MINERALS CORPORATION
ANNUAL CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2010 AND 2009
To the Shareholders of Alexis Minerals Corporation:
INDEPENDENT AUDITORS’ REPORT
We have audited the accompanying consolidated financial statements of Alexis Minerals Corporation, which
comprise the consolidated balance sheets as at December 31, 2010 and 2009, and the consolidated statements
of operations, comprehensive loss and deficit, consolidated statements of changes in shareholders’ equity and
consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies
and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting principles and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Alexis Minerals Corporation as at December 31, 2010 and 2009, and its financial performance and its cash flows
for the years then ended in accordance with Canadian generally accepted accounting principles.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements indicating the
existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a
going concern
McGOVERN, HURLEY, CUNNINGHAM, LLP
TORONTO, Canada
March 29, 2011
Chartered Accountants
Licensed Public Accountants
ALEXIS MINERALS CORPORATION
APPROVED ON BEHALF OF THE BOARD:
Signed “David Rigg”
, Director Signed “Maurice Colson”
, Director
- See accompanying Notes to the Consolidated Financial Statements -
Consolidated Balance Sheetsin Canadian dollarsAs at December 31,20102009AssetsCurrent assets:Cash and cash equivalents $9,410,889 $6,106,007 Amounts receivable (Note 15)657,961 2,082,802 Tax credits receivable (Note 6)6,727,736 7,465,197 Inventory (Note 4)1,822,367 6,167,683 Prepaid expenses (Note 15)463,159 272,808 Investments 641,116 122,340 19,723,228 22,216,837 Restricted cash equivalents (Notes 6 and 10)5,767,000 5,767,000 Property, plant and equipment (Note 5)13,848,698 19,968,156 Mineral properties and deferred exploration expenditures (Note 6)61,179,354 84,783,408 $100,518,280 $132,735,401 Liabilities and Shareholders' EquityCurrent liabilities:Accounts payable and accrued liabilities (Note 15)$9,348,202 $13,687,601 Current portion of capital lease obligations (Note 7)137,045 411,648 Current portion of long-term debt (Note 8)51,333 99,337 Liability component of convertible debenture (Note 9)- 6,142,716 9,536,580 20,341,302 Capital lease obligations (Note 7)50,667 118,008 Long-term debt (Note 8)- 51,300 Asset retirement obligations (Note 10)3,559,000 3,667,865 Liability component of convertible debenture (Note 9)5,450,683 - Future income tax liability (Note 16)- 3,258,141 18,596,930 27,436,616 Non-controlling interest (Note 3)- 3,154,839 Shareholders' equity:Share capital (Note 11)123,561,184 99,057,683 Commitment to issue shares (Note 3)150,314 - Warrants (Note 12)3,405,078 2,863,043 Equity component of convertible debenture (Note 9)1,698,516 830,334 Contributed surplus (Note 14)16,227,202 14,064,892 Deficit(63,120,944) (14,672,006) 81,921,350 102,143,946 $100,518,280 $132,735,401 Commitments and contingencies, Notes 1, 6, and 19Subsequent events, Note 21Nature of operations and going concern, Note 1
ALEXIS MINERALS CORPORATION
- See accompanying Notes to the Consolidated Financial Statements -
Consolidated Statements of Shareholders' Equityin Canadian dollarsCommitment to issue shares Warrants Convertible Debenture Contributed Surplus Accumulated Deficit Shareholders' Equity No.$$$$$$Balance, December 31, 2008128,084,827 63,134,869 - 6,679,843 830,334 7,962,377 (10,302,353) 68,305,070 Private placement39,106,000 20,000,000 - - - - - 20,000,000 Value of warrants granted on private placement- (752,600) - 752,600 - - - - Value of broker warrants and units granted on private placement- (343,100) - 343,100 - - - - Exercise of stock options325,000 140,250 - - - - - 140,250 Valuation allocation on exercise of stock options- 96,675 - - - (96,675) - - Valuation allocation of expired warrants- - - (4,912,500) - 4,912,500 - - Shares issued in lieu of interest payment607,912 252,600 - - - - - 252,600 Shares issued to acquire subsidiary45,612,929 18,920,025 - - - - - 18,920,025 Shares issued as severance payments in acquisition of subsidiary1,231,947 563,000 - - - - - 563,000 Value of equity portion of acquired convertible debenture- - - - - - - - Stock-based compensation- - - - - 1,286,690 - 1,286,690 Share issue costs- (2,130,036) - - - - - (2,130,036) Tax effect of share issue costs- 681,000 - - - - - 681,000 Flow-through share tax effect- (1,505,000) - - - - - (1,505,000) Loss for the period- - - - - - (4,369,653) (4,369,653) Balance, December 31, 2009214,968,615 99,057,683 - 2,863,043 830,334 14,064,892 (14,672,006) 102,143,946 Public offering95,833,333 14,375,000 - - - - - 14,375,000 Value of warrants granted on public offering- (1,344,259) - 1,344,259 - - - - Value of broker warrants granted on public offering- (305,800) - 305,800 - - - - Private placement50,774,998 12,186,000 12,186,000 Shares issued to acquire subsidiary6,550,200 2,274,544 - - - - - 2,274,544 Shares to be issued in subsidiary acquisition- - 150,314 - - - - 150,314 Value of options granted to acquire subsidiary- - - - - 141,900 - 141,900 Value of warrants granted to acquire subsidiary- - - 423,051 - - - 423,051 Shares issued to settle liabilities19,027,619 2,854,143 - - - - - 2,854,143 Value of warrants attached to shares issued to settle liabilities- (266,902) - 266,902 - - - - Exercise of broker warrants2,000,000 300,000 - - - - - 300,000 Reallocate value of exercised broker warrants- 127,600 - (127,600) - - - - Expiry of warrants- - - (1,777,577) - 1,777,577 - - Roll-over of convertible debentures- - - - 868,182 - - 868,182 Value of warrants issued for convertible debenture roll-over- - - 107,200 - - - 107,200 Stock-based compensation- - - - - 242,833 - 242,833 Shares issued in lieu of interest payment (Note 9)1,400,546 339,107 - - - - - 339,107 Share issue costs- (2,463,592) - - - - - (2,463,592) Tax effect of share issue costs- 672,660 - - - - - 672,660 Flow-through share tax effect- (4,245,000) - - - - - (4,245,000) Adjustment(23) - - - - - - - Loss for the period- - - - - - (48,448,938) (48,448,938) Balance, December 31, 2010390,555,288 123,561,184 150,314 3,405,078 1,698,516 16,227,202 (63,120,944) 81,921,350 Common Shares
ALEXIS MINERALS CORPORATION
- See accompanying Notes to the Consolidated Financial Statements -
in Canadian dollarsFor the years ended20102009Revenue, net of royalties$25,730,144 $32,026,870 Mine operating expenses (Note 4)(27,780,950) (23,539,033) Amortization and depletion (Notes 4 and 5)(7,144,863) (6,867,276) (34,925,813) (30,406,309) Gross (loss)/profit(9,195,669) 1,620,561 Expenses:Professional, consulting and management fees (Note 13)1,931,893 3,209,508 Other general and administrative expenses1,484,311 1,405,455 Long-term interest, accretion and financing costs1,085,804 714,350 Other interest, accretion and financing costs249,054 92,057 Loss on disposal of equipment (Note 5)101,108 - Equity loss from investments (Note 3)- 93,251 Foreign exchange(70,626) (58,642) Write-down of mineral properties and property, plant and equipment (Notes 5 and 6)41,648,665 - Interest income and gain on held-for-trading investments(559,843) (366,732) 45,870,366 5,089,247 (Loss) before taxes(55,066,035) (3,468,686) Future income tax recovery/(expense) (Note 16)6,617,422 (905,000) (Loss) before non-controlling interest(48,448,613) (4,373,686) Non-controlling interest(325) 4,033 Net (loss) and comprehensive (loss) for the year(48,448,938) (4,369,653) DEFICIT, beginning of year(14,672,006) (10,302,353) DEFICIT, end of year$(63,120,944) $(14,672,006) Net (loss) per share: basic(0.19) (0.03) Net (loss) per share: diluted(0.19) (0.03) Weighted average number of shares outstanding:basic260,965,217 139,309,743 diluted260,965,217 139,309,743 December 31,Consolidated Statements of Operations, Comprehensive Loss and Deficit
ALEXIS MINERALS CORPORATION
- See accompanying Notes to the Consolidated Financial Statements -
Consolidated Statements of Cash Flows in Canadian dollarsFor the years ended20102009Cash provided by (used in):Operations:Net (loss) for the year$(48,448,938) $(4,369,653) Items not involving cash:Stock‑based compensation (Note 13)207,243 1,286,690 Amortization and depletion7,144,863 6,867,275 Interest, accretion and finance charges866,123 697,383 Realized and unrealized investment gains(518,776) (363,877) Loss on disposal of equipment (Note 5)121,108 - Equity loss on investment (Note 3)- 93,251 Non-controlling interest325 (4,033) Write-down of mineral properties and properties, plant and equipment (Notes 5 and 6)41,648,665 - Future income tax (recovery)/expense(6,617,422) 905,000 Changes in non‑cash working capital6,770,272 (260,765) 1,173,463 4,851,271 Financing:Public offerings and private placements (Note 11(b))26,561,000 20,000,000 Share issue costs (Note 11(b))(2,463,592) (2,130,036) Exercise of broker warrants and options300,000 140,250 Financing costs on debenture(172,750) - Long-term debt repayments(103,748) (178,914) Capital lease payments(421,808) (601,811) 23,699,102 17,229,489 Investing:Property, plant and equipment purchases(3,599,685) (4,533,054) Acquisition of subsidiary (Note 3)(207,747) (2,474,373) Purchase and sale of investments- 683,929 (Decrease)/increase in exploration and development accounts payable (2,682,210) 3,255,822 Exploration tax credits received (Note 6) 4,186,446 1,137,004 Expenditures on mineral properties (19,264,487) (18,573,384) (21,567,683) (20,504,056) Change in cash and cash equivalents3,304,882 1,576,704 Cash and cash equivalents, beginning of year6,106,007 4,529,303 Cash and cash equivalents, end of year$9,410,889 $6,106,007 Cash and cash equivalents consists of:Cash $1,391,451 $6,091,007 Cash equivalents8,019,438 15,000 $9,410,889 $6,106,007 SUPPLEMENTAL INFORMATION Common shares issued to acquire subsidiary (Notes 3 and 11(b)) $2,274,544 $18,920,025 Common shares issued for interest payment (Note 9)339,107 252,600 Units or common shares issued to settle liabilities (Note 11(b))2,854,143 563,000 Broker warrants charged as share issue costs (Note 11(b))305,800 343,100 Options granted to acquire subsidiary (Note 3)141,900 - Warrants granted to acquire subsidiary (Note 3)423,051 - Amortization of property, plant and equipment charged to mineral properties (Note 5) 288,931 116,665 Equipment acquired under capital leases 79,864 284,772 Stock-based compensation charged to mineral properties (Note 13) 35,590 - Interest paid438,832 53,833 Income taxes paid- - December 31,
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
1.
