TIDMGSL
1st Quarter Results
Condensed Consolidated Interim Financial Statements
(Unaudited)
For the Three Months Ended March 31, 2011 and 2010
(In U.S. Dollars, unless otherwise noted)
GREYSTAR RESOURCES LTD.
Condensed Consolidated Interim Statements of Financial Position (Unaudited)
(Expressed in U.S. Dollars, unless otherwise noted)
March 31, December 31, January 1,
Note 2011 2010 2010
(note 14) (note 14)
ASSETS
Current assets:
Cash and cash equivalents 10 $ 91,097,591 $ 98,877,647 $ 77,950,797
Trade and other receivables 890,217 778,952 559,277
91,987,808 99,656,599 78,510,074
Property, plant and equipment 4 901,772 940,357 847,792
Exploration and evaluation assets 5 18,098,508 17,497,430 15,309,203
$ 110,988,088 $ 118,094,386 $ 94,667,069
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 4,474,187 $ 6,351,570 $ 2,661,465
Amounts payable on exploration and
evaluation asset acquisition 1,140,516 1,112,992 550,863
Site restoration provision 7 705,435 682,056 594,785
Warrant liabilities 8 4,329,099 7,026,231 30,970,014
10,649,237 15,172,849 34,777,127
Amounts payable on exploration and
evaluation asset acquisition - - 430,856
Site restoration provision 7 156,724 206,772 560,898
10,805,961 15,379,621 35,768,881
Shareholders' equity:
Share capital 8 234,967,351 234,967,351 169,880,206
Equity reserves 8 17,528,538 16,445,198 11,959,036
Deficit (152,313,762) (148,697,784) (122,941,054)
Equity attributable to equity
holders of the Company 100,182,127 102,714,765 58,898,188
Nature of operations 1
Subsequent events 13
$ 110,988,088 $ 118,094,386 $ 94,667,069
See accompanying notes to these unaudited condensed consolidated interim financial statements.
Approved by the Board and authorized for issue on May 11, 2011.
"David B. Rovig" Director "Brian E. Bayley" Director
GREYSTAR RESOURCES LTD.
Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited)
(Expressed in U.S. Dollars, unless otherwise noted)
Three months ended March 31,
Note 2011 2010
Exploration expenditures:
Feasibility studies 5 $ 1,052,349 $ 1,068,236
Other exploration expenditures 5 4,170,633 1,974,790
5,222,982 3,043,026
General and administrative expenses:
Audit, legal and other professional fees 287,594 139,047
Depreciation 80,915 62,755
Investor relations 92,866 25,699
Management and consulting fees 9 910,084 463,578
Office facilities and administration 9 172,730 95,772
Salaries and benefits 730,460 626,672
Share-based compensation 8 1,008,990 1,072,189
Transfer agent, listing and filing fees 63,948 66,708
Travel 235,622 99,402
3,583,209 2,651,822
Loss from operating activities 8,806,191 5,694,848
Other items:
Interest income (288,739) (257,421)
Finance costs 6 18,330 33,745
Fair value change on warrant liabilities 8 (2,861,979) (135,508)
Foreign exchange gain (2,057,826) (2,563,338)
(5,190,214) (2,922,522)
Loss and comprehensive loss for the period
attributable to shareholders of the Company $ 3,615,977 $ 2,772,326
Basic and diluted loss per common share $ 0.04 $ 0.03
Weighted-average number of common shares
outstanding 84,222,987 82,524,806
See accompanying notes to these unaudited condensed consolidated interim financial statements.
GREYSTAR RESOURCES LTD.
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
(Expressed in U.S. Dollars, unless otherwise noted)
Three months ended March 31,
Note 2011 2010
(note 14)
Operating activities:
Loss for the period $ (3,615,977) $ (2,772,326)
Adjustment for non-cash items:
Depreciation 80,915 62,755
Fair value change on warrant liabilities 8 (2,861,979) (135,508)
Finance costs 6 18,330 33,745
Share-based compensation 8 1,008,990 1,072,189
Unrealized foreign exchange gain 184,660 473,521
Other non-cash income and expenses (37,289) (174,430)
Change in non-cash working capital:
Trade and other receivables (112,115) (77,381)
Trade and other payables (1,876,533) 276,358
Cash (used in) generated from
operating activities (7,210,998) (1,241,078)
Investing activities:
Exploration and evaluation asset
acquisition costs 5 (526,728) (200,014)
Purchase of property, plant and equipment 4 (42,330) (39,093)
Net cash flows used in investing activities (569,058) (239,107)
Financing activities:
Proceeds from exercise of stock options 8 - 27,072
Proceeds from exercise of warrants 8 - 44,289,068
Net cash flow generated from
financing activities - 44,316,139
Increase (decrease) in cash and cash equivalents (7,780,056) 42,835,955
Cash and cash equivalents, beginning of period 98,877,647 77,950,797
Cash and cash equivalents, end of period 10 $ 91,097,591 $ 120,786,752
See accompanying notes to these unaudited condensed consolidated interim financial statements.
