill programs, allowing us to expand our knowledge of
the mineralization and structure of the mineralization at both projects and
move towards establishing additional resources."
Full interim consolidated financial statements and notes, as well as
management's discussion and analysis, are available on NewWest's website at
www.newwestgold.com, or www.sedar.com.
Project Update
During the third quarter, NewWest announced results from its Phase One
drilling program at Long Canyon, one of NewWest's principal projects in the
Eastern Great Basin area of Elko County, Nevada. The drilling program
successfully extended the known mineralization approximately 500 feet to the
Northeast and 1,200 feet to the Southwest, defining a current cumulative
strike length of approximately 3,000 feet. Gold mineralization remains open in
all directions and at depth. The best results at Long Canyon include grades of
0.585 ounces of gold per ton (oz Au/ton) over 45 feet and 0.092 oz Au/ton over
85 feet. For a full description of the Long Canyon Phase One results, please
see the Company's news release dated September 21, 2006. The release, drill
results and a drill hole map are available at www.newwestgold.com.
Roadcut rock-chip sample results from Long Canyon were released
subsequent to the end of the third quarter, supporting the interpretation of
structure and stratigraphy of the geologic model. Phase Two drilling at Long
Canyon is scheduled to begin this month to further define the size and
geometry of the mineralization. For a full description of the Long Canyon
roadcut rock-chip results, please see the Company's news release dated
October 31, 2006. The release and a map of the locations of the mineralized
roadcut intervals are available at www.newwestgold.com.
NewWest and AuEx Ventures Inc. ("AuEx") agreed by way of a letter of
intent to complete a definitive joint venture agreement for the Long Canyon
project whereby the two parties will combine their respective land positions
in the Long Canyon Area. The joint venture agreement is currently being
negotiated and is expected to be completed in the near future. It is
anticipated that under the terms of this agreement, the Company will act as
operator and may earn a 51% interest in the consolidated project if it spends
$5 million on the project over a five year period. After completion, the
Company may elect to carry AuEx through feasibility, if warranted, thereby
earning an additional 14%.
Subsequent to quarter-end, NewWest reported multiple high-grade
intercepts at its Phase One drilling program at its Sandman Project in
Humboldt County, Nevada. The drilling continued to produce high-grade
intercepts associated with known mineralization at Silica Ridge, Southeast
Pediment and North Hill. The drilling also identified new gold mineralization
at Abel Knoll, including 420 feet of continuous mineralization with an average
grade of 0.087 oz Au/ton. The success of the Phase One drilling demonstrates
the potential of the district exploration program. Phase Two drilling at
Sandman, which includes an additional 100 holes, is underway. For a full
description of the Sandman Phase One results, please see the Company's news
release dated October 16, 2006. The release, drill results and drill hole maps
are available at www.newwestgold.com.
Conference Call and Webcast
Management will host a conference call at 10 a.m. ET on Thursday,
November 9, 2006 to discuss the third quarter results. The call can be
accessed by dialling 416-644-3422 or 1-866-250-4907. A replay of the call will
be available until midnight on November 23, 2006. It can be accessed by
dialing 1-877-289-8525 or 416-640-1917 and entering the passcode 21206625
followed by the number sign. The webcast can be accessed at NewWest's web site
at www.newwestgold.com/net.
Qualified Person
Michael Gustin, Ph.D., of Mine Development Associates, Reno, Nevada, is
NewWest's qualified person as defined by NI43-101 and has reviewed and
approved the technical data in this news release.
About NewWest Gold Corporation
NewWest Gold Corporation is one of the largest holders of precious metals
mineral rights in Nevada's gold trends, spanning approximately 623,000 acres.
NewWest holds a total of 19 exploration projects, including two projects with
measured and indicated resources that are NI43-101 compliant. NewWest's goal
is to advance its projects along the pipeline into production. NewWest has
active drilling programs underway at Northumberland, Sandman and Long Canyon.
Forward-Looking Statements
This news release includes certain "forward-looking statements" within
the meaning of Canadian securities laws. Forward-looking statements involve
risks, uncertainties and other factors that could cause actual results,
performance, prospects and opportunities to differ materially from those
expressed in such forward-looking statements. Forward-looking statements in
this news release, include but are not limited to, economic performance,
statements regarding potential mineralization and reserve exploration, and
future plans and objectives of NewWest Gold Corporation including future
exploration and development. Any number of important factors could cause
actual results to differ materially from these forward-looking statements,
including those set out in the Company's prospectus dated August 18, 2006, as
well as future results. Although the Company believes that the assumptions and
factors used in preparing the forward-looking statements are reasonable, undue
reliance should not be placed on these statements, which only apply as of the
date of this news release, and no assurance can be given that such events will
occur in the disclosed timeframes or at all. The Company disclaims any
intention or obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
<<
NEWWEST GOLD CORPORATION
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2006
(Unaudited - Prepared by Management)
NEWWEST GOLD CORPORATION
(a British Columbia Corporation)
CONSOLIDATED BALANCE SHEETS
(US Dollars)
As at
------------------------------
September 30, December 31,
2006 2005
-------------- --------------
(Unaudited)
Assets
Current
Cash and cash equivalents.................$ 13,553,944 $ 24,251
Accounts receivable trade................. 98,205 14,900
Accrued interest receivable............... 1,853 20,656
Prepaid expenses and other................ 489,143 4,953
-------------- --------------
Total current assets...................... 14,143,145 64,760
Property, plant and equipment (net)......... 4,390,424 4,329,735
Northumberland Project...................... 10,187,605 10,187,605
Reclamation bonds........................... 987,720 947,506
-------------- --------------
Total assets................................$ 29,708,894 $ 15,529,606
-------------- --------------
-------------- --------------
Liabilities and Shareholders' Equity
Current
Accounts payable trade and
accrued expenses.........................$ 871,132 $ 764,457
Due to Predecessor Companies.............. 22,765 919,545
Current portion of reclamation costs...... 73,253 72,196
-------------- --------------
Total current liabilities................. 967,150 1,756,198
Long-term reclamation costs................. 938,310 892,152
Shareholders' equity(Note 3)................ 27,803,434 12,881,256
-------------- --------------
Total liabilities and shareholders' equity..$ 29,708,894 $ 15,529,606
-------------- --------------
-------------- --------------
Approved on Behalf of the Board,
Signed: Marvin Kaiser
Director
Signed: Richard Graff
Director
The accompanying notes are an integral part of these
financial statements.