NATURE OF OPERATIONS AND GOING CONCERN
Alexis Minerals Corporation (the "Company") currently has interests in mineral exploration and development properties in the
province of Québec. The Company is in commercial production at the Lac Herbin deposit and is also continuing to focus on
the exploration and development of its other gold and base metal projects within this region. The Company acquired a 100%
interest in Garson Gold Corp., a company with mineral exploration and development properties in the province of Manitoba
(Note 3).
The business of mining and exploring for minerals involves a high degree of risk and there can be no assurance that current
operations, including exploration and development programs will result in profitable mining operations. The recoverability of
the carrying value of mineral properties and the Company's continued existence is dependent upon the preservation of its
interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable
operations, or the ability of the Company to raise additional financing, if necessary, or alternatively upon the Company's ability
to dispose of its interests on an advantageous basis. Changes in future conditions could require material write-downs of the
carrying values.
Although the Company has taken steps to verify title to its property interests in accordance with industry standards for the
current stage of exploration and development of such properties, these procedures do not guarantee the Company's title.
Property title may be subject to government licensing requirements or regulations, unregistered prior agreements, unregistered
claims, aboriginal claims, and non-compliance with regulatory and environmental requirements.
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”) applicable to a going concern, which assume that the Company will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities in the normal course of operations. If the going concern
assumption were not appropriate for these consolidated financial statements then adjustments would be necessary to the
carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. Such
adjustments may be material.
The Company has a need for equity capital and financing for working capital and exploration and development of its
properties. Because of continuing operating losses, the Company's continuance as a going concern is dependent upon its
ability to obtain adequate financing and to reach profitable levels of operation. It is not possible to predict whether financing
efforts will be successful or if the Company will attain profitable levels of operations.
2.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company are in accordance with Canadian generally accepted accounting principles and their
basis of application is consistent with that of the previous year except where noted below. Outlined below are those policies
considered particularly significant.
a)
Basis of consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Garson Gold Corp.
(“Garson”), and its proportionate share of the accounts of the joint ventures in which the Company has an interest.
Intercompany balances and transactions have been eliminated on consolidation.
b)
Use of estimates
The preparation of consolidated financial statements in conformity with Canadian GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the
reported period. Such estimates and assumptions affect the carrying value of assets, impact decisions as to when mineral
properties and deferred exploration expenditures should be capitalized or expensed, estimates for asset retirement obligations
and reclamation costs and the methods and rates of amortization and depletion. Other significant estimates made by the
Company include factors affecting valuations of stock-based compensation, warrants, inventory, tax credits receivable,
convertible debentures, mineral properties (including estimated reserves) and income tax accounts. The Company regularly
reviews its estimates and assumptions; however, actual results could differ from these estimates and these differences could
be material.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
2.
c)
SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation
The functional and reporting currency of the Company is the Canadian dollar. Transactions and account balances originally
stated in currencies other than the Canadian dollar have been translated into Canadian dollars using the temporal method of
foreign currency translation as follows. Monetary assets and monetary liabilities in foreign currencies have been translated at
exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical exchange
rates prevailing at each transaction date. Revenue and expense transactions are translated at average exchange rates during
the year. Exchange gains or losses from such translation practices are reflected in the consolidated statements of operations.
d)
Cash and cash equivalents
Cash and cash equivalents include cash on hand and balances with banks and investment-grade deposit certificates with
original maturities of three months or less. Cash and cash equivalents are held in Canadian chartered banks or a financial
institution controlled by a Canadian chartered bank.
e)
Investments
Securities which are traded on a recognized securities exchange and for which no sales restrictions apply are recorded at fair
values based on quoted closing prices at the balance sheet date or the closing price on the last day the security traded if there
were no trades at the balance sheet date. The Company’s investments consist of shares of publicly listed corporations and
have been classified as held-for-trading.
f)
Inventory
Material and supplies expected to be used in production are valued at the lower of average cost and realizable value. Stock-
piled ore inventory is valued at the lower of average production cost and net realizable value. Finished goods inventory which
consists of doré bars and gold brick which is available for sale is valued at the lower of average production cost and net
realizable value. Production costs include the cost of raw materials, direct labour, mine site overhead expenses, amortization
of operating property and equipment and depletion of mineral property costs.
g)
Property, plant and equipment
Property, plant and equipment are recorded at cost. Amortization is provided on a straight line basis over the estimated useful
lives as follows:
Computer equipment
Computer software
Office equipment
Office furniture
Machinery and equipment
Mobile equipment
Buildings
3 years
1-2 years
4 years
8 years
4 to 5 years
4 to 5 years
4 to 30 years
When events or circumstances indicate potential impairment, long-lived assets such as property, plant and equipment are
written-down to the fair value if the net carrying amount of the asset exceeds the net recoverable amount, calculated as the
sum of the undiscounted cash flows related to the asset.
h)
Mineral properties and deferred exploration expenditures
Mineral properties and deferred exploration expenditures are carried at cost, net of government assistance, option payments
received and pre-production revenues, until they are brought into production, at which time they are depleted on a unit of
production method based on proven and probable reserves. Costs include acquisition costs and exploration and development
costs including cash consideration paid and the fair market value of shares issued, if any. Properties acquired under option
agreements whereby payments are made at the sole discretion of the Company are recorded in the accounts at the time of
payment. Government assistance is recorded when it is more likely than not to be received. If a property is subsequently
determined to be significantly impaired in value, the property and related deferred costs are written down to their net realizable
value. Other general exploration expenses are charged to operations as incurred. The cost of mineral properties abandoned
or sold and their related deferred exploration costs are charged to operations in the current year.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company reviews its mineral properties to determine if events or changes in circumstances have transpired which
indicate that the carrying value of its assets may not be recoverable. The recoverability of costs incurred on the mineral
properties is dependent upon numerous factors including exploration results, environmental risks, commodity risks, political
risks, and the Company's ability to attain profitable production. An impairment loss is recognized when the carrying amount of
the mineral properties is not recoverable and exceeds its fair value. It is reasonably possible, based on existing knowledge,
that changes in future conditions in the near term could require a change in the determination of the need for and amount of
any write down.
i)
Leases
Leases are classified as capital or operating depending on their terms and conditions. Payments under operating leases are
expensed in the period in which they are incurred. The value of assets recorded under capital leases are amortized over their
useful lives. A liability is established to reflect the future obligation under capital leases and reduced by principal payments.
j)
Asset retirement obligations
Asset retirement obligations include the costs related to the abandonment of mineral properties, dismantling and removing
tangible equipment such as milling facilities and returning the land to its original condition. The Company recognizes an asset
retirement obligation (“ARO”) in the period in which it is identified and a reasonable estimate of the fair value can be made.