GREYSTAR RESOURCES LTD.
Condensed Consolidated Interim Statements of Changes in Equity (Unaudited)
(Expressed in U.S. Dollars, unless otherwise noted)
Share Capital (note 8) Equity Reserves (note 8)
Number of Amount Contributed Warrants Deficit Total
Shares Surplus
Balance,
January 1, 2010 72,360,764 $ 169,880,206 $ 10,031,116 $ 1,927,920 $(122,941,054) $ 58,898,188
Options exercised 31,630 154,957 (127,885) - - 27,072
Warrants exercised 11,700,261 64,108,898 - (746,919) - 63,361,979
Warrants expired - - 31,152 (31,152) - -
Share-based
compensation - - 1,072,189 - - 1,072,189
Net loss and
comprehensive loss - - - - (2,772,326)
(2,772,326)
Balance,
March 31, 2010 84,092,655 234,144,061 11,006,572 1,149,849 (125,713,380) 120,587,102
Options exercised 130,332 823,290 (487,482) - - 335,809
Warrants issued - - - 818,355 - 818,355
Share-base compensation - - 3,957,904 - - 3,957,904
Net loss and
comprehensive loss - - - - (22,984,405)
(22,984,405)
Balance,
December 31, 2010 84,222,987 234,967,351 14,476,994 1,968,204 (148,697,785) 102,714,765
Warrants issued - - - 74,350 - 74,350
Share-based
compensation - - 1,008,990 - - 1,008,990
Net loss and
comprehensive loss - - - - (3,615,977)
(3,615,977)
Balance,
March 31, 2011 84,222,987 $ 234,967,351 $ 15,485,984 $ 2,042,554 $(152,313,762) $100,182,127
See accompanying notes to these unaudited condensed consolidated interim financial statements.
Greystar Resources Ltd.
Notes to Condensed Consolidated Interim financial Statements (unaudited)
(Expressed in U.S. Dollars, unless otherwise noted)
Three Months Ended March 31, 2011
1.Nature of operations
Greystar Resources Ltd. (the "Company") is a publicly listed company incorporated in Canada under the
legislation of the Province of British Columbia. The Company's shares are listed on the Toronto Stock
Exchange ("TSX") and the Alternative Investment Market ("AIM") of the London Stock Exchange. The Company's
principal business activities include the acquisition, exploration and development of mineral properties.
The Company is in the process of exploring its mineral properties and has not yet determined whether they
contain reserves that are economically recoverable. Management anticipates that the Company will continue
to raise adequate funding through equity or debt financings, although there is no assurance that the
Company will be able to obtain adequate funding on favorable terms. The recoverability of amounts shown
for mineral properties and equipment is dependent upon, among other things, the discovery of economically
recoverable reserves, the ability of the Company to obtain the necessary financing to complete exploration
and development, confirmation of the Company's interest in the underlying concessions and licenses, the
ability of the Company to obtain the necessary mining and environmental permits, and future profitable
production or proceeds from the disposition of the mineral properties.
At March 31, 2011, the Company had working capital of $81,338,571 but had not yet achieved profitable
operations and expects to incur further losses in the development of its business. For the three months
ended March 31, 2011, the Company reported a comprehensive loss of $3,615,977 and as at March 31, 2011, had
an accumulated deficit of $152,313,762. The ability of the Company to continue as a going concern is
dependent upon the Company's ability to arrange additional financing to complete the development of its
property, including obtaining the necessary permits and other regulatory approvals, and upon future
profitable operations.
2.Basis of preparation
(a)Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting ("IAS 34") as issued by the
International Accounting Standards Board ("IASB"). The policies applied in these interim
financial statements are based on International Financial Reporting Standards ("IFRS") issued
and outstanding as at May 11, 2011, the date the Board of Directors approved these interim
financial statements for issue. Any subsequent changes to IFRS that are issued and effective as
at December 31, 2011, could result in a restatement of these interim financial statements,
including the transition adjustments recognized on conversion to IFRS.
These are the Company's first condensed consolidated interim financial statements prepared in
accordance with IFRS and, as a result, IFRS 1, "First-time Adoption of International Financial
Reporting Standards," has been applied. Prior to the adoption of IFRS, the Company's financial
statements were prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). As these interim financial statements are the Company's first financial
statements prepared in accordance with IFRS, disclosure of the elected transition exemptions and
reconciliation and explanation of accounting policy differences compared to Canadian GAAP have
been provided in Note 14.
These interim financial statements should be read in conjunction with the Company's 2010 annual
financial statements, which were prepared in accordance with Canadian GAAP, and the IFRS
disclosures included in Note 14.
(b)Basis of measurement
The consolidated interim financial statements have been prepared on the historical cost basis in
the statement of financial position except for certain derivative financial instruments, which
are measured at fair value.
(c)Functional and presentation currency
These interim condensed consolidated financial statements are presented in U.S. dollars, which
is the Company's functional currency.