NEWWEST GOLD CORPORATION
(a British Columbia Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited, US Dollars)
Three Months Ended
September 30,
------------------------------
2006 2005
-------------- --------------
Revenues $ 126,622 $ 74,970
Expenses:
Exploration(Note 7)...................... 1,673,826 613,429
Operations............................... 57,919 39,266
Reclamation accretion expense............ 16,650 18,029
General and administrative............... 1,567,895 581,647
Depreciation and amortization............ 6,657 4,600
-------------- --------------
Total expenses........................... 3,322,947 1,256,971
Other income (expense):
Interest expense(Note 5)................. - -
Interest income.......................... 63,542 5,164
Other income (expense), net.............. - (500)
-------------- --------------
Total other income (expense)............. 63,542 4,664
-------------- --------------
Loss from continuing
operations before taxes................... (3,132,783) (1,177,337)
Income tax provision....................... - -
-------------- --------------
Loss from continuing operations............ (3,132,783) (1,177,337)
Loss from discontinued operations.......... - -
-------------- --------------
Net loss................................... $ (3,132,783) $ (1,177,337)
-------------- --------------
-------------- --------------
Accumulated deficit beginning of period....
Accumulated deficit end of period..........
Loss per share from continuing operations.. $ (0.06) $ (0.02)
-------------- --------------
-------------- --------------
Net loss per share......................... $ (0.06) $ (0.02)
-------------- --------------
-------------- --------------
Weighted average shares outstanding........ 52,945,475 50,000,000
-------------- --------------
-------------- --------------
Nine Months Ended
September 30,
------------------------------
2006 2005
-------------- --------------
Revenues $ 192,337 $ 106,040
Expenses:
Exploration(Note 7)...................... 2,842,895 1,268,461
Operations............................... 92,525 43,002
Reclamation accretion expense............ 49,948 56,277
General and administrative............... 2,604,434 1,594,347
Depreciation and amortization............ 17,162 13,536
-------------- --------------
Total expenses........................... 5,606,964 2,975,623
Other income (expense):
Interest expense(Note 5)................. - (1,640,976)
Interest income.......................... 105,309 15,761
Other income (expense), net.............. 11,055 15,873
-------------- --------------
Total other income (expense)............. 116,364 (1,609,342)
-------------- --------------
Loss from continuing
operations before taxes................... (5,298,263) (4,478,925)
Income tax provision - -
-------------- --------------
Loss from continuing operations............ (5,298,263) (4,478,925)
Loss from discontinued operations.......... - (130,264)
-------------- --------------
Net loss................................... $ (5,298,263) $ (4,609,189)
-------------- --------------
-------------- --------------
Accumulated deficit beginning of period.... $(144,963,254) $(138,598,843)
-------------- --------------
-------------- --------------
Accumulated deficit end of period.......... $(150,261,517) $(143,208,032)
-------------- --------------
-------------- --------------
Loss per share from continuing operations.. $ (0.10) $ (0.09)
-------------- --------------
-------------- --------------
Net loss per share......................... $ (0.10) $ (0.09)
-------------- --------------
-------------- --------------
Weighted average shares outstanding........ 50,992,615 50,000,000
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of these
financial statements.
NEWWEST GOLD CORPORATION
(a British Columbia Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited US Dollars)
Three Months Ended
September 30,
------------------------------
2006 2005
-------------- --------------
Cash flows from operating activities:
Loss from continuing operations............ $ (3,132,783) $ (1,177,337)
Adjustments to reconcile loss from
continuing operations to net cash used
in operating activities:
Depreciation and amortization............ 6,657 4,600
Reclamation accretion expense............ 16,650 18,029
Reclamation expenditures................. (2,733) -
Stock-based compensation(Note 3)......... 653,126 -
Loss on disposal of assets............... - 500
Interest accrued on loans to
Ultimate Shareholder.................... - -
Changes in operating working capital:
Accounts receivable trade.............. (38,002) (59,816)
Accrued interest receivable............ 39,042 (5,164)
Accounts payable trade
and accrued expenses.................. 624,840 128,406
Loan from Predecessor Companies........ 943,776 501,261
Repayment of Loan from
Predecessor Companies................. (1,222,199) -
Prepaid expenses and other............. (421,239) 5,937
-------------- --------------
Net cash used in operating activities
from continuing operations.............. (2,532,865) (583,584)
-------------- --------------
Cash flows from investing activities:
Capital expenditures..................... (60,853) (3,720)
Cash retained by Predecessor
Companies on restructuring
of NewWest Delaware..................... - -
-------------- --------------
Net cash used in investing activities
from continuing operations.............. (60,853) (3,720)
-------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of shares
from initial public offering............ 15,807,333 -
Reclamation bonds....................... (12,414) -
Contributions from Ultimate Shareholder.. - 585,000
Loan from Predecessor Company............ - -
Repayment of loan from
Predecessor Company..................... - -
-------------- --------------
Net cash provided by financing activities
from continuing operations.............. 15,794,919 585,000
Effect of exchange rate changes
on cash and cash equivalents............ 971 -
Net cash provided by (used in)
continuing operations................... 13,202,172 (2,304)
Net cash used in discontinued
operations.............................. - -
-------------- --------------
Increase (decrease) in cash
and cash equivalents.................... 13,202,172 (2,304)
Cash and cash equivalents at
beginning of period..................... 351,772 9,034
-------------- --------------
Cash and cash equivalents
at end of period........................ $ 13,553,944 $ 6,730
-------------- --------------
-------------- --------------
Nine Months Ended
September 30,
------------------------------
2006 2005
-------------- --------------
Cash flows from operating activities:
Loss from continuing operations............ $ (5,298,263) $ (4,478,925)
Adjustments to reconcile loss from
continuing operations to net cash used
in operating activities:
Depreciation and amortization............ 17,162 13,536
Reclamation accretion expense............ 49,948 56,277
Reclamation expenditures................. (2,733) (2,374)
Stock-based compensation(Note 3)......... 653,126 -
Loss on disposal of assets............... 300 1,850
Interest accrued on loans to
Ultimate Shareholder.................... - 1,640,976
Changes in operating working capital:
Accounts receivable trade.............. (83,305) (87,264)
Accrued interest receivable............ 18,813 (15,492)
Accounts payable trade
and accrued expenses.................. 105,674 187,760
Loan from Predecessor Companies........ 1,668,049 501,261
Repayment of Loan from
Predecessor Companies................. (2,564,829) -
Prepaid expenses and other............. (484,190) -
-------------- --------------
Net cash used in operating activities
from continuing operations.............. (5,920,248) (2,182,395)
-------------- --------------
Cash flows from investing activities:
Capital expenditures..................... (78,149) (7,890)
Cash retained by Predecessor
Companies on restructuring
of NewWest Delaware..................... - (391,013)
-------------- --------------
Net cash used in investing activities
from continuing operations.............. (78,149) (398,903)
-------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of shares
from initial public offering............ 15,807,333 -
Reclamation bonds....................... (40,214) -
Contributions from Ultimate Shareholder.. 3,760,000 2,758,000
Loan from Predecessor Company............ 1,700,000 -
Repayment of loan from
Predecessor Company..................... (1,700,000) -
-------------- --------------
Net cash provided by financing activities
from continuing operations.............. 19,527,119 2,758,000
-------------- --------------
Effect of exchange rate changes
on cash and cash equivalents............ 971 -
Net cash provided by (used in)
continuing operations................... 13,529,693 176,702
Net cash used in discontinued
operations.............................. - (268,209)
-------------- --------------
Increase (decrease) in cash
and cash equivalents.................... 13,529,693 (91,507)
Cash and cash equivalents at
beginning of period..................... 24,251 98,237
-------------- --------------
Cash and cash equivalents
at end of period........................ $ 13,553,944 $ 6,730
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of these
financial statements.