Fair value is estimated based on the present value of the estimated future cash outflows to abandon the asset, discounted at
the Company’s credit-adjusted risk-free interest rate. The fair value of the estimated ARO is recorded as a long-term liability
with a corresponding amount capitalized to mineral properties. The amount capitalized is charged to earnings through the
depletion and depreciation of mineral properties. The ARO liability is increased each reporting period due to the passage of
time and the amount of accretion is charged to operations. Revisions to the original estimated cost or the timing of the cash
outflows may result in a change to the ARO. Actual costs incurred to settle the ARO reduce the long-term liability.
k)
Convertible debentures
The Company’s convertible debentures are segregated into their debt and equity components at the date of issue, based on
the relative fair market values of these components in accordance with the substance of the contractual agreements. The debt
component of the instruments is classified as a liability, and recorded as the present value of the Company’s obligation to
make future interest payments and settle the redemption value of the instrument. The carrying value of the debt component is
accreted to the original face value of the instruments, over the term of the convertible debenture, using the effective interest
method. The value of the conversion option makes up the equity component of the instruments. The conversion option is
recorded using the residual value approach.
l)
Revenue recognition
Revenue from the sale of gold, silver, and doré bars is recognized when persuasive evidence of a sale arrangement exists, the
risks and rewards of ownership passes to the purchaser including delivery of the product, the selling price is fixed or
determinable, and collectability is reasonably assured.
m)
Flow-through financing
The Company has financed a portion of its exploration activities through the issue of flow-through shares, which transfer the
tax deductibility of exploration expenditures to the investor. Proceeds received on the issue of such shares have been
credited to share capital. Resource expenditure deductions for income tax purposes related to exploration and development
activities funded by flow-through share arrangements are renounced to investors in accordance with income tax legislation.
When these expenditures are renounced, temporary taxable differences created by the renunciation will reduce share capital.
n)
Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax
assets and liabilities are determined based on differences between the consolidated financial statement carrying values and
the income tax bases of assets and liabilities, and are measured using the enacted or substantively enacted income tax rates
and laws that are expected to be in effect when the temporary differences are expected to reverse. The effect on future
income tax assets and liabilities of a change in income tax rates is recognized in the period that includes the date of enactment
or substantive enactment of the change. When the future realization of income tax assets does not meet the test of being
more likely than not to occur, a valuation allowance in the amount of the potential future benefit is taken and no net asset is
recognized.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
2.
o)
SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation
The Company records compensation cost based on the fair value method of accounting for stock-based compensation. The
fair value of stock options is determined using the Black-Scholes option pricing model. The fair value of the options is
recognized over the vesting period as compensation expense and contributed surplus. When options are exercised, the
proceeds received, together with any related amount in contributed surplus, will be credited to share capital.
p)
Earnings (loss) per share
Basic earnings (loss) per share is calculated using the weighted number of shares outstanding. Diluted earnings (loss) per
share is calculated using the treasury stock method. In order to determine diluted earnings (loss) per share, the treasury stock
method assumes that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase
common shares at the average market price during the period, with the incremental number of shares being included in the
denominator of the diluted earnings (loss) per share calculation. The diluted earnings (loss) per share calculation excludes
any potential conversion of options and warrants that would increase earnings per share or decrease loss per share. Total
shares issuable from options, warrants and convertible debentures excluded from the computation of diluted (loss) per share
because they were anti-dilutive for the year ended December 31, 2010 were 14,940,630 (2009 – 13,938,000), 82,271,650
(2009 – 16,931,503) and 15,875,000 (2009 – 4,639,118), respectively.
q)
Joint ventures
A portion of the Company's exploration activities are conducted jointly with others wherein the Company enters into
agreements that provide for a specified percentage interest in exploration properties. Expenditures on these properties are
capitalized to mineral properties. Joint venture accounting, which reflects the Company's proportionate interest in exploration
properties is applied by the Company only when the parties have earned their respective interests and enter into a formal
comprehensive agreement for joint ownership and exploration participation.
r)
Financial instruments
Financial assets and liabilities, including derivative instruments, are initially recognized and subsequently measured based on
their classification as "held-for-trading", "available-for-sale" financial assets, "held-to-maturity", "loans and receivables", or
"other" financial liabilities. Held-for-trading financial instruments are measured at their fair value with changes in fair value
recognized in operations for the period. Available-for-sale financial assets are measured at their fair value and changes in fair
value are included in other comprehensive loss until the asset is removed from the balance sheet or until impairment is
assessed as other than temporary. Held-to-maturity investments, loans and receivables and other financial liabilities are
measured at amortized cost using the effective interest rate method. Derivative instruments, including embedded derivatives,
are measured at their fair value with changes in fair value recognized in operations for the period, unless the instrument is a
cash flow hedge and hedge accounting is applied, in which case changes in fair value are recognized in other comprehensive
loss.
s)
Comprehensive loss
Comprehensive loss, composed of net loss and other comprehensive loss, is defined as the change in shareholders' equity
from transactions and other events from non-owner sources. Other comprehensive loss (“OCL”) includes unrealized gains and
losses on available-for-sale securities and changes in the fair market value of derivatives designated as cash flow hedges, all
net of related income taxes. The components of comprehensive loss are disclosed in the statement of operations and
comprehensive loss. Cumulative changes in other comprehensive loss are included in accumulated other comprehensive loss
("AOCL") which is presented as a new category in shareholders' equity. The Company does not currently have any OCL items
or AOCL. Therefore, comprehensive loss is equal to net loss for the years ended December 31, 2010 and 2009.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
2.
t)
SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity Investments
Prior to acquiring a controlling interest in December 2009, the Company accounted for its investment in Garson Gold Corp. on the
equity basis, as it exercised significant influence.
Future accounting changes
Business Combinations, Consolidated Financial Statements and Non-Controlling Interests
The CICA issued three new accounting standards in January 2009: Section 1582, Business Combinations, Section 1601, Consolidated
Financial Statements and Section 1602, Non-Controlling Interests. These new standards will be effective for fiscal years beginning on
or after January 1, 2011. Section 1582 replaces Section 1581 and establishes standards for the accounting for a business
combination. It provides the Canadian equivalent to IFRS 3 - Business Combinations. The section applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January
1, 2011. Sections 1601 and 1602 together replace Section 1600, Consolidated Financial Statements. Section 1601, establishes
standards for the preparation of consolidated financial statements. Section 1601 applies to interim and annual consolidated financial
statements relating to fiscal years beginning on or after January 1, 2011. Section 1602 establishes standards for accounting for a non-
controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the
corresponding provisions of IFRS lAS 27 - Consolidated and Separate Financial Statements and applies to interim and annual
consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently evaluating
the impact that this new standard may have on the financial statements of the Company.
International Financial Reporting Standards (“IFRS”)
In February 2008, the CICA Accounting Standards Board confirmed that the changeover to IFRS from Canadian GAAP will be required
for publicly accountable enterprises, effective for the interim and annual financial statements relating to fiscal years beginning on or
after January 1, 2011. The Company will adopt IFRS for its fiscal year beginning January 1, 2011. The transition from current Canadian
GAAP to IFRS is a significant undertaking that may materially affect the Company’s reported financial position and results of
operations. Management is currently assessing the impact of adopting IFRS and it has not yet determined its effect on the Company’s
consolidated financial statements.
The Company expects a smooth transition to IFRS for reporting the first quarter of 2011.
3.
ACQUISITION OF GARSON GOLD CORP.
On December 23, 2009, the Company acquired 89% of the issued and outstanding shares of Garson Gold Corp. (“Garson”). An initial
15% was acquired during the third quarter of 2009, with the purchase of 31,092,000 common shares of Garson for cash consideration
of $1,544,110. In October 2009, the Company offered 0.29 of a common share of the Company for each Garson common share held.
On January 15, 2010, the Company acquired additional shares of Garson through the issuance of common shares of the Company at
the same ratio. The Company completed the acquisition of Garson on April 29, 2010. As at December 31, 2010, some shareholders
had not yet tendered their Garson shares, and consequently an amount of $150,314 is recorded as a commitment to issue shares. The
Company incurred $1,155,298 in transaction costs as at December 31, 2010 related to the acquisition. On April 29, 2010, the
Company also issued options and warrants to former Garson option and warrant holders valued at $141,900 and $423,051
respectively. The value of these options and warrants was estimated using the Black-Scholes option pricing model using the following
assumptions: expected dividend yield: 0%; expected volatility: between 41.4% and 78.61%; risk-free interest rate: between 0.39%
and 2.75%; and expected life: between 2.4 months and 4 years.
The transaction was accounted for as an acquisition of assets and liabilities in accordance with the Emerging Issues Committee (“EIC”)
Abstracts 124 “Definition of a Business”. The allocation of the purchase price to the fair value of the identifiable assets acquired and
liabilities assumed as at the date of acquisition, December 23, 2009, and adjusted for the incremental purchase, is as follows:
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
3.
ACQUISITION OF GARSON GOLD CORP. (continued)
The Company incurred an equity loss of $93,251 from the period September 9, 2009 through to December 23, 2009 while it held a 15%
interest in Garson.
4.
INVENTORY
During the year ended December 31, 2010, the Company recognized $34,925,813 of inventory as an expense (2009: $30,406,309).
All inventory is carried at the lower of cost and net realizable value. Material and supplies inventory is recorded at cost as at December
31, 2010 and 2009. As at December 31, 2010, $239,035 (December 31, 2009: $700,000) in stockpiled ore and $939,579 (December
31, 2009: $1,300,000) in finished gold brick and doré bars are recorded at net realizable value, while the remainder is recorded at cost.