(d)Use of estimates and judgements
The preparation of the condensed consolidated financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future
periods affected.
(i)Critical accounting estimates
Critical accounting estimates are estimates and assumptions made by management that
may result in a material adjustment to the carrying amount of assets and liabilities
within the next financial year and are as follows:
Site restoration provision
The Company assesses its site restoration provision annually. Significant estimates
and assumptions are made in determining the site restoration provision as there are
numerous factors that will affect the ultimate liability payable. These factors
include estimates of the extent and costs of rehabilitation activities, technological
changes, regulatory changes, cost increases, and changes in discount rates. Those
uncertainties may result in future actual expenditure differing from the amount
currently provided. The provision at the date of the statement of financial position
represents management's best estimate of the present value of the future site
restoration costs required. Changes to estimated future costs are recognized in the
statement of financial position by adjusting the site restoration asset and
liability. To the extent that the site restoration provision was created due to
exploration activities, the amount capitalized is reduced immediately by a charge to
exploration expenses for the same amount.
Exploration and evaluation assets
The application of the Company's accounting policy for and determination on
recoverability of capitalized exploration and evaluation expenditure requires
judgement in determining whether future economic benefits are likely, which may be
based on assumptions about future events or circumstances. Estimates and assumptions
made may change if new information becomes available. If, after expenditure is
capitalized, information becomes available suggesting that the recovery of
expenditure is unlikely, the amount capitalized is recognized in loss in the period
that the new information becomes available.
Warrants and stock options issued with Canadian dollar exercise prices
The fair value of warrants and stock options issued with Canadian dollar exercise
prices are subject to the limitation of the Black-Scholes option pricing model that
incorporates market data and involves uncertainty in estimates used by management in
the assumptions. Because the Black-Scholes option pricing model requires the input of
highly subjective assumptions, including the volatility of share price, changes in
subjective input assumptions can materially affect the fair value estimate.
Recovery of deferred tax assets
Judgement is required in determining whether deferred tax assets are recognized in
the statement of financial position. Deferred tax assets, including those arising
from unutilized tax losses, require management to assess the likelihood that the
Company will generate taxable earnings in future periods, in order to utilize
recognized deferred tax assets. Estimates of future taxable income are based on
forecast cash flows from operations and the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Company to realize the net deferred
tax assets recorded at the date of the statement of financial position could be
impacted.
Additionally, future changes in tax laws in the jurisdictions in which the Company
operates could limit the ability of the Company to obtain tax deductions in future
periods.
(ii)Critical accounting judgements
Information about critical judgements in applying accounting policies that have the
most significant effect on the amounts recognized in the condensed consolidated
financial statements are as follows:
Determination of functional currency
In accordance with IAS 21, "The Effects of Changes in Foreign Exchange Rates,"
management determined that the functional currencies of Greystar Resources Ltd., its
Colombian branch and subsidiaries are the U.S. dollar.
3.Significant accounting policies
(a)Basis of consolidation
These condensed consolidated interim financial statements include the accounts of the Company,
its Colombian branch and subsidiaries. Intra-company balances and transactions, and any
unrealized income and expenses arising from intra-company transactions, are eliminated in
preparing the consolidated financial statements.
(b)Foreign currency translation
Transactions in foreign currencies are initially translated to U.S. dollars, the functional
currency of Company, at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at that date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction. Non-monetary assets and
liabilities denominated in foreign currencies that are measured at fair value are retranslated
to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognized in profit or loss.
(c)Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation
is recognized in profit or loss on a straight-line basis over the estimated useful lives of each
part of an item of property, plant and equipment, since this most closely reflects the expected
pattern of consumption of the future economic benefits embodied in the asset. The estimated
useful lives for the current and comparative periods are as follows:
-- Buildings 20 years
-- Field equipment 3 to 5 years
-- Office equipment 3 years
-- Transport 5 years.
(d)Exploration and evaluation assets
All direct costs related to the acquisition of mineral property interests are capitalized into
intangible assets. Exploration and evaluation expenditures incurred prior to the determination
of the feasibility of mining operations and a decision to proceed with development are charged
to operations as incurred. Development expenditures incurred subsequent to a development
decision, and to increase or to extend the life of existing production, are capitalized and will
be amortized on the unit-of-production method based upon estimated proven and probable reserves.
When there is little prospect of further work on a property being carried out by the Company,
the remaining deferred costs associated with that property are charged to operations during the
period such determination is made.
The amounts shown for exploration and evaluation assets represent acquisition costs incurred to
date, less recoveries and write-offs, and do not reflect fair value.
(e)Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets, other than deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If
any such indication exists, then the asset's recoverable amount is estimated.
For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups of assets (the "cash-
generating unit," or "CGU").The recoverable amount of an asset or cash-generating unit is the
greater of its value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific
to the asset.
The Company's corporate assets do not generate separate cash inflows. If there is an indication
that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to
which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
(f)Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The unwinding of
the discount is recognized as finance cost.