NEWWEST GOLD CORPORATION
(a British Columbia Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited US Dollars, unless otherwise indicated)
1. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements of NewWest
Gold Corporation (the "Company") have been prepared in accordance
with Canadian generally accepted accounting principles. These interim
consolidated financial statements of the Company do not include all
information and note disclosures as required under Canadian generally
accepted accounting principles for annual financial statements. The
interim consolidated financial statements should be read in
conjunction with the Company's consolidated annual financial
statements included in the Company's final prospectus dated as of
August 18, 2006.
The assets and liabilities of the Company's British Columbia company,
whose functional currency is the Canadian dollar, are translated at
the exchange rate in effect on the last day of the period, and income
and expenses are translated at the average exchange rate during the
reporting period. The net effect of translation gains and losses is
accumulated as a separate component of shareholders' equity. The
functional currency of all of the Company's other subsidiaries is the
United States ("US") dollar. The consolidated financial statements
and related notes are presented in US dollars, unless otherwise
indicated.
The Company's consolidated financial statements have been prepared on
a going concern basis, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the
foreseeable future. The Company is currently an exploration and
development stage company and does not have any mining operations
which generate revenues or profits. Further, there can be no
assurance that the Company will either achieve or maintain
profitability in the future.
The Company believes that the net proceeds from its initial public
offering will be sufficient to meet its working capital requirements
and its currently anticipated expenditure levels through 2007.
Additional financing by way of other public offerings, private
placements or bank borrowings will also be required in the future,
the outcome of which cannot be predicted at this time. These
consolidated financial statements do not include any adjustments and
reclassifications of assets and liabilities, which might be necessary
should the Company be unable to continue its exploration and
development efforts.
2. HISTORY OF THE COMPANY
Formation
On and as of June 30, 2005, a restructuring was completed where
NewWest Delaware Corporation (a Delaware Corporation)("NewWest
Delaware") consolidated the rights to possess, explore, develop and
mine the precious metals mineral interests of Western States Minerals
Corporation, Zaca Resources Corp. and 26 Ranch Inc. (collectively,
the "Predecessor Companies" and each individually a "Predecessor
Company").
On and as of May 3, 2006, the Company was incorporated under the
Business Corporations Act as a British Columbia company.
The Company was formed for the initial purpose of, through a series
of transactions completed on July 5, 2006, acquiring certain precious
metal mineral interests consisting of mineral rights located on
private lands and mining claims located on public lands in the United
States. These mineral interests are located primarily in the state of
Nevada, with smaller land positions in the states of California, Utah
and Arizona. The mineral interests were 100% controlled by Mr. Jacob
E. Safra ("the Ultimate Shareholder") through NewWest Delaware and
its wholly owned subsidiary Nevada Western Gold Corporation, as well
as Western States Royalty Corporation (together referred to as the
"Sellers"). Following completion of the series of transactions and
the IPO, NWG Investments (the "Principal Shareholder") owns
approximately 86% of the Company, and 100% of the Principal
Shareholder is indirectly controlled by the Ultimate Shareholder. As
part of the series of transactions completed, 50 million common
shares were issued and outstanding as of July 5, 2006.
For financial reporting purposes, the Sellers and the Predecessor
Companies' results are considered to be the historical results of the
Company under the continuity of interest basis of accounting
Completion of Offering
On August 29, 2006, the Company completed its initial public offering
and issued 8.2 million common shares for gross proceeds of
approximately $18.5 million. The Underwriters were issued an
additional 192,000 common shares on September 29, 2006 pursuant to an
over-allotment option granted in connection with the initial public
offering for gross proceeds of approximately $0.4 million
(collectively, "IPO"). The Underwriters were paid a 7% commission,
totaling approximately $1.4 million. An additional $1.7 million of
expenses were incurred in connection with the IPO, resulting in net
proceeds of approximately $15.8 million.
3. SHARE CAPITAL
Shareholders' Equity
Accumulated
Shares Common Stock Deficit
-------------- -------------- --------------
Balance at
December 31, 2005...... 50,000,000 $ 157,844,510 $(144,963,254)
Contribution from
Ultimate Shareholder... - 3,760,000 -
Net proceeds from
issuance of shares
from IPO............... 8,392,000 15,807,333 -
Stock based
compensation........... - 653,126 -
Net loss................ - - (5,298,263)
Cumulative translation
loss................... - - -
-------------- -------------- --------------
Balance at
September 30, 2006..... 58,392,000 $ 178,064,969 $(150,261,517)
-------------- -------------- --------------
-------------- -------------- --------------
Cumulative
Translation Shareholders'
Adjustment Equity
-------------- --------------
Balance at
December 31, 2005...... $ - $ 12,881,256
Contribution from
Ultimate Shareholder... - 3,760,000
Net proceeds from
issuance of shares
from IPO............... - 15,807,333
Stock based
compensation........... - 653,126
Net loss................ - (5,298,263)
Cumulative translation
loss................... (18) (18)
-------------- --------------
Balance at
September 30, 2006..... $ (18) $ 27,803,434
-------------- --------------
-------------- --------------
Outstanding Share Data
As of September 30, 2006, 58,392,000 common shares were issued and
outstanding. In addition, there were 2,027,500 stock options
outstanding, as noted below.