Consideration paid: Cash1,544,110$ Value of common shares issued21,218,547 Transaction costs1,155,298 Value of options granted141,900 Value of warrants granted423,051 less: Equity loss recognized(93,251) 24,389,655$ Net assets acquired:Cash30,482$ Restricted cash5,767,000 Accounts receivable and prepaid expenses128,744 Investments109,800 Property, plant and equipment9,259,000 Exploration properties17,463,248 Accounts payable(1,959,501) Asset retirement obligations(2,346,000) Convertible debenture(2,085,036) Future income taxes(1,978,082) 24,389,655$ 20102009Material and supplies $ 643,753 $ 426,494 Stockpiled ore 239,035 4,354,454 Gold brick or doré bars 939,579 1,386,735 $ 1,822,367 $ 6,167,683
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
5.
PROPERTY, PLANT AND EQUIPMENT
As a result of the acquisition of Garson on December 23, 2009, the Company acquired various assets at the Snow Lake mine site,
including a mill which is on care and maintenance and various machinery and equipment. No amortization expense has been recorded
in relation to the Snow Lake mill. The fair value of these acquired assets totaled $9,259,000.
During the year ended December 31, 2010, the Company expensed $2,432,019 in amortization to the statement of operations (2009:
$962,548) and charged $288,931 to deferred exploration properties (2009: $116,665).
Included in property, plant and equipment is the Val-d’Or mill that had been under care and maintenance. The Company had been
refurbishing the mill, and during the second quarter of 2010, the mill began commissioning with crushing low-grade ore and has been
operating throughout the rest of the year. Accordingly, amortization expense, calculated on a unit-of-production basis of $954,869 has
been recorded for the year ended December 31, 2010 (2009: $nil).
Included in mobile equipment and buildings are assets under capital leases throughout the year totalling $1,449,326 (2009:
$1,366,759). Accumulated amortization on these assets totalled $590,318 (2009: $569,096) with a net book value of approximately
$859,008 (2009 - $1,367,000). Amortization of $231,444 was charged to operations on these leased assets for the year ended
December 31, 2010 (2009: $253,987).
During the year ended December 31, 2010, the Company disposed of equipment with a net book value of $121,108 and received cash
proceeds of $20,000 related to this equipment.
As a result of the impairment of the Lac Herbin property described in Note 6, the Company re-assessed the value of the mill and
various mining equipment at the Lac Herbin mine site and determined that the carrying value was impaired. Consequently, the
Company wrote down the value of the mill and equipment by $7,708,213.
Cost ($) Accumulated Amortization ($)Net ($)Computer equipment103,775(86,192) 17,583 Computer software209,945(209,945) - Office equipment and furniture69,020(43,667) 25,353 Machinery and equipment8,989,812(896,201) 8,093,611 Mobile equipment4,759,125(1,692,268) 3,066,857 Buildings 2,988,282(262,020) 2,726,262 Mill6,038,490- 6,038,490 23,158,449(3,190,293) 19,968,156 2009 Cost ($) Accumulated Amortization ($)Net ($)Computer equipment176,940(121,102) 55,838 Office equipment and furniture69,858(59,583) 10,275 Machinery and equipment7,344,376(1,484,006) 5,860,370 Mobile equipment4,758,761(2,410,301) 2,348,460 Buildings 2,804,012(513,256) 2,290,756 Mill4,237,868(954,869) 3,282,999 19,391,815(5,543,117) 13,848,698 2010
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
6.
MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES
The Company has accrued approximately $3,100,000 in government assistance receivable related to eligible expenditures in the
province of Québec for the year ended December 31, 2010. An amount of $680,000 in government assistance is accrued for the year
ended December 31, 2009 while approximately $3,000,000 is accrued for the year ended December 31, 2008. During the year ended
December 31, 2010, the Company received approximately $1,980,000 in assistance related to the year ended December 31, 2007 and
approximately $2,200,000 related to to the year ended December 31, 2009. The assistance has been applied to the properties to which
it pertains. The Company receives this assistance in the form of refundable tax credits from the Québec Provincial Government and
mining duties returns from Québec Ministry of Natural Resources.
The Company also applies for government assistance from the province of Manitoba related to exploration at its Snow Lake Mine . The
Company received $76,000 in assistance during the year ended December 31, 2010.
PRODUCING PROPERTIESDescription Lac Herbin Rouyn Lac Pelletier VMS Aurbel Snow Lake TOTAL Quebec Quebec Quebec Quebec Quebec Manitoba ($) ($) ($) ($) ($) ($) ($) Balance, December 31, 200826,630,201 13,298,025 3,851,288 8,151,292 3,724,063 - 55,654,869 Acquisition and property maintenance- 20,854 177,309 23,631 46,737 18,917,174 19,185,705 Development costs1,934,930 - - - - - 1,934,930 Exploration costs1,740,821 321,704 10,397,791 1,643,371 2,230,705 12,771 16,347,163 Asset retirement obligations278,000 - 98,000 - - - 376,000 Amortization(1,300) (14,116) 137,003 (6,636) 1,714 - 116,665 30,582,652 13,626,467 14,661,391 9,811,658 6,003,219 18,929,945 93,615,332 Less: Government assistance71,808 (19,319) (1,885,686) (194,215) (395,229) - (2,422,641) Depletion of deferred exploration and development costs(6,409,283) - - - - - (6,409,283) Balance, December 31, 200924,245,177 13,607,148 12,775,705 9,617,443 5,607,990 18,929,945 84,783,408 NON-PRODUCING PROPERTIESPRODUCING PROPERTIESDescription Lac Herbin Rouyn Lac Pelletier VMS Aurbel Snow Lake Herblet Lake TOTAL Quebec Quebec Quebec Quebec Quebec Manitoba Manitoba ($) ($) ($) ($) ($) ($) ($) ($) Balance, December 31, 200924,245,177 13,607,148 12,775,705 9,617,443 5,607,990 18,929,945 - 84,783,408 Acquisition and property maintenance- 45,961 30,384 15,990 44,626 (1,355,389) 50,390 (1,168,038) Development costs354,592 - - - - - - 354,592 Exploration costs627,073 1,337,982 9,403,521 2,187,056 1,332,309 7,722,131 - 22,610,072 Asset retirement obligations adjustment798,000 - - - - (539,000) - 259,000 Amortization48 2,109 188,086 4,297 3,254 91,137 - 288,931 26,024,890 14,993,200 22,397,696 11,824,786 6,988,179 24,848,824 50,390 107,127,965 Less: Government assistance(296,754) (365,848) (1,885,404) (572,056) (328,919) - (76,205) (3,525,186) Net gold sales from bulk sample- - (3,075,951) - - - - (3,075,951) Sale of ore applied against project costs- - - - - (794,615) - (794,615) Depletion of deferred exploration and development costs(4,612,407) - - - - - - (4,612,407) Write-down of mineral properties(21,115,729) - (12,824,723) - - - - (33,940,452) Balance, December 31, 2010- 14,627,352 4,611,618 11,252,730 6,659,260 24,054,209 25,815- 61,179,354 NON-PRODUCING PROPERTIES
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
6.
MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES (continued)
Aurbel Property (Including Lac Herbin), Québec
The Company holds a 100% interest in the Aurbel Property (including Lac Herbin), subject to a 4.5% Net Smelter Royalty (“NSR”). A
corporation for which a director of the Company is both an officer and director holds 2% of the NSR. See Note 15.
On October 1, 2008, the Company declared the commencement of commercial production at Lac Herbin.
During the fourth quarter of 2010, the Company wrote off the value of the Lac Herbin Property by an amount of $21,115,729 reflecting
an impairment in value after reassessment of reserves and a revised life-of-mine plan.
Rouyn Noranda Properties, Québec
Pursuant to the June 15, 2004 binding letter of intent with Falconbridge Ltd., now referred to as Xstrata Copper ("Xstrata"), a business
unit of Falconbridge Ltd., the Company has a 50% interest in all of Xstrata's properties in the prospective Rouyn-Noranda Base Metal
and Gold Camp. See Note 20.
Certain claims that form part of this property are subject to NSR royalties that range from 0.5% to 2% of net proceeds or production
royalties that range from 7.5% to 20%.
Lac Pelletier Property, Rouyn-Noranda, Québec
Pursuant to the September 2005 option agreement with Thundermin Resources Inc. ("Thundermin"), the Company was entitled to
acquire a 100% interest in the Lac Pelletier Property, subject to a 3.5% NSR royalty and $1/tonne Toll Charge, by spending $1,000,000
in exploration expenditures by September 1, 2008. During 2007, the Company met its expenditure obligations.
Pursuant to the agreement, the Company extended its decision deadline and was required to make a production decision by
September 1, 2009 and reach commercial production by September 1, 2010. The Company further amended this agreement such that
the production decision deadline had been extended to September 1, 2010 with a payment of $100,000 in 2009. Prior to September 1,
2010, the Company issued a production commitment notice to Thundermin, thereby exercising its option to acquire the Lac Pelletier
Property. The Company is in discussions with Thundermin regarding the transfer of full title and ownership of the Lac Pelletier Property
to the Company. Thundermin has advised that they are not prepared to accept the production commitment notice from the Company
as valid under the option agreement. The Company has been advised that Thundermin intends to initiate arbitration pursuant to the
Option Agreement in the absence of a resolution to this matter.