(g)Financial assets
(i)Financial assets at fair value through profit or loss ("FVTPL")
Financial assets at FVTPL are financial assets held for trading. A financial asset is
classified in this category if acquired principally for the purpose of selling in the
short term or if so designated by management. Derivatives are also categorized as
FVTPL unless they are designed as effective hedges. Assets in this category include
cash and cash equivalents.
Financial assets at FVTPL are initially recognized, and subsequently carried, at fair
value, with changes recognized in profit or loss. Transaction costs are expensed as
incurred.
(ii)Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are included in current
assets, except for those with maturities greater than 12 months or those that are
expected to be settled after 12 months from the end of the reporting period, which
are classified as non-current assets. Assets in this category include trade and other
receivables.
Loans and receivables are initially recognized at fair value plus transaction costs
and subsequently carried at amortized cost using the effective interest method,
except for short-term receivables when the recognition of interest would be
immaterial.
(iii)Effective interest method
The effective interest method is used to determine the amortized cost of a financial
asset and to allocate interest income over the corresponding period. The effective
interest rate is the rate that discounts estimated future cash receipts over the
expected life of the financial asset, or, where appropriate, a shorter period.
Income is recognized on an effective interest basis for debt instruments other than
those financial assets classified as FVTPL.
(iv)Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at each period end. Financial assets are impaired when there is objective
evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment
have been impacted.
Objective evidence of impairment could include the following:
-- Significant financial difficulty of the issuer or counterparty;
-- Default or delinquency in interest or principal payments; or
-- It has become probable that the borrower will enter bankruptcy or financial
reorganization.
For financial assets carried at amortized cost, the amount of the impairment is the
difference between the asset's carrying amount and the present value of the estimated
future cash flows, discounted at the financial asset's original effective interest
rate.
The carrying amount of all financial assets, excluding trade receivables, is directly
reduced by the impairment loss. The carrying amount of trade receivables is reduced
through the use of an allowance account. When a trade receivable is considered
uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the allowance account. Changes
in the carrying amount of the allowance account are recognized in profit or loss.
For financial assets measured at amortized cost, if, in a subsequent period, the
amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment losses were recognized, the previously
recognized impairment loss is reversed through profit or loss to the extent that the
carrying amount of the asset at the date the impairment is reversed does not exceed
what the amortized cost would have been had the impairment not been recognized.
(v)Derecognition of financial assets
Financial assets are derecognized when the rights to receive cash flows from the
assets expire or the financial assets are transferred and the Company has transferred
substantially all the risks and rewards of ownership of the financial assets. On
derecognition of a financial asset, the difference between the asset's carrying
amount and the sum of the consideration received and receivable and the cumulative
gain or loss that had been recognized directly in equity is recognized in profit or
loss.
(h)Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangement. An equity instrument is any
contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the group entities are recorded at the proceeds
received, net of direct issue costs.
Financial liabilities are classified as either financial liabilities at FVTPL or other financial
liabilities.
A financial liability may be designated as at FVTPL upon initial recognition if:
-- Such designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise; or
-- The financial liability forms part of a group of financial assets or financial liabilities
or both, which is managed and its performance is evaluated on a fair value basis, in
accordance with the Company's documented risk management or investment strategy, and
information about the grouping is provided internally on that basis; or
-- It forms part of a contract containing one or more embedded derivatives and IAS 39
permits the entire combined contract (asset or liability) to be designated as at FVTPL.
At the end of each reporting period subsequent to initial recognition, financial liabilities at
FVTPL are measured at fair value, with changes in fair value recognized directly in profit or
loss in the period in which they arise. Other financial liabilities are initially measured at
fair value, net of transaction costs, and are subsequently measured at amortized cost using the
effective interest method, with interest expense recognized on an effective yield basis.
(i)Warrant liabilities:
The Company has issued share purchase warrants with Canadian dollar exercise prices
(note 8) in connection with equity financing arrangements. As a result, the proceeds
from the exercise of these warrants will vary. These warrants meet the definition of
derivatives and are therefore classified as financial liabilities and measured at
FVTPL prior to their exercise and expiry dates.
(ii)Other financial liabilities:
The Company has classified trade and other payables as other financial liabilities.
(iii)Derecognition of financial liabilities:
Financial liabilities are derecognized when the obligation specified in the relevant
contract is discharged, cancelled or expires. The difference between the carrying
amount of the financial liability derecognized and the consideration paid and payable
is recognized in profit or loss.
(i)Share capital
The Company records proceeds from share issuances net of issue costs. Shares issued for
consideration other than cash are valued at the quoted market price on the date the agreement to
issue the shares was reached and announced for business combinations and at the date of issuance
for other non-monetary transactions. For proceeds received from the issuance of compound equity
instruments such as units comprised of common shares and warrants, the Company allocates the
proceeds using the residual method whereby the proceeds allocated to the warrants is based on
their Black-Scholes fair value with the remaining proceeds allocated to common shares.