Stock Options
The stock option activity for the three and nine months ended
September 30, 2006 follows:
Weighted
Average
September 30, Exercise
2006 Price(1)
-------------- --------------
Stock options outstanding at
beginning of period................... - $ -
Granted................................ 2,027,500 2.25
Exercised.............................. - -
Expired and/or cancelled............... - -
-------------- --------------
Stock options outstanding at
end of period......................... 2,027,500 $ 2.25
-------------- --------------
-------------- --------------
Exercisable stock options.............. 405,500 $ 2.25
-------------- --------------
-------------- --------------
(1) Weighted average exercise price is calculated using the C$2.50
exercise price converted to US$ using the September 30, 2006
exchange rate of 1.1113.
The 2006 stock options granted have a term of 10 years, with 20%
vested on the grant date and then 20% shall vest each year thereafter
on the anniversary of such grant date for the next four years. The
fair value of the 2006 stock options granted was calculated using the
Black-Scholes option pricing model with the following assumptions:
dividend yield 0%, expected volatility of 69.45%, risk free interest
rate of 4.5 percent, and expected lives of 6.25 years. The stock-
based compensation expense for the three and nine months ended
September 30, 2006 was $653,126, of which $77,312 was charged to
exploration expenses and $575,814 was charged to general and
administrative expenses.
4. PREPAID EXPENSES AND OTHER
As at
September 30,
2006
--------------
Annual property rental fees........................... $ 311,662
Drilling deposits..................................... 95,000
Prepaid insurance..................................... 42,528
Prepaid property tax.................................. 10,301
Fuel inventory........................................ 18,106
Other................................................. 11,546
--------------
Total prepaid expenses and other...................... $ 489,143
--------------
--------------
5. RELATED PARTY TRANSACTIONS
At September 30, 2006, the Company had no employees. The Predecessor
Companies provide personnel and other services to the Company at
cost. During the nine months ended September 30, 2006 and 2005,
advances were made to the Company from Predecessor Companies,
primarily in respect of these services, of approximately $1,668,049
and $501,261, respectively, substantially all of which was repaid
during the nine months ended September 20, 2006. In addition,
advances outstanding from Predecessor Companies as of December 31,
2005 of $919,545 were also repaid during the nine months ended
September 30, 2006. At September 30, 2006, advances to the Company
from Predecessor Companies totaled $22,765. The Company intends to
transfer employees to the Company on January 1, 2007.
During the nine months ended September 30, 2006 and 2005, the
Ultimate Shareholder made additional capital contributions to the
Company in the amount of $3,760,000 and $2,758,000, respectively.
During the nine months ended September 30, 2006, a Predecessor
Company made a $1.7 million non-interest bearing advance to the
Company, which was repaid in May 2006.
The Predecessor Companies received loans from the Ultimate
Shareholder to finance its activities in the aggregate amount of
$48,599,798 at June 30, 2005 bearing interest at rates ranging from
6.5% to 7%. These loans, which were unsecured and payable on demand,
were retained by the Predecessor Companies on the June 30, 2005
restructuring of NewWest Delaware (see Note 2). During the nine
months ended September 30, 2005, interest expense on these loans was
$1,640,976. No principal or interest payments were made on these
loans during the 2005 period.
6. TAX CONTINGENCIES
In connection with the series of transactions referred to in Note 2,
an application for a withholding certificate was made to the Internal
Revenue Service in the United States indicating that there would be
no tax liability to the Principal Shareholder on the sale and
transfer and, as a result, there would be no withholding tax
liability. Pending receipt of this withholding certificate, the
Company withheld and pledged 5 million common shares that would
otherwise have been delivered to the Principal Shareholder pursuant
to a withholding and pledge agreement. In September 2006, the
withholding certificate was received from the Internal Revenue
Service in the United States confirming that there will be no tax
liability to the Principal Shareholder on the sale and transfer, and
the 5 million shares were subsequently released to the Principal
Shareholder.
7. EXPLORATION
Exploration expenditures for the three and nine months ended
September 30, 2006 and 2005 are as follows:
Three Months ended Nine Months ended
------------------ -----------------
September 30, September 30,
------------- -------------
Projects 2006 2005 2006 2005
-------- ---- ---- ---- ----
Northumberland(1).... $ 62,284 $ 55,793 $ 173,722 $ 151,274
Sandman.............. 784,899 155,032 1,279,618 266,314
Zaca................. 2,655 56,471 15,687 106,277
Eastern Great
Basin............... 533,675 98,666 675,182 178,023
Carlin-Cortez
Trends.............. 34,313 47,134 80,716 132,126
Other Projects....... 8,680 49,108 28,212 107,856
Unallocated
exploration
personnel and
overhead............ 247,320 151,225 589,758 326,591
----------- ----------- ----------- -----------
Total $1,673,826 $ 613,429 $2,842,895 $1,268,461
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(1) Amounts represent expenditures made directly by the Company
exclusive of the expenditures made by Newmont USA Limited in
accordance with the joint venture agreement.
Newmont USA Limited ("Newmont"), a subsidiary of Newmont Mining
Corporation, completed approximately $845,000 and $1,467,000 of
exploration expenditures under the Northumberland joint venture
during the three and nine months ended September 30, 2006 compared to
approximately $663,000 and $1,169,000 for the same periods in 2005,
respectively.
NEWWEST GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2006
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
>>
This Management's Discussions and Analysis of Financial Condition and
Results of Operations ("MD&A") for the three and nine month periods ended
September 30, 2006, prepared as of November 8, 2006, provides information that
management believes is relevant to an assessment and understanding of the
interim consolidated financial condition for NewWest Gold Corporation ("the
Company") as at September 30, 2006 and the results of its operations and cash
flows for the three and nine month periods then ended. This MD&A should be
read in conjunction with the Company's annual consolidated financial
statements and the corresponding notes thereto included in the Company's final
prospectus dated as of August 18, 2006.