During 2009, the Company entered into a property acquisition agreement to acquire a 100% interest in four mining claims located near
Lac Pelletier, subject to a 2% NSR. The Company has the option to purchase, at any time, 50% of the NSR for US$1,000,000.
In the fourth quarter of 2010, the Company wrote down the value of the Lac Pelletier property by an amount of $12,824,723 to reflect an
impairment in value as a result of a revised cash flow estimate.
VMS Properties, Québec
The Company holds a 100% interest in the VMS properties, subject to Teck Cominco Ltd. (formerly Aur Resources Ltd.) retaining
between a 2% and a 2.5% NSR on the properties depending on pre-existing underlying royalties. Certain claims forming part of this
property are subject to NSR royalties of 1% to 2.5%, net profits royalties of 5% or net proceeds of production royalties of 10% or 25
cents charge per ton milled. Certain of the properties were held under previously existing joint venture agreements. The other party to
these agreements has opted to no longer fund the properties.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
6.
MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES (continued)
Snow Lake, Manitoba
Through the acquisition of Garson (Note 3), the Company acquired a 100% interest in the New Britannia Gold Mine (“NBM”) in Snow
Lake, Manitoba. The Company has since renamed the mine “Snow Lake Mine”. A total of $5,767,000 in financial assurances is posted
with both the Government of Manitoba and Kinross Gold Corporation (“Kinross”) (the former owners of the New Britannia Mine)
refundable upon commercial production of the mine. The letter of credit with the Manitoba government is financial assurance that the
site will ultimately be closed according to the terms of the existing and approved closure plan. Once closure is complete, all or a portion
of the letter of credit will be refunded to the Company. Should a National Instrument 43-101 compliant resource of 3 million ounces be
proven, Kinross retains a back-in right for a 60% interest for consideration of the equivalent of three-times the exploration costs incurred
to that date.
NSR royalties totaling 2.88% on various portions of the Snow Lake Property are held by third parties.
Herblet Lake, Manitoba
In November 2010, the Company entered into an agreement to acquire a 100% interest in certain mining claims in the Herblet Lake
area. To acquire this 100% interest, the Company is required to make total cash payments of $300,000 and incur total exploration
expenditures of $3,000,000 over a period of 5 years according the following schedule:
The exercise of the option is subject to an NSR of 3% payable from the date of commencement of commercial production. Upon
exercise of the option, the Company will be required to make advanced royalty payments of $50,000 annually up to $250,000 to be
credited against future NSR payments. The Company has the right to purchase up to 50% of the NSR for a total of $1,500,000, with
each 0.5% of the 3% NSR requiring a $500,000 payment.
7.
CAPITAL LEASE OBLIGATIONS
During the year ended December 31, 2010, the Company entered into capital leasing arrangements for mobile equipment for terms of
24 months at interest rates of between 8.9% and 32.8%. Existing leases for mobile equipment and buildings are at interest rates of
7.75% and 7.95%
As at December 31, 2010, the future minimum lease payments under the capital lease arrangements were:
Cash Payment ($)Expenditures ($)November 19, 201050,000 - **Paid December 2010November 19, 201150,000 200,000 November 19, 201250,000 300,000 November 19, 201350,000 500,000 November 19, 201450,000 1,000,000 November 19, 201550,000 1,000,000 300,000 3,000,000 CommitmentDecember 2011146,414 December 201252,638 199,052 Less: Amounts representing interest(11,340) 187,712 Less: Current portion(137,045) Long-term portion50,667 Capital lease obligations
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
8.
LONG-TERM DEBT
In July 2006, the Company purchased a building, being the Val-d’Or office, from Aur Resources Ltd. (now Teck Cominco Ltd.). The
Company made a payment of $100,000 towards the purchase price, with the balance payable in 45 monthly instalments of $10,000 and
recorded as a non-interest bearing long-term debt, discounted at a rate of 6.28%. Accretion expense related to this loan for the year
ended December 31, 2010 totalled $4,444 (2009 - $13,333). This loan was paid down in full as at December 31, 2010.
The Company had entered into a financing contract to purchase mobile equipment at an interest rate of 7.75% repayable over four
years. The balance of $51,333 is payable in 2011.
9.
CONVERTIBLE DEBENTURE
a) During 2006, the Company completed a private placement debenture financing with Industrial Alliance Securities Inc. ("Industrial
Alliance") raising $4,210,000 in gross proceeds. Pursuant to the terms of the private placement, the Company issued units
comprised of $1,000 principal convertible debentures (the "Debentures") maturing April 28, 2010 and 150 common share purchase
warrants (the "Warrants"). The $1,000 face value Debentures were unsecured and subordinated obligations of the Company, had
a coupon rate of 6.0% and were convertible at the option of the holder, any time after 12 months from the date of closing, into
common shares of the Company at an exercise price of $0.75 for the second year, $0.825 for the third year and $0.9075 for the
fourth year (the "Conversion Prices"). Interest on the loan was payable in cash or in common shares of the Company at the option
of the Company based on a price equal to 90% of the average closing price of the common shares of the Company on the TSX
Exchange for a period of 20 consecutive trading days ending 5 days before the payment date. The Warrants expired unexercised.
On April 28, 2010, the Company entered into agreements with the current holders of the expiring $4,210,000 convertible
debentures to roll over the existing 6% convertible debentures into units comprised of $1,000 principal amount 10% convertible
unsecured subordinated debentures due April 28, 2014. Interest will be payable in equal semi-annual instalments on April 30 and
October 30 at 10% per annum commencing October 30, 2010. At the option of the Company, interest shall be payable in cash or
in shares. If payment is in shares, it will be based on a price equal to 90% of the average closing price of the common shares of
the Company on the Toronto Stock Exchange for a period of 20 consecutive trading days ending five trading days before payment
date. Each debenture is convertible at the option of the holder into common shares of the Company at any time after the issue
date at the conversion price of $0.40 per share. Except in the event of a change of control, the debentures are not redeemable
prior to April 28, 2012. On or after April 28, 2012 and up to and including April 28, 2014, the debentures may be redeemed by the
Company at the option of the Company at par plus accrued and unpaid interest on not more than 60 days’ and not less than 30
days’ notice prior to the date fixed for redemption provided that the average closing price of the Company’s common shares during
the 20 consecutive trading days ending five trading days preceding the date on which notice of redemption is given is not less than
125% of the conversion price. A charge of $94,000 was incurred in relation to the roll-over agreements.
The Debentures are classified as a liability, with the exception of the portion relating to the conversion features, resulting in the
carrying value of the Debentures being less than its face value. The discount is being accreted over the term of the Debentures,
utilizing the effective interest rate method at a 15% discount rate. For the year ended December 31, 2010, accretion of the
discount totalled $570,059 (2009 - $576,948).
Financing charges associated with the Debentures were prorated between the debt and equity components of the Debentures.
Those allocated to the debt portion of the Debentures were deferred and are being accreted over the term of the Debentures. For
the year ended December 31, 2010, $39,380 (2009 - $83,101) in deferred financing charges were accreted to operations.
During the second quarter of 2010, the Company issued 397,099 common shares of the Company in lieu of the 6% cash interest
payment due to the debenture holders on April 28, 2010. The shares were valued at a weighted average price of $0.3137 per
share for a total amount of $124,570. During the fourth quarter of 2010, 1,003,447 common shares were issued, valued at a
weighted average price of $0.2138 per share, in lieu of the 10% cash interest payment due to the debenture holders on October
30, 2010. The total value of these shares was $214,537. In 2009, the Company issued a total of 607,912 shares in lieu of cash
interest payments on these debentures for a total value of $252,600.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
9.
CONVERTIBLE DEBENTURE (continued)
b) As a result of the acquisition of Garson, the Company is carrying a convertible debenture with a face value of $2,150,000. This
debenture has a coupon rate of 10%, and interest is compounded monthly and paid quarterly in cash. The debenture matured on
July 28, 2010. On July 15, 2010, the Company entered into an agreement to extend the term of this debenture to July 31, 2012.
The debenture is convertible into common shares of the Company at a price of $0.40 per share at the option of the holder. There
were 4,000,000 Garson warrants issued to the debenture holder at the time of the original agreement, which were converted to
warrants of the Company at a ratio of 0.29 on April 29, 2010. These were cancelled during the third quarter of 2010 and 4,000,000
warrants were re-issued at an exercise price of $0.50 with an expiry date of July 15, 2012. The Company paid an arrangement fee
of $53,750 to extend the term of the debenture.
The debenture has been re-valued as a result of the extension. It has been classified as a liability, with the exception of the portion
relating to the conversion feature, resulting in the carrying value being less than its face value. The discount is being accreted over
the remaining term of the debenture. For the year ended December 31, 2010, accretion expense related to this debenture totalled
$126,042.
10.
ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligations (“ARO”) are based on management’s estimates of costs to abandon and reclaim mineral
properties and facilities as well as an estimate of the future timing of the costs to be incurred.