(j)Loss per share
The Company presents basic and diluted earnings per share ("EPS") data for its common shares.
Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of
the Company by the weighted average number of common shares outstanding during the period,
adjusted for own shares held. Diluted loss per share is calculated using the treasury stock
method. Under the treasury stock method, the weighted average number of common shares
outstanding for the calculation of diluted loss per share assumes that the proceeds to be
received on the exercise of dilutive share options and warrants are used to repurchase common
shares at the average market price during the period.
In the Company's case, diluted loss per share is the same as basic loss per share, as the effect
of outstanding share options and warrants (see note 8) on loss per share would be anti-dilutive.
(k)Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as an
employee expense, with a corresponding increase in equity, over the period that the employees
unconditionally become entitled to the awards. The amount recognized as an expense is adjusted
to reflect the number of awards for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognized as an expense is based on the
number of awards that do meet the related service and non-market performance conditions at the
vesting date. For share-based payment awards with non-vesting conditions, the grant date fair
value of the share-based payment is measured to reflect such conditions and there is no true-up
for differences between expected and actual outcomes.
Share-based payment arrangements in which the Company receives goods or services as
consideration for its own equity instruments are accounted for as equity-settled share-based
payment transactions.
(l)Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are
recognized in profit or loss except to the extent that it relates to a business combination, or
items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the
year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized for the following temporary differences: the initial
recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss, and differences relating to
investments in subsidiaries and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future. In addition, deferred tax is not
recognized for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted
by the reporting date. Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but
they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available
against which they can be utilized. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related tax benefit will be
realized.
4.Property, plant and equipment
The following is a reconciliation of the carrying amounts of property, plant and equipment.
Field Office
Buildings Equipment Equipment Transport
Total
Cost
At January 1, 2010 $ 421,955 $ 671,593 $ 375,591 $ 235,047 $
1,704,187
Assets acquired 155,380 122,343 52,071 49,120
378,914
At December 31, 2010 577,336 793,937 427,662 284,167
2,083,101
Assets acquired - - 42,330 -
42,330
At March 31, 2011 $ 577,336 $ 793,937 $ 469,992 $ 284,167 $
2,125,431
Accumulated depreciation
At January 1, 2010 $ (83,281) $ (486,842) $ (184,527) $ (101,744) $
(856,395)
Depreciation for the period (25,368) (72,703) (134,486) (53,792)
(286,349)
At December 31, 2010 (108,650) (559,545) (319,013) (155,536)
(1,142,744)
Depreciation for the period (7,688) (23,807) (34,949) (14,471)
(80,915)
At March 31, 2011 $ (116,338) $ (583,352) $ (353,962) $ (170,007)
$(1,223,659)
Carrying amounts
At January 1, 2010 $ 338,674 $ 184,751 $ 191,064 $ 133,303 $
847,792
At December 31, 2010 $ 468,686 $ 234,392 $ 108,649 $ 128,631 $
940,357
At March 31, 2011 $ 460,998 $ 210,584 $ 116,030 $ 114,159 $
901,772
5.Exploration and evaluation assets
The Company's exploration and evaluation assets comprise mineral property surface rights, mining titles,
exploration licenses, exploitation permits and concession contracts that provide for gold, silver and other
precious metals exploitation in an area located in the Municipality of California, Santander, Colombia,
collectively known as the Angostura Project. The licenses, permits and contracts expire at various dates
ranging from 2020 to 2038 and generally can be renewed for an additional 10, 20 or 30 years depending on
the applicable mining code. Certain portions of the Angostura project are subject to royalties ranging from
5% to 10% of net profits after certain additional deductions. In addition, pursuant to the laws of
Colombia, the Government of Colombia currently receives royalties on gold and silver production equal to 4%
of 80% of the production value, which is calculated using the average gold and silver prices published by
the London Metal Exchange.
In order to maintain the Company's mineral properties in good standing, the Company is required to make
certain annual fee payments based on the number of hectares and a Colombian wage factor that fluctuates on
an annual basis. As at March 31, 2011, the required annual fee payments related to the Company's mineral
properties totaled approximately $624,000 (2010 - $634,000).
The following is a reconciliation of the carrying amounts of exploration and evaluation assets.
Intangible Tangible Total
Assets Assets Costs
Cost at January 1, 2010 $ 5,217,445 $ 10,091,758 $ 15,309,203
Additions 1,144,198 1,044,029 2,188,227
Cost at December 31, 2010 6,361,643 11,135,787 17,497,430
Additions 300,000 301,078 601,078
Cost at March 31, 2011 $ 6,661,643 $ 11,436,865 $ 18,098,508
Additions to exploration and evaluation assets during the three months ended March 31, 2011, relate to a
combination of $526,728 cash consideration and 35,000 share purchase warrants issued. The warrants issued
to purchase the Company's common shares have a term of 4 years with an exercise price of Cdn$3.69 and
maturity date of January 20, 2015. The value of the share purchase warrants issued was estimated to be
$74,350 using the Black-Scholes valuation model applying risk free rate of 2.23%, expected life based on
the full term of the warrants, expected dividends of nil, and volatility rate of 84.5%.