The Company's consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles
("GAAP") in Canada. The consolidated financial statements, related notes and
MD&A are presented in United States ("US") dollars, unless otherwise
indicated.
Certain statements contained in the MD&A are forward-looking statements
that involve risks and uncertainties. The forward-looking statements are not
historical facts, but rather are based on the current plans, objectives,
goals, strategies, estimates, assumptions and projections about the Company's
industry, business and future financial results. Actual results could differ
materially from the results contemplated by these forward-looking statements
due to a number of factors, including those discussed in the Company's final
prospectus dated as of August 18, 2006
Overview
The Company is an advanced gold exploration and development company
primarily focused in the state of Nevada. The Company is one of the largest
holders of precious metals mineral rights in Nevada's gold trends, spanning
approximately 623,000 acres. The Company holds 19 exploration projects,
including advanced stage projects with measured and indicated resources in
accordance with NI 43-101. The Company's goal is to advance its projects along
the development pipeline into production. The Company has active drilling
programs underway at its three priority projects, Northumberland, Sandman and
Long Canyon.
Highlights for the 2006 third quarter through the date of this report are
as follows:
<<
- Successfully completed initial public offering ("IPO") for net
proceeds of $15.8 million. The Company's working capital at
September 2006 was approximately $13.2 million.
- The Company had net losses of approximately $3.1 million and
$5.3 million for the three and nine months ended September 30, 2006,
respectively. This compares to $1.2 million and $4.5 million for the
same periods in 2005, respectively. The increase in losses during the
2006 periods is primarily the result of significantly higher
exploration drilling costs together with stock-based compensation
expense and bonuses paid in conjunction with the successful
completion of the IPO.
- Completed Phase One of the Sandman 2006 drilling program, with 84
reverse circulation ("RC") holes completed, exceeding 27,000 feet.
This program verified newly discovered zones of mineralization at
Southeast Pediment and expanded mineralization at Silica Ridge and
North Hill, both laterally and at depth. A new discovery of high-
grade gold mineralization at Abel Knoll demonstrates the potential of
the district exploration program. The drilling continued to produce
high-grade intercepts associated with known mineralization.
- Phase Two of the Sandman 2006 drilling program is underway, designed
to include an additional 100 holes.
- Completed Phase One of the Long Canyon 2006 drilling program,
consisting of 16 RC drill holes, totaling 6,610 feet, construction of
access roads, continued surface sampling, and geologic mapping. The
drilling program successfully extended the known mineralization. The
program produced 13 drill holes with significant near surface
intercepts.
- Completed roadcut rock-chip sampling at Long Canyon, confirming
interpretation of the structure and stratigraphy. Phase Two of the
Long Canyon drilling program is currently being evaluated, with
drilling to commence in November.
- Since May 24, 2006 through September 30, 2006, the Company completed
approximately $561,000 of project expenditures under the Long Canyon
joint venture. It is anticipated that under the terms of this
agreement, the Company, as operator, may earn a 51% interest in the
consolidated project if it spends $5 million on the project over a
five year period.
- Newmont USA Limited ("Newmont"), a subsidiary of Newmont Mining
Corporation, completed approximately $1.5 million of project
expenditures under the Northumberland joint venture during the nine
months ended September 30, 2006, bringing Newmont's inception to date
project expenditures to approximately $4.8 million. Under the terms
of the Northumberland joint venture, Newmont must spend a minimum
cumulative expenditure through the end of 2006 of $6 million.
>>
Company History
Formation
The Company was formed for the initial purpose of, through a series of
transactions completed on July 5, 2006, acquiring certain precious metal
mineral interests consisting of mineral rights located on private lands and
mining claims located on public lands in the US, primarily in the state of
Nevada, with smaller land positions in the states of California, Utah and
Arizona. The mineral interests were 100% controlled by Mr. Jacob E. Safra
("the Ultimate Shareholder") through NewWest Gold Corporation (a Delaware
Corporation) ("NewWest Delaware") and its wholly owned subsidiary Nevada
Western Gold Corporation, as well as Western States Royalty Corporation
(together referred to as the "Sellers"). Following completion of the series of
transactions and the IPO, NWG Investments (the "Principal Shareholder") owns
approximately 86% of the Company, and 100% of the Principal Shareholder is
indirectly controlled by the Ultimate Shareholder.
On June 30, 2005, a restructuring was completed where NewWest Delaware
consolidated the rights to possess, explore, develop and mine the precious
metals mineral interests of Western States Minerals Corporation, Zaca
Resources Corp. and 26 Ranch Inc. (collectively, the "Predecessor Companies"
and each individually a "Predecessor Company").
Basis of Presentation
The consolidated financial statements of the Company are comprised of the
combined financial statements of the Sellers and the Predecessor Companies
using the historical results of operations and the historical basis of assets
and liabilities of these companies. Therefore, even though the Company is a
newly incorporated company, the MD&A is based on the historical combined
financial statements of the Sellers and the Predecessor Companies. For
financial reporting purposes, the Sellers and the Predecessor Companies'
results are considered to be the historical results of the Company under the
continuity of interest basis of accounting.
The combined results of operations of the Sellers and the Predecessor
Companies will not necessarily be indicative of the consolidated financial
position, operating results or cash flows in the future or what the
consolidated financial position, operation results or cash flows would have
been had the Company been a separate, independent publicly-traded company
during the periods presented. The Company expects that its expenses as a
separate publicly-traded company may be higher than the amounts reflected in
the combined consolidated statements of operations.
Summary Financial Information (unaudited)
<<
Three Months Ended Nine Months Ended
------------------ -----------------
Summary Operating September 30, September 30,
----------------- ------------- -------------
Results 2006 2005 2006 2005
------- ---- ---- ---- ----
Revenues......... $ 126,622 $ 74,970 $ 192,337 $ 106,040
Expenses......... $ 3,322,947 $ 1,256,971 $ 5,606,964 $ 2,975,623
Interest
expense(1)...... $ - $ - $ - $ 1,640,976
Loss from
continuing
operations...... $ (3,132,783) $ (1,177,337) $ (5,298,263) $ (4,478,925)
Net loss......... $ (3,132,783) $ (1,177,337) $ (5,298,263) $ (4,609,189)
Net loss per
share........... $ (0.06) $ (0.02) $ (0.10) $ (0.09)
September 30, December 31,
------------- ------------
Summary Balance Sheet 2006 2005
--------------------- ---- ----
Property, plant and equipment................ $ 14,578,029 $ 14,517,340
Total assets................................. $ 29,708,894 $ 15,529,606
Total liabilities............................ $ 1,905,460 $ 2,648,350
Total shareholder's equity................... $ 27,803,434 $ 12,881,256
(1) The loans giving rise to the interest expense were retained by the
Predecessor Companies on the restructuring of NewWest Delaware on
June 30, 2005.