The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the ARO associated with the
retirement of the Company’s plant and mineral properties:
The Company has estimated its total asset retirement obligations to be $3,559,000 at December 31, 2010 based on a total future
liability of approximately $7,500,000 and a credit adjusted risk-free rate ranging between 13% and 15.45%. Reclamation is expected to
occur between five to eight years. As a result of reduced reserves and a shorter mine life at its Lac Herbin property, the Company
revised the asset retirement obligation estimate as at December 31, 2010.
Through Garson, the Company has term deposits amounting to $5,767,000 restricted for the reclamation of the Snow Lake property.
The Company has placed funds on deposit as collateral for letters of credit issued to the vendor of the NBM, Kinross, as well as to the
Government of Manitoba, for Garson’s share of assumed reclamation and operating obligations. The Company pays an annual fee of
1% of the face value of the letter. Funds on deposit are invested in short term GICs earning interest at HSBC floating rates of interest.
The GICs can be redeemed prior to maturity without penalty.
2010 2009 Balance, beginning of year $ 3,667,865 $ 541,000 Liabilities incurred - 376,000 Change in estimates 259,000 (102,000)Liabilities acquired through acquisition of subsidiary (Note 3) (482,865) 2,828,865 Accretion expense 115,000 24,000 Balance, end of year $ 3,559,000 $ 3,667,865
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
11.
(a)
SHARE CAPITAL
Authorized
Unlimited number of common shares without par value
(b)
Issued
(i)
In September 2010, the Company closed a public offering of 95,833,333 units of the Company raising a gross amount of
$14,375,000. Each unit, priced at $0.15 per unit, was comprised of one common share and one-half of one common share purchase
warrant. Each whole warrant entitles the holder to acquire one common share of the Company at a price of $0.40 expiring on
September 2, 2013. If at any time commencing on the 20th trading day after the closing date of the offering the weighted average
trading price of the common shares of the Company listed on the Toronto Stock Exchange (“TSX”) is or exceeds $0.55 for a period of
20 consecutive trading days, the Company may accelerate the expiry of the warrants by giving prior notice to the holders of the
warrants within 10 business days immediately following such 20 day trading period. In such an event, the warrants, if unexercised, will
expire on the 30th calendar day following the date on which such notice will be deemed to have been received by such holders of
warrants. The notice will be deemed to be received five days following the date such notice was sent. As well, 19,027,619 units under
the same terms were issued to settle liabilities totalling $2,854,143. The fair value of the warrants, an amount of $1,611,161, was
estimated using the Black-Scholes option pricing model using the following assumptions: expected dividend yield: 0%; expected
volatility: 70.99%; risk-free interest rate: 1.55%; and expected life: approximately 3 years.
The underwriters received a commission of 7% of the total proceeds, as well as 4,791,666 broker warrants which are exercisable into
one common share at a price of $0.15 and expire September 2, 2012. The fair value of the broker warrants, an amount of $305,800,
was estimated using the Black-Scholes option pricing model using the following assumptions: expected dividend yield: 0%; expected
volatility: 77.52%; risk-free interest rate: 1.55%; and expected life: approximately 2 years. Additional issue costs included legal fees
and other disbursements.
Common Shares issuedNumber of SharesStated ValueBalance, December 31, 2008128,084,827 63,134,869$ Private placement (iv)39,106,000 20,000,000 Warrant valuation (iv)- (752,600) Exercise of stock options325,000 140,250 Stock option exercise ‑ valuation reallocation96,675 Shares issued for acquisition of subsidiary (Note 3)45,612,929 18,920,025 Shares issued to settle liabilities in acquisition of subsidiary1,231,947 563,000 Shares issued for payment of interest (Note 9(a))607,912 252,600 Cost of issue- (2,473,136) Tax effect of cost of issue (iii)- 681,000 Flow-through share tax effect- (1,505,000) Balance, December 31, 2009214,968,615 99,057,683$ Public offering (i)95,833,333 14,375,000 Private placement (ii)50,774,998 12,186,000 Warrant and broker warrant valuation (i)- (1,650,059) Exercise of broker warrants2,000,000 300,000 Broker warrant exercise -- valuation reallocation- 127,600 Shares issued for acquisition of subsidiary (Note 3)6,550,200 2,274,544 Shares issued to settle liabilities (i)19,027,619 2,854,143 Value of warrants attached to shares issued to settle liabilities (i)- (266,902) Shares issued for payment of interest (Note 9(a))1,400,546 339,107 Cost of issue- (2,463,592) Tax effect of cost of issue- 672,660 Flow-through share tax effect (iii)- (4,245,000) Adjustment(23) - Balance, December 31, 2010390,555,288 123,561,184$
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
11.
SHARE CAPITAL (continued)
In December 2010, the Company closed a private placement financing through the issuance of 50,774,998 flow-through
(ii)
common shares at a price of $0.24 per flow-through common share for gross proceeds of $12,186,000. The underwriters received a
commission of 7% of the total proceeds. Total issue costs related to this financing was $984,711.
(iii)
In February 2010, the Company renounced $14,172,000 of Canadian exploration expenditures related to proceeds from flow
through shares with an effective date of December 31, 2009. As a result, an amount of $4,245,000 was debited to common stock,
increasing the future income tax liability by this amount. In February 2009, the Company renounced $5,000,000 of Canadian
exploration expenditures related to proceeds from flow through shares with an effective date of December 31, 2008. As a result, an
amount of $1,505,000 was debited to common stock, increasing the future income tax liability by this amount.
In July 2009, the Company closed a brokered private placement financing raising gross proceeds of $10,000,000 through the
(iv)
issuance of 11,656,000 units of the Company at a price of $0.50 per unit and 7,450,000 flow-through common shares of the Company
at a price of $0.56 per share. Each unit is comprised of one common share of the Company plus one-half of one common share
purchase warrant. Each whole warrant entitles the holder to acquire one additional common share of the Company at a price of $0.70
expiring on July 9, 2011. The underwriters were paid a cash commission of 6% in relation to this financing. As well, 699,360 broker
units and 447,000 broker warrants were issued. Each broker unit is exercisable into one common share of the Company and one-half
of one common share purchase warrant for an exercise price of $0.50 until July 9, 2011. Then, each whole warrant will be exercisable
into one common share of the Company at an exercise price of $0.70 until July 9, 2011. Each broker warrant is exercisable into one
common share at an exercise price of $0.56 until July 9, 2011.
The fair value of the warrants, an amount of $752,600, was estimated on the date of grant using the Black-Scholes option pricing model
under the following assumptions: expected dividend yield of 0%, expected volatility of 79%, risk-free interest rate of 1.2% and an
expected life of 2 years. The values of the broker units and broker warrants were estimated at $150,400 and $57,700 respectively,
using the Black-Scholes option pricing model under the same assumptions.
In December 2009, the Company closed a brokered private placement financing raising gross proceeds of $10,000,000 through the
issuance of 20,000,000 flow-through common shares of the Company at a price of $0.50 per share. The underwriters were paid a cash
commission of 7% and were issued 1,000,000 broker warrants in relation to this financing. Each broker warrant is exercisable into one
common share of the Company at an exercise price of $0.50 until June 23, 2011. The fair value of the broker warrants, an amount of
$135,000, was estimated on the date of grant using the Black-Scholes option pricing model under the following assumptions: expected
dividend yield of 0%, expected volatility of 78%, risk-free interest rate of 1.37% and an expected life of 18 months.
12.
WARRANTS
Summary of warrant activity:
Number of warrantsWeighted average exercise priceNumber of warrantsWeighted average exercise priceBalance, beginning of year 16,931,503 $ 0.82 21,457,143 $ 1.20 Granted 66,222,143 0.39 7,974,360 0.65 Granted on acquisition of subsidiary 11,990,037 0.41 - - Exercised (2,000,000) 0.15 - - Expired (10,872,033) 0.89 (12,500,000) 1.35 Balance, end of year 82,271,650 $ 0.42 16,931,503 $ 0.82 20102009
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
12.
WARRANTS (continued)
Summary of warrants outstanding as at December 31, 2010:
The Company granted 11,990,037 warrants to the former warrant holders of Garson replacing those Garson warrants they held. The
estimated fair value of these warrants was $423,051 (see Note 3). The fair value was estimated on the date of grant using the Black-
Scholes option pricing model, with the following assumptions, quoted at their weighted averages: expected dividend yield: 0%;
expected volatility: 49.99%; risk-free interest rate: 1.08%; and expected life: approximately 2 to 18 months.
* The Company granted 699,360 broker units to the agents involved in the Company’s private placement in July 2009. These broker
units are exercisable into one common share of the Company, plus one-half of one common share purchase warrant, each whole
warrant exercisable into one common share of the Company at a price of $0.70 until July 9, 2011.
** On September 10, 2010, the exercise price of these warrants increased from $0.207 to $0.345.
*** On September 10, 2010, the exercise price of these warrants increased from $0.276 to $0.414.
13.