The details of exploration expenditures expensed during the three months ended March 31, 2011 and 2010 are
as follows:
Three months ended March 31,
2011 2010
Exploration expenditures:
General and administrative costs (Angostura project in Colombia) $ 2,106,302 $ 1,013,214
Assay and metallurgy 188,855 3,508
Consulting and geology 1,973 58,444
Drilling and field costs 1,651,145 1,054,732
Environmental 67,711 (229,557)
Equipment rentals, repairs, maintenance and supplies 27,671 24,608
Feasibility studies 1,052,349 1,068,236
Taxes and surface rights 126,976 49,841
5,222,982 3,043,026
Cumulative exploration expenditures, beginning of period 115,117,834 89,908,020
Cumulative exploration expenditures, end of period $ 120,340,816 $ 92,951,046
6.Finance costs
The finance costs for the Company are broken down as follows:
Three months ended March 31,
2011 2010
Effective interest on amounts payable on exploration
and evaluation asset acquisition $ 7,711 $ 16,551
Unwinding of discount on site restoration
10,619 17,194
Total finance costs $ 18,330 $ 33,745
7.Site restoration provision
As at March 31, 2011, the Company had a site restoration provision of $862,159 (2010 - $997,646)
relating to the remediation of environmental disturbances at the Angostura project. The provision is
based on $1,195,783 of undiscounted estimated cash flows required to settle the provision in the
future. Assumptions used by management to determine the carrying amount of the site restoration
provision were a 6.59% pre-tax risk-free discount rate, and a 3.38 - 3.75% rate of inflation over the
expected years to settlement, which is estimated to be in 2013.
The following table shows the changes in the carrying amount of the Company's site restoration
provision associated with the Angostura project:
January 1, 2011 to January 1, 2010 to
March 31, 2011 March 31, 2010
Beginning of period, current and long-term $ 888,828 $ 1,155,683
Decrease in provision due to change in estimate - (162,478)
Remediation work performed (37,289) (12,753)
Accretion during the period 10,619 17,194
End of period, current and long-term 862,159 997,646
Less current portion 705,435 596,601
$ 156,724 $ 401,045
8.Share capital
(a)Authorized:
Unlimited common shares without par value
(b)Issued and outstanding:
The Company had 84,222,987 common shares issued and outstanding as of March 31, 2011 and December 31,
2010.
(c)Stock options:
The Company has an incentive share option plan (the Plan) that allows it to grant options to its
employees, officers, directors and consultants to acquire common shares. The number of shares
issuable pursuant to the Plan is a fixed maximum percentage of 10% of the common shares issued. Under
the terms of the Plan, the exercise price of each option equals the closing market price for the
common shares on the TSX on the trading day prior to the date of the grant. Options have a maximum
term of ten years and terminate sixty days following the termination of the optionee's employment or
term of engagement, except in the case of retirement, or death, termination for cause, resignation at
the request of the Board, removal or disqualification. Vesting of options is made at the discretion
of the Board of Directors at the time the options are granted.
The share option plan also provides for a cashless exercise option provision which is in substance a
stock appreciation right and for which the stock options can only be equity-settled. When share
capital recognized as equity is repurchased as a result of the cashless option, the amount of the
consideration paid, which includes directly attributable costs, net of any tax effects, is recognized
as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as
a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount
received is recognized as an increase in equity, and the resulting surplus or deficit on the
transaction is transferred to/from retained earnings.