>>
Results of Operations - Three Months and Nine Months Ended September 30,
2006 and 2005
Summary
Loss from continuing operations for the three months and nine months
ended September 30, 2006 were $3,132,783 and $5,298,263 compared to $1,177,337
and $4,478,925 for the same periods in 2005, respectively. Expenses for the
three and nine months ended September 30, 2006 were $3,322,947 and $5,606,964
up from $1,256,971 and $2,975,623 for the same periods in 2005, respectively.
The increase in losses from continuing operations and expenses during the 2006
periods can primarily be attributed to significantly higher exploration
expenses resulting from increased exploration drilling costs together with
stock-based compensation expense associated with stock options granted in
August 2006 and bonuses paid in conjunction with the successful completion of
the IPO.
Revenues
During the three and nine months ended September 30, 2006, the Company
had $126,622 and $192,337 in revenues from Newmont for services provided by
the Company related to Newmont's earn-in requirements at the Northumberland
Project. This compares to $74,970 and $106,040 of revenues from Newmont for
the three and nine months ended September 30, 2005, respectively. The higher
level of services provided to Newmont is the result of increased exploration
drilling activities in the 2006 periods compared to the 2005 periods.
Exploration
Exploration spending varies depending on the perceived potential of
properties in the portfolio and available funds. During 2006, the Company has
been focused on three priority projects; Northumberland, Sandman and Long
Canyon. Exploration expenditures were significantly higher in the three and
nine month periods ended September 30, 2006 primarily due to exploration
drilling at the Sandman and Long Canyon projects, together with stock-based
compensation expense and bonuses paid upon the successful completion of the
IPO. Details of exploration spending by project are as follows:
<<
Three Months ended Nine Months ended
------------------ -----------------
September 30, September 30,
------------- -------------
Projects 2006 2005 2006 2005
-------- ---- ---- ---- ----
Northumberland(1)........ $ 62,284 $ 55,793 $ 173,722 $ 151,274
Sandman.................. 784,899 155,032 1,279,618 266,314
Zaca..................... 2,655 56,471 15,687 106,277
Eastern Great Basin...... 533,675 98,666 675,182 178,023
Carlin-Cortez Trends..... 34,313 47,134 80,716 132,126
Other Projects........... 8,680 49,108 28,212 107,856
Unallocated exploration
personnel and
overhead................ 247,320 151,225 589,758 326,591
----------- ----------- ----------- -----------
Total.................... $1,673,826 $ 613,429 $2,842,895 $1,268,461
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(1) Amounts represent expenditures made directly by the Company exclusive
of the expenditures made by Newmont in accordance with the joint
venture agreement.
>>
Newmont completed approximately $845,000 and $1,467,000 of exploration
expenditures at the Northumberland Project during the three and nine months
ended September 30, 2006 compared to approximately $663,000 and $1,169,000 for
the same periods in 2005, respectively. The 2006 drilling program for
Northumberland includes four drill rigs, including reverse circulation ("RC")
and core rigs. In addition to the expenditures made by Newmont under the Joint
Venture Agreement, the Company incurred $62,284 and $173,722 of direct
exploration related expenditures during the third quarter and first nine
months of 2006 compared to $55,793 and $151,274 for the same periods in 2005,
respectively, related to the Northumberland Project.
Exploration expenditures at the Sandman Project were higher for the three
and nine months ended September 30, 2006 than the same periods in 2005
primarily as a result of exploration drilling expenditures from the 2006 drill
program. The Company recently completed Phase One of the 2006 drilling
program, which included 75 RC holes designed to expand and test shallow and
deep targets at the known mineralized zones of Southeast Pediment, Silica
Ridge and North Hill. The Company also completed nine RC holes to test three
district targets at Abel Knoll, Windmill and Sandbowl as part of the Phase One
program. In total, 84 holes were completed, exceeding 27,000 feet. The
drilling continued to produce high-grade intercepts associated with known
mineralization. Phase Two of the 2006 drilling program is underway, and is
designed to include an additional 100 holes with an estimated budget of
approximately US$1.2 million.
Exploration expenditures for the Eastern Great Basin Project were higher
for the three and nine months ended September 30, 2006 due to 2006 exploration
expenditures related to the Long Canyon project. The Company recently
completed Phase One of the Long Canyon 2006 drilling program, consisting of 16
RC drill holes totaling 6,610 feet, construction of access roads, continued
surface sampling, and geologic mapping. The program produced 13 drill holes
with significant near surface intercepts. Phase Two of the drilling program is
underway.
Since May 24, 2006 through September 30, 2006, the Company completed
approximately $561,000 of project expenditures under the Long Canyon joint
venture. The Company and AuEx Ventures Inc. ("AuEx") agreed by way of a letter
of intent to complete a definitive joint venture agreement for the Long Canyon
project whereby the two parties will combine their respective land positions
in the Long Canyon Area. The definitive joint venture agreement is currently
being negotiated and is expected to be completed in the near future. Under the
terms of this agreement, the Company will act as operator and may earn a 51%
interest in the consolidated project if it spends $5 million on the project
over a five year period. After completion, the Company may elect to carry AuEx
through feasibility, if warranted, thereby earning an additional 14%.
Exploration expenditures for the Zaca project, the Carlin-Cortez projects
and other projects for the three and nine months ended September 30, 2006 were
lower than the same periods in 2005 as a result of the Company's focus on the
2006 drilling programs for its three priority projects.
Unallocated exploration personnel and overhead increased in the three and
nine months ended September 30, 2006 over the 2005 periods due to higher
exploration staffing levels, stock-based compensation expense and bonuses
paid.