STOCK-BASED COMPENSATION
The shareholders of the Company approved the Company's existing stock option plan, "the Plan", to be administered by the directors of
the Company. Under the Plan, the Company may grant to directors, officers, employees and consultants options to purchase shares of
the Company. The Plan provides for the issuance of stock options to acquire up to 10% of the Company's issued and outstanding
capital. The plan is a rolling plan as the number of shares reserved for issuance pursuant to the grant of stock options will increase as
the Company’s issued and outstanding share capital increases. Options granted under the Plan will be for a term not to exceed 5
years. The options currently granted under the plan vest immediately pending any regulatory hold period. The plan provides that, it is
solely within the discretion of the board to determine who should receive stock options and in what amounts. In no case (calculated at
the time of grant) shall the plan result in:
The number of options granted in a 12-month period to any one consultant exceeding 2% of the issued shares of the Company;
The aggregate number of options granted in a 12-month period to any one individual exceeding 5% of the outstanding shares of
the Company;
The number of options granted in any 12-month period to employees or consultants undertaking investor relations activities
exceeding in aggregate 2% of the issued shares of the Company;
The aggregate number of common shares reserved for issuance to any one individual upon the exercise of options granted under
the Plan or any previously established and outstanding stock option plans or grants exceeding 5% of the issued shares of the
Company in any 12-month period.
Grant dateNumber ofExercisefair valueDatewarrantspriceof warrantsof expiry2,650,915 $0.34581,383 March 4, 2011637,420 $0.34519,888 March 20, 20111,000,000 $0.500135,000 June 23, 2011553,842 $0.41417,335 June 26, 2011*699,360 $0.500150,400 July 9, 2011447,000 $0.56057,700 July 9, 20115,828,000 $0.700752,600 July 9, 2011**295,220 $0.34538,792 September 10, 2011***398,750 $0.41429,428 September 10, 20115,539,000 $0.414225,991 September 10, 20114,000,000 $0.500107,200 July 15, 20122,791,666 $0.150178,200 September 2, 201257,430,477 $0.4001,611,161 September 2, 201382,271,650 3,405,078$
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
13.
STOCK-BASED COMPENSATION (continued)
Summary of stock option activity
As at December 31, 2010, the following stock options were outstanding:
Number of optionsWeighted average exercise priceNumber of optionsWeighted average exercise priceBalance, beginning of year 13,938,000 $ 0.59 10,186,500 $ 0.65 Granted 717,500 0.28 5,395,000 0.43 Granted on acquisition of subsidiary 1,930,130 0.79 - - Exercised - - (325,000) 0.43 Expired (1,645,000) 0.76 (1,287,500) 0.50 Forfeited - - (31,000) 0.57 Balance, end of year 14,940,630 $ 0.58 13,938,000 $ 0.59 20102009DATENO. OF OPTIONSNO. OF OPTIONSEXERCISEGRANT DATE FAIR VALUE OFOF EXPIRYOUTSTANDINGEXERCISABLEPRICEOPTIONS GRANTED ($)1-Feb-11480,000 480,000 $0.42151,680 1-Nov-11100,000 100,000 $0.5233,900 8-Dec-11115,000 115,000 $0.5037,490 4-Jan-12415,243 415,243 $0.9712,600 4-Jan-12522,000 522,000 $1.0314,300 5-Mar-1225,000 25,000 $0.9115,075 9-Apr-12100,000 100,000 $1.1475,800 24-Aug-12186,687 186,687 $1.036,800 27-Aug-123,125,000 3,125,000 $0.791,753,125 17-Sep-12400,000 400,000 $0.84238,400 11-Oct-1210,000 10,000 $0.946,990 19-Oct-12155,000 155,000 $0.91104,780 1-Nov-122,500 2,500 $0.891,650 24-Jan-13131,950 131,950 $1.215,000 30-Jan-13100,000 100,000 $0.8861,100 5-Aug-132,285,500 2,285,500 $0.49735,931 9-Jan-14500,000 500,000 $0.45144,255 4-Feb-14543,750 543,750 $0.3582,700 4-May-14130,500 130,500 $0.3520,500 14-Jul-14447,500 447,500 $0.41116,350 21-Dec-144,447,500 4,166,250 $0.431,145,990 23-Feb-15200,000 100,000 $0.4039,758 9-Jun-15467,500 358,125 $0.2365,428 4-Nov-1550,000 50,000 $0.227,365 14,940,630 14,450,005
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
13.
STOCK-BASED COMPENSATION (continued)
During the year ended December 31, 2010, 717,500 stock options (2009: 5,395,000) were granted to directors, officers, employees
and consultants of the Company with a weighted-average grant date fair value of $0.18 per option (2009: $0.26). Of these options,
375,000 vest 1/8th every quarter from the date of grant (2009: 1,250,000), while the remainder vested immediately. Stock-based
compensation expense of $207,243 (2009: $1,286,690) relating to these options and others that vested during the year was recorded
in professional, consulting and management fees, while $35,590 (2009: $nil) was charged to exploration properties. The fair value of
these options was estimated on the date of grant using the Black-Scholes option pricing model, with the following assumptions, quoted
at their weighted averages:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life
2010
0%
75.60%
1.92%
5 years
2009
0%
76.15%
1.49%
5 years
The Company granted 1,930,130 stock options to former option holders of Garson replacing those Garson options they held. The
estimated fair value of these options was $141,900 (see Note 3). The fair value was estimated on the date of grant using the Black-
Scholes option pricing model, with the following assumptions, quoted at their weighted averages: expected dividend yield: 0%;
expected volatility: 76.83%; risk-free interest rate: 2.14%; and expected life: approximately 1.5 to 4 years.
The weighted average exercise price of stock options exercisable as at December 31, 2010 is $0.58 (2009: $0.60) and the weighted
average remaining contractual life is 2.7 years (2009: 3.22 years).
14.
CONTRIBUTED SURPLUS
15.
RELATED PARTY TRANSACTIONS
The Company was charged $60,000 for administration services during the year ended December 31, 2010 (2009: $60,000) by a
company for which Mr. Stan Bharti, a director of the Company, is an officer and director. This amount is included in Professional,
consulting and management fees on the statement of operations.
An amount of $160,000 is payable to directors of the Company as at December 31, 2010 (2009: $80,000) and is included in accounts
payable and accrued liabilities.
NSR royalties of US$238,152 ($253,325) were paid during the year ended December 31, 2010 to a company for which Mr. Stan Bharti,
a director of the Company, is an officer and director, all of which was accrued at December 31, 2009. An additional US$528,693
($548,315) has been accrued at December 31, 2010 in accounts payable and accrued liabilities for royalties on gold sales. (See Note
6.)
The Company shares its premises with other corporations that have common directors and officers, and the Company reimburses the
related corporations for their proportional share of the expenses. As at December 31, 2010, the Company has advanced $76,291 to
such corporations to cover shared expenses and has included these amounts in prepaid expenses (2009: $87,978). The Company
owes $26,604 included in accounts payable and accrued liabilities as at December 31, 2010 (2009: $nil) related to these expenditures.
As well, as at December 31, 2010, the Company is owed $nil from such corporations for shared expenses (2009: $3,466). This
amount is included in amounts receivable.
20102009Balance, beginning of year14,064,892$ 7,962,377$ Stock options granted and/or vested during the periodDirectors, officers and employees171,228 1,051,638 Consultants71,605 235,052 Options granted on acquisition of subsidiary141,900 Exercise of stock options, reallocation of valuation- (96,675) Expiry of warrants and broker warrants, reallocation of valuation1,777,577 4,912,500 Balance, end of year16,227,202$ 14,064,892$
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
15.
RELATED PARTY TRANSACTIONS (continued)
All of the above transactions are in the normal course of operations and are measured at the exchange amount which is the amount of
consideration established and agreed to by the related parties. The amounts owing to and from the related parties are unsecured, non-
interest bearing with no fixed terms of repayment.
16.
FUTURE INCOME TAX LIABILITIES
a)
Provision for income taxes
The major items causing the Company's income tax expense to differ from the Canadian combined federal and provincial statutory rate
of 30% (December 31, 2009 - 32%) were:
Loss before income taxes
Expected income tax recovery at statutory rates
Adjustments resulting from:
Change in tax rates
Stock-based compensation
Share-issuance costs
Difference in tax rates
Non-deductible amounts for tax purposes
Other
Valuation allowance
2010
$
2009
$
(55,066,035)
(3,468,686)
(16,501,000)
(1,108,000)
14,000
58,000
(716,000)
1,118,000
(2,274,422)
11,684,000
83,000
411,000
-
-
142,000
1,377,000
-
Future income tax expense/(recovery)
(6,617,422)
905,000
b)
Future income tax balances
The tax effect of temporary differences that give rise to future income tax assets and liabilities in Canada at December 31, 2010 and
December 31, 2009 are as follows:
Future income tax assets (liabilities)
Non-capital losses
Resource properties
Property, plant and equipment
Share issue costs
Valuation allowance
2010
$
6,597,000
2,476,000
918,000
1,693,000
(11,684,000)
-
2009
$
3,531,000
(4,425,141)
(3,675,000)
1,311,000
(3,258,141)
c)
2010 which under certain circumstances can be used to reduce the taxable income of future years.
The Company has approximately $70,000,000 of Canadian development and exploration expenditures as at December 31,
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
16.