The changes in stock options during the three months ended March 31, 2011 and the year ended December
31, 2010 were as follows:
March 31, 2011 December 31, 2010
Number of Weighted average Number of Weighted
average
options exercise price options exercise
price
Cdn $ Cdn
$
Balance outstanding,
beginning of period 6,023,555 $5.12 4,499,285
$5.83
Options granted 400,000 3.21 3,095,750
4.41
Options exercised - - (323,636)
3.94
Options forfeited - - (167,500)
3.74
Options expired (355,500) 8.09
7.07
Balance outstanding,
end of period 6,068,055 $4.82 6,023,555
$5.12
The following table summarizes information concerning outstanding and exercisable options at March 31,
2011:
Options Outstanding Options Exercisable
Weighted average Weighted Options Weighted average
Weighted
Exercise Options remaining average outstanding remaining
average
price outstanding contractual life exercise and exercisable contractual life
exercise
price
price
Cdn$ Years Cdn$ Years
Cdn$
$0.85 - $3.00 12,100 2.68 $0.85 5,433 2.68 $
0.85
$3.01 - $5.00 4,102,305 4.19 3.88 1,549,113 3.16
4.02
$5.01 - $7.00 1,568,250 2.95 5.98 1,044,916 2.46
6.21
$9.01 - $11.00 385,400 0.48 10.13 385,400 0.48
10.13
6,068,055 3.63 $4.82 2,984,862 2.56 $
5.57
The following table summarizes information concerning outstanding and exercisable options at December
31, 2010:
Options Outstanding Options Exercisable
Weighted average Options Weighted average Weighted
Exercise Options remaining Weighted average outstanding remaining average
price outstanding contractual life exercise price and exercisable contractual life exercise
price
Cdn$ Years Cdn$ Years
Cdn$
$0.85 - $3.00 12,100 2.93 $0.85 5,433 2.93
$0.85
$3.01 - $5.00 3,702,305 3.83 3.95 1,549,113 3.40
4.02
$5.01 - $7.00 1,568,250 3.20 5.98 794,916 2.22
6.45
$7.01 - $9.00 346,000 0.05 8.01 346,000 0.05
8.01
$9.01 - $11.00 394,900 0.73 10.31 394,900 0.73
10.31
6,023,555 3.24 $5.11 3,090,362 2.38
$5.89
(d)Share purchase warrants:
The following is a summary of number of warrants outstanding for the three months ended March 31, 2011
and the year ended December 31, 2010:
Three months ended Year ended
March 31, 2011 December 31, 2010
Balance outstanding, beginning of
period 3,330,686 14,729,173
Warrants issued 35,000 323,303
Warrants exercised - (11,700,261)
Warrants expired - (21,529)
Balance outstanding, end of period 3,365,686 3,330,686
The following is a summary of warrant amounts outstanding for the three months ended March 31, 2011
and the year ended December 31, 2010:
Three months ended Year ended
March 31, 2011 December 31, 2010
Balance outstanding, beginning of period $ 8,994,435 $ 32,897,934
Warrants issued 74,350 818,355
Warrants exercised - (19,819,831)
Warrants expired - (31,152)
Fair value change on warrant liabilities (2,861,979) (5,400,356)
Foreign exchange on warrant liabilities 164,847 529,485
Balance outstanding, end of period $ 6,371,653 $ 8,994,435
Classified as:
Warrant liabilities $ 4,329,099 $ 7,026,231
Equity reserves 2,042,554 1,968,204
$ 6,371,653 $ 8,994,435
The fair value of warrants granted was determined using the Black-Scholes option pricing model, with
the following weighted average assumptions at the end of each reporting period:
March 31, 2011 March 31, 2010
Risk-free interest rate 2.23% 1.41%
Expected life 2 - 4 years 2 - 4 years
Annualized volatility 84.54% 82.53%
Expected dividends Nil Nil
Option pricing models require the input of highly subjective assumptions regarding volatility. The
Company has used historical volatility to estimate the volatility of the share price.
The following table summarizes information about warrants outstanding at March 31, 2011:
Number of
Expiry date warrants Exercise price
Cdn$
January 11, 2012 40,000 $7.10
January 10, 2013 100,000 $6.30
March 20, 2014 2,467,186 $2.47
January 14, 2012 3,700 $6.75
February 18, 2012 19,800 $5.65
June 20, 2013 300,000 $2.30
June 29, 2013 100,000 $4.89
January 22, 2013 30,000 $2.05
November 13, 2013 160,000 $6.22
November 13, 2013 15,000 $6.10
July 29, 2014 35,000 $3.65
July 28, 2014 15,000 $4.16
October 21, 2014 10,000 $4.14
October 21, 2014 35,000 $4.17
January 20, 2015 20,000 $3.69
January 20, 2015 15,000 $3.69
3,365,686
The following table summarizes information about warrants outstanding at December 31, 2010:
Number of
Expiry date warrants Exercise price
Cdn$
January 11, 2012 40,000 $7.10
January 10, 2013 100,000 $6.30
March 20, 2014 2,467,186 $2.47
January 14, 2012 3,700 $6.75
February 18, 2012 19,800 $5.65
June 20, 2013 300,000 $2.30
June 29, 2013 100,000 $4.89
January 22, 2013 30,000 $2.05
November 13, 2013 160,000 $6.22
November 13, 2013 15,000 $6.10
July 29, 2014 35,000 $3.65
July 28, 2014 15,000 $4.16
October 21, 2014 10,000 $4.14
October 21, 2014 35,000 $4.17
3,330,686
(e)Share-based compensation
The fair value of each option granted is estimated at the time of grant using the Black-Scholes option
pricing model with weighted average assumptions used to estimate the fair value as follows:
March 31, 2011 March 31, 2010
Risk-free interest rate 1.69% 2.20%
Expected life 5 years 5 years
Annualized volatility 97.8% 74.7%
Expected dividends Nil Nil
Grant date fair value Cdn$3.21 Cdn$3.41
9.Related party transactions
Balances and transactions between the Company and its subsidiaries have been eliminated on
consolidation and are not disclosed in this note. Details of the transactions between the Company and
other related parties are disclosed below.