Exploration expenses for the fourth quarter of 2006 are expected to
slightly increase over the third quarter of 2006 primarily due to exploration
activities related to the Sandman and Long Canyon projects.
Operations Expenses
Operating expenses related to equipment services provided to Newmont at
the Northumberland Project were $57,919 and $92,525 during the three and nine
months ended September 30, 2006, respectively. This compared to $39,266 and
$43,002 for the same periods in 2005, respectively. Equipment services were
higher in the 2006 periods primarily as a result of more equipment services
provided, given the higher level of exploration drilling activities, together
with higher fuel costs in 2006.
General and Administrative Expenses
General and administrative expenses were $1,567,895 and $2,604,434 during
the three and nine months ended September 30, 2006 compared to $581,647 and
$1,594,347 during the same periods in 2005, respectively. These expenses
increased in the 2006 periods primarily as a result of the recognition of
stock-based compensation expense, bonuses paid upon the successful completion
of the IPO and expenses associated with being a separate publicly-traded
company.
On August 17, 2006, stock options were granted for 2,027,500 common
shares of the Company at an exercise price equal to the IPO price of
C$2.50 per share. The 2006 stock options granted have a term of 10 years, with
20% vested on the grant date and then 20% shall vest each year thereafter on
the anniversary of such grant date for the next four years. Under the
fair-value based method of accounting, the value of the options vested on the
grant date is recognized immediately as compensation expense, with the
remaining value of the options being recognized over the applicable vesting
period. The stock-based compensation expense for the three and nine months
ended September 30, 2006 was $653,126, of which $575,814 was charged to
general and administrative expenses and $77,312 was charged to exploration
expenses. Additionally, approximately $375,000 of bonuses were paid upon the
successful completion of the IPO, of which $280,000 was charged to general and
administrative expenses and $95,000 was charged to exploration.
General and administrative expenses for the fourth quarter of 2006 are
expected to decrease from the third quarter of 2006 primarily due to lower
stock-based compensation expense and no bonus expense, which will be somewhat
offset by higher public company expenses.
Reclamation Accretion Expense
During the three and nine months ended September 30, 2006 reclamation
accretion expense was $16,650 and $49,948 compared to $18,029 and $56,277 for
the same periods in 2005, respectively. The decrease in reclamation accretion
expense reflects a decrease in the overall provision for reclamation at
December 31, 2005.
Interest Expense
During the nine months ended September 30, 2005, the Company incurred
$1,640,976 of interest expense on loans payable to the Ultimate Shareholder.
These loans were retained by the former companies on the restructuring of
NewWest Delaware in June 2005.
Interest Income
During the three and nine months ended September 30, 2006, the Company
had interest income of $63,542 and $105,309 compared to $5,164 and $15,761 for
the same periods in 2005, respectively. The increase in interest income in
2006 was primarily the result of higher cash balances from the IPO that were
invested in interest bearing accounts together with higher interest rates.
Other Income/Expense
Other expense was $500 for the three months ended September 30, 2005,
which represented a loss on disposal of assets.
Other income was $11,055 and $15,873 during the nine months ended
September 30, 2006 and 2005, respectively. Mineral lease payments of $12,000
were included in other income during the 2006 and 2005 periods. Other expense
during the nine months ended September 30, 2006 included a foreign exchange
loss of $645 and a loss on disposal of assets of $300. Other income for the
same period in 2005 also included oil and gas lease payments of $5,723, net of
a loss on disposal of assets of $1,850. The oil and gas leases were retained
by the former companies on the restructuring of NewWest Delaware.
Income Taxes
As a result of the series of transactions completed in July 2006, the
Company had a tax basis in excess of its book basis at that date of
approximately $45 million. Additional losses have been incurred through
September 30, 2006. The Company recorded a full valuation allowance against
these future tax assets because of a lack of sufficient positive evidence to
support the future realization of these deferred tax assets.
The Sellers and the Predecessor Companies retained their net operating
loss carry forwards for US federal tax purposes as part of the series of
transactions completed in July 2006.
Quarterly Financial Information (unaudited)
Summarized unaudited financial data for each of the last eleven quarters
ended September 30, 2006 is as follows (in thousands, except per share
amounts):
<<
2006 Quarters Ended
-------------------------------------------------------------------------
September 30 June 30 March 31
------------------------------------------
Revenues from continuing
operations.................... $ 126,622 $ 65,715 $ -
Loss from continuing
operations.................... (3,132,783) (1,341,274) (824,206)
Net loss....................... (3,132,783) (1,341,274) (824,206)
Net loss per share............. $ (0.06) $ (0.03) $ (0.02)
2005 Quarters Ended
-------------------------------------------------------------------------
December 31 September 30 June 30 March 31
--------------------------------------------------------
Revenues from
continuing
operations...... $ 31,342 $ 74,970 $ 29,870 $ 1,200
Loss from
continuing
operations...... (1,755,222) (1,177,337) (1,795,959) (1,505,629)
Net loss......... (1,755,222) (1,177,337) (1,928,792) (1,503,060)
Net loss
per share....... $ (0.04) $ (0.02) $ (0.04) $ (0.03)
2004 Quarters Ended
-------------------------------------------------------------------------
December 31 September 30 June 30 March 31
--------------------------------------------------------
Revenues from
continuing
operations...... $ 1,195 $ 122,944 $ 49,484 $ -
Loss from
continuing
operations...... (735,702) (1,499,786) (1,183,863) (1,109,387)
Net loss......... (743,337) (1,494,758) (1,161,091) (1,076,276)
Net loss
per share....... $ (0.01) $ (0.03) $ (0.02) $ (0.02)
>>
Liquidity and Capital Resources
The Company is currently an exploration and development stage company and
does not have any mining operations which generate revenues or profits.
Further, there can be no assurance that the Company will either achieve or
maintain profitability in the future.
The Company requires financing to fund its continuing exploration and
development efforts. In this regard, on August 29, 2006, the Company completed
its IPO and issued 8.2 million common shares. The Underwriters were issued an
additional 192,000 common shares on September 29, 2006 pursuant to an
over-allotment option granted in connection with the IPO. The net proceeds
from the IPO, after Underwriters commissions and the expenses of the IPO, were
approximately $15.8 million. The Company believes that the net proceeds from
this IPO will be sufficient to meet its working capital requirements and its
currently anticipated expenditure levels through 2007. Additional financing by
way of other public offerings, private placements or bank borrowings will also
be required in the future, the outcome of which cannot be predicted at this
time.