FUTURE INCOME TAX LIABILITIES (continued)
d)
circumstances can be used to reduce the taxable income of future years. The non-capital losses expire as follows:
The Company has approximately $24,000,000 of non-capital losses in Canada as at December 31, 2010 which under certain
Expiry Date
2011
2013
2014
2015
2016
2025
2026
2027
2028
2029
2030
Amount ($)
259,000
222,000
529,000
1,068,000
140,000
980,000
1,650,000
200,000
9,888,000
4,153,000
5,837,000
24,926,000
17.
CAPITAL MANAGEMENT
The Company manages and adjusts its capital structure based on available funds in order to support its operations and the
acquisition, exploration and development of mineral properties. The capital of the Company consists of share capital, warrant s,
options and convertible debentures. The Board of Directors does not establish quantitative return on capital criteria for management,
but rather relies on the expertise of the Company's management to sustain future development of the business.
The Company is in production and has been generating cash flows to support the ongoing and longer term strategy focused on
regional exploration. However, the Company may continue to rely on capital markets to support continued growth. The Company will
continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or
economic potential and if it has adequate financial resources to do so.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of
the Company, is reasonable.
There were no changes in the Company's approach to capital management during the years ended December 31, 2010 and 2009.
The Company and its subsidiary are not subject to externally imposed capital requirements.
18.
FINANCIAL RISK FACTORS
The Company's risk exposures and the impact on the Company's consolidated financial instruments are summarized below.
There have been no changes to the risks,objectives, policies and procedures from the previous period.
Credit risk
The Company's credit risk is primarily attributable to cash equivalents, amounts receivable and tax credits receivable. The Company has
no significant concentration of credit risk arising from operations. Cash equivalents consist of guaranteed investment certificates and
bankers acceptances, which have been invested with reputable financial institutions, from which management believes the risk of loss
to be remote. Financial instruments included in amounts receivable and tax credits receivable consist of goods and services tax due
from the Federal Government of Canada, tax credits due from the Provincial Government of Québec, and receivables from related and
unrelated companies. The Company currently transacts with highly rated counterparties for the sale of gold. Management believes that
the credit risk concentration with respect to these financial instruments is remote.
Liquidity risk
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at
December 31, 2010, the Company had a cash and cash equivalents balance of $9,410,889 (2009 - $6,106,007) to settle current
liabilities of $9,536,580 (2009 - $20,341,302). Approximately $6,800,000 of the Company's financial liabilities have contractual
maturities of less than 30 days and are subject to normal trade terms.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
18.
FINANCIAL RISK FACTORS (continued)
Market risk
(a)
Interest rate risk
The Company has cash balances subject to fluctuations in the prime rate. The Company's current policy is to invest excess cash in
investment-grade deposit certificates issued by its banking institutions. The Company periodically monitors the investments it makes
and is satisfied with the credit ratings of its banks. The Company carries convertible debentures on which interest is payable
quarterly or semi-annually at fixed rates of 10% per annum. Management believes that interest rate risk is remote as investments
have maturities of three months or less and the Company currently does not carry interest bearing debt at floating rates.
(b)
Foreign currency risk
The Company's functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars. All gold sales
revenues are denominated in US dollars. The Company is exposed to currency risk with fluctuations in the Canadian dollar relative
to the US dollar. The Company currently does not use derivatives to mitigate its foreign currency risk.
(c)
Price risk
The Company is exposed to price risk with respect to commodity prices, specifically gold. The Company closely monitors
commodity prices to determine the appropriate course of action to be taken by the Company. The Company’s future gold mining
operations will be significantly affected by changes in the market prices for gold. Gold prices fluctuate on a daily basis and are affected
by numerous factors beyond the Company’s control. The supply and demand for gold, the level of interest rates, the rate of inflation,
investment decisions by large holders of gold including governmental reserves and stability of exchange rates can all cause significant
fluctuations in gold prices. Such external economic factors are in turn influenced by changes in international investment patterns and
monetary systems and political developments.
(d)
Securities price risk
The Company carries investments in certain public securities for which price fluctuations can affect the Company’s earnings. The
Company classifies these investments as held-for-trading where price volatility is reflected in earnings.
Financial instruments
The Company has designated its cash equivalents, restricted cash and investments as held-for-trading, measured at fair value. Cash,
amounts receivable and tax credits receivable are classified as loans and receivables, which are measured at amortized cost. Accounts
payable and accrued liabilities, the liability component of convertible debentures, capital lease obligations and long -term debt are
classified as other financial liabilities and measured at amortized cost.
The carrying value of cash equivalents, restricted cash equivalents, amounts receivable, tax credits receivable and accounts payable
and accrued liabilities reflected in the consolidated balance sheet approximate fair value because of the limited term of these
instruments. The carrying values of the liability component of convertible debentures, capital lease obligation and long-term debt
approximate their fair values as current interest rates have not changed significantly.
Section 3862 “Financial Instruments – Disclosures” establishes a fair value hierarchy that prioritizes the methods and assumptions
used to develop fair value measurements for those financial assets where fair value is recognized on the balance sheet. Thes e
have been prioritized into three levels.
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly
Level 3 – Inputs for the asset or liability that are not based on observable market data.
Fair value amounts represent point-in-time estimates and may not reflect fair value in the future. The measurements are subjective
in nature, involve uncertainties and are a matter of significant judgment.
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
18.
FINANCIAL RISK FACTORS (continued)
The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fa ir value
hierarchy as at December 31, 2010.
Sensitivity analysis
Based on management's knowledge and experience of the financial markets, the Company believes the following movements are
"reasonably possible" over the year:
The Company does not hold interest bearing debt at interest rates subject to market fluctuations to give rise to interest
rate risk.
Based on the gold brick and doré inventory held by the Company as at December 31, 2010, 10% fluctuations in the
exchange rate from US$ to CDN$ will generate increases or decreases in value of approximately $ 93,000.
Based on the gold brick and doré inventory held by the Company at December 31, 2010, an increase or decrease in the
market price of gold of US$100 per ounce would generate a respective increase or decrease in value of approximately
$66,000.
The Company has not currently hedged its future gold sales.
The Company does not hold significant cash balances in foreign currencies to give rise to foreign exchange risk.
19.
COMMITMENTS AND CONTINGENCIES
The Company is party to certain management contracts. These contracts contain clauses requiring additional payments of up
(a)
to $3,300,000 be made upon the occurrence of certain events such as a change of control. As the likelihood of these events taking
place is not determinable, the contingent payments have not been reflected in these consolidated financial statements. Additional
minimum management contractual commitments remaining under the agreements are approximately $800,000, all due within one year.
The Company is committed to minimum amounts under long-term capital lease agreements for equipment, which expire in
(b)
October 2012. Minimum commitments remaining under these leases were approximately $199,000, including imputed interest of
approximately $11,000, over the following years:
(c)
Pursuant to the issuance of 50,774,998 flow-through shares in December 2010, the Company has renounced $12,186,000 of
qualified exploration expenditures in February 2011. As at December 31, 2010, the Company has spent approximately $333,000 and is
required to spend an additional $11,853,000 by December 31, 2011.
The Company has indemnified the subscribers of current and previous flow-through share offerings against any tax related amounts
that become payable by the shareholder as a result of the Company not meeting its expenditure commitments.
(d)
The Company had been charged approximately $300,000 in professional fees related to proposed financing ventures. These
amounts were in dispute. During the year ended December 31, 2010, the Company settled this dispute with a payment of
approximately $162,000.
December 2011146,000$ December 201253,000 199,000$ Level 1Level 2Level 3Cash equivalents-$ 8,019,438$ -$ Restricted cash equivalents-$ 5,767,000$ -$ Investments641,116$ -$ -$
ALEXIS MINERALS CORPORATION
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
19.
COMMITMENTS AND CONTINGENCIES (continued)
The Company had an amount payable with a contractor in the amount of approximately $6.3 million. The contractor has
(e)
placed a lien on the Company’s Pelletier property pending resolution of the amount payable. The amount, as well as interest, has been
paid down according to an agreed upon payment schedule and as at December 31, 2010, the balance payable is approximately
$794,000.
The Company’s mining and exploration activities are subject to various law and regulations governing the protection of the
(f)
environment. These law and regulations are continually changing and generally becoming more restrictive. The Company believes its
operations are materially in 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.
20.
INTEREST IN JOINT VENTURE
The Company is party to a 50% joint venture interest in the Rouyn Properties. Xstrata is the operator of this joint venture. The
Company's proportionate share of the assets, liabilities and cash flows of this joint venture included in these consolidated financial
statements are as follows:
Current assets
Mineral properties and deferred exploration expenditures
Current liabilities
Revenues
Expenses
Cash flows from operating activities
Cash flows from investing activities
21.
SUBSEQUENT EVENTS
2010
$
-
994,497
(12,041)
-
-
-
(982,456)
2009
$
-
882,100
(75,297)
-
-
-
(806,803)
Subsequent to the end of the year, the Company granted 3,115,000 stock options to employees of the Company at an exercise price of
$0.18 expiring five years from the date of expiry. As well, approximately 62,500 options were forfeited and 4,351,618 options expired
unexercised subsequent to the end of the year.
Also, 3,288,335 warrants with an exercise price of $0.345 expired unexercised subsequent to December 31, 2010.