Operating Activities
Net cash used in operating activities was $2,532,865 and $583,584 during
the three months ended September 30, 2006 and 2005, respectively. Net cash
used in operating activities during the 2006 third quarter primarily reflects
the loss from continuing operations, adjusted for stock-based compensation of
$653,126. Net cash used in operating activities during the 2005 third quarter
primarily reflects the loss from continuing operations, offset by a loan from
Predecessor Companies of $501,261.
Net cash used in operating activities was $5,920,248 and $2,182,395
during the nine months ended September 30, 2006 and 2005, respectively. Net
cash used in operating activities during 2006 primarily reflects the loss from
continuing operations, a net repayment of advances from Predecessor Companies
of $896,780, and prepaid expenses of $484,190 (primarily representing annual
property rental fees), which were offset by the adjustment for stock-based
compensation of $653,126. Net cash used in operating activities during 2005
primarily reflects the loss from continuing operations and a loan from
Predecessor Companies of $501,261, adjusted for interest accrued but not paid
on amounts due to the Ultimate Shareholder of $1,640,976.
Investing Activities
Net cash used in investing activities was $60,853 and $78,149 during the
three and nine months ended September 30, 2006 compared to $3,720 and $398,903
for the same periods in 2005, respectively. The 2006 periods and the third
quarter of 2005 included equipment purchases. Net cash used in investing
activities for the nine months ended September 30, 2005 included $391,013 of
cash retained by former companies on a restructuring of NewWest Delaware in
2005.
Financing Activities
Net cash provided by financing activities during the three months ended
September 30, 2006 and 2005 was $15,794,919 and $585,000, respectively. During
the 2006 third quarter, net proceeds of $15,807,333 were received from the
IPO. During the 2005 third quarter, the Ultimate Shareholder made capital
contributions to the Company of $585,000.
Net cash provided by financing activities during the nine months ended
September 30, 2006 and 2005 was $19,527,119 and $2,758,000, respectively.
During the 2006 nine month period, net proceeds of $15,807,333 were received
from the IPO as mentioned above. Additionally, during the 2006 and 2005 nine
month periods, the Ultimate Shareholder made capital contributions to the
Company of $3,760,000 and $2,758,000, respectively.
Contractual Obligations
Mining operations and exploration projects are subject to extensive
environmental regulations. Pursuant to environmental regulations, the Company
is required to reclaim the lands that its activities have disturbed. The
estimated undiscounted cash outflows of these reclamation obligations remain
unchanged from the end of the previous fiscal year.
During the nine months ended September 30, 2006 and to the date of this
document, the Company has not entered into any contractual obligations that
are outside the ordinary course of its business.
Related Party Transactions
At September 30, 2006, the Company had no employees. The Predecessor
Companies provide personnel and other services to the Company at cost. During
the nine months ended September 30, 2006, advances were made to the Company
from Predecessor Companies, primarily in respect of these services, of
approximately $1,668,049, substantially all of which was repaid. In addition,
advances outstanding from Predecessor Companies as of December 31, 2005 of
$919,545 were also repaid during the nine months ended September 30, 2006. At
September 30, 2006, advances to the Company from Predecessor Companies totaled
$22,765. The Company intends to transfer employees from the Predecessor
Companies on January 1, 2007.
During the nine months ended September 30, 2006, the Ultimate Shareholder
made additional capital contributions to the Company in the amount of
$3.76 million and a Predecessor Company made a $1.7 million non-interest
bearing advance to the Company. In May 2006, NewWest Delaware repaid the
$1.7 million advance.
Contingent Liabilities and Environmental Matters
Environmental Matters
The Company's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its activities so as
to protect the public health and environment and believes it is in substantial
compliance with all applicable laws and regulations. The Company has made, and
expects to make in the future, expenditures to comply with such laws and
regulations, but cannot predict the amount of such future expenditures. At
September 30, 2006, the Company had accrued $1,011,563 in respect of its
reclamation and environmental liabilities.
Tax Contingencies
In connection with the indirect sale and transfer of assets and
liabilities to the Company from the Sellers, an application for a withholding
certificate was made to the Internal Revenue Service in the US indicating that
there would be no tax liability to the Principal Shareholder on the sale and
transfer and, as a result, there would be no withholding tax liability.
Pending receipt of this withholding certificate, the Company withheld and
pledged 5 million common shares that would otherwise have been delivered to
the Principal Shareholder pursuant to a withholding and pledge agreement. In
September 2006, the withholding certificate was received from the Internal
Revenue Service in the US confirming that there will be no tax liability to
the Principal Shareholder on the sale and transfer, and the 5 million shares
were subsequently released to the Principal Shareholder.
Other
The other contingent liabilities and environmental matters remain
unchanged from the end of the previous fiscal year.
Critical Accounting Policies and Estimates
The preparation of the Company's consolidated financial statements
requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as well as the reported
expenses during the reporting period. Such estimates and assumptions affect
the determination of the potential impairment of long-lived assets, estimated
costs associated with reclamation and property closure costs, income taxes and
assumptions in determining stock based compensation. Management re-evaluates
its estimates and assumptions on an ongoing basis; however, due to the nature
of estimates, actual amounts could differ.
The Company's critical accounting policies remain unchanged from the end
of the previous fiscal year. The Company's critical accounting estimates,
other than stock-based compensation discussed below, also remain unchanged
from the end of the previous fiscal year.
Stock-Based Compensation
The Company accounts for stock-based transactions using the fair-value
based method. Under the fair value based method, compensation cost is measured
at fair value of the options at the date of grant and is expensed over the
vesting period of the award. The fair value of the stock options granted in
August 2006 was calculated using the Black-Scholes option pricing model with
the following assumptions: dividend yield 0%, expected volatility of 69.45%,
risk free interest rate of 4.5 percent, and expected lives of 6.25 years.
Outstanding Share Data
As of November 8, 2006, there were 58,392,000 common shares issued and
outstanding and there were an aggregate of 5,839,200 common shares reserved
for issuance upon the exercise of stock options granted. There were 2,027,500
stock options outstanding as of November 8, 2006.
Other Information
Additional information about the Company, including the Company's final
prospectus, is available electronically on SEDAR at www.sedar.com.