(a)Trading transactions
The Company's related parties consist of companies owned by executive officers and directors as
follows:
Name Nature of transactions
Ionic Management Corp. Consulting and administrative
Rovig Minerals, Inc. Consulting and management
Steve Kesler Consulting and management
The company incurred the following fees and expenses in the normal course of operations in connection
with companies owned by key management and directors. Expenses have been measured at the exchange
amount which is determined on a cost recovery basis.
Three months ended
March 31,
2011 2010
Consulting fees $ - $ 54,906
General and administrative expenses 28,973 28,113
Management fees 43,750 213,490
$ 72,723 $ 296,510
(b)Compensation of key management personnel
The remuneration of directors and other members of key management personnel during the three months
ended March 31, 2011 and 2010 were as follows:
Three months ended
March 31,
Note 2011 2010
Salaries and directors' fees (i) $ 693,901 $ 391,296
Share-based payments (ii) 809,951 2,884,737
$ 1,503,852 $ 3,276,033
(i)Salaries and directors' fees include consulting and management fees disclosed in Note 9(a).
(ii)Share-based payments are the fair value of options granted to directors and key management personnel.
10.Supplementary cash flow information
Three months ended March 31,
2011 2010
Non-cash investing and financing activities:
Fair value of additional warrants granted upon exercise
of agents' warrants $ - $ 79,122
Fair value of stock options transferred to share capital
from contributed surplus on exercise of options - 127,885
Fair value of warrants transferred to share capital on
exercise of warrants $ - $ 19,819,831
Cash and cash equivalents are comprised of:
March 31, 2011 December 31, 2010
Cash $ 4,730,506 $ 1,468,464
Bank short-term deposits 86,367,085 97,409,183
$ 91,097,591 $ 98,877,647
11.Segment disclosures
IFRS 8 "Operating Segments" requires operating segments to be identified on the basis of internal reports
that are regularly reviewed by the chief operating decision-maker to allocate resources to the segments and
to assess their performance.
The chief operating decision-maker who is responsible for allocating resources and assessing performance of
the operating segments, has been defined as the Chief Executive Officer.
The Company operates in a single segment, being resource exploration and development. Other geographic
information is as follows:
Canada Colombia Total
March 31,2011:
Profit (loss) for the period $ 1,363,293 $ (4,979,270) $ (3,615,977)
Interest Income 278,428 10,311 288,739
Total assets 95,060,226 15,927,862 110,988,088
March 31,2010:
Loss for the period $ (89,323) $ (2,683,003) $ (2,772,326)
Interest Income 255,201 2,220 257,421
Total assets 124,646,856 13,109,901 137,756,757
12.Management of financial risk
The Company's financial instruments are exposed to certain financial risks, including currency risk, credit
risk, liquidity risk, interest risk and price risk.
(a)Currency risk:
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates.
The Company operates in Canada and Colombia and a portion of its expenses are incurred in Canadian
dollars and Colombian pesos. A significant change in the currency exchange rates between the U.S.
dollar relative to foreign currencies could have an effect on the Company's results of operations,
financial position or cash flows. The Company has not hedged its exposure to currency fluctuations.
The Company's exposure to the Colombian peso, expressed in U.S. dollars and Colombian pesos, on
financial instruments is as follows:
March 31, 2011 December 31, 2010
US$ Colombian Peso US$ Colombian Peso
Cash and cash equivalents $ 386,596 726,595,817 $ 94,032 179,975,804
Trade and other receivables 649,812 1,221,301,225 529,412 1,013,284,852
Trade and other payables 2,344,860 4,407,094,745 2,421,976 4,635,613,156
$ 3,381,268 6,354,991,787 $ 3,045,420 5,828,873,812
As at March 31, 2011, with other variables unchanged, a 10% depreciation or appreciation of the U.S.
dollar against the Colombian peso would change the values of the Colombian peso denominated financial
instruments and would affect the consolidated statement of operations and comprehensive loss by
approximately $338,127.
The Company's exposure to the Colombia peso on quarterly exploration expenditures throughout the three
months ended March 31, 2011 was $4.8 million. A 10% depreciation or appreciation of the U.S. dollar
against the Colombian peso would affect the consolidated statement of operations and comprehensive
loss by approximately $484,258.
The Company's exposure to the Canadian dollar, expressed in U.S dollars and Canadian dollars, on
financial instruments is as follows:
March 31, 2011 December 31, 2010
US$ CDN$ US$ CDN$
Cash and cash equivalents $ 90,490,815 $ 87,938,974 $ 97,022,814 $ 96,498,890
Trade and other receivables 240,405 233,626 249,539 248,192
Trade and other payables 2,129,326 2,069,279 3,929,595 3,791,313
$ 92,860,546 $ 90,241,879 $101,201,948 $ 100,538,395
As at March 31, 2011, with other variables unchanged, a 10% depreciation or appreciation of the U.S.
dollar against the Canadian dollar would change the values of the Canadian dollar denominated
financial instruments and would affect the consolidated statement of operations and comprehensive loss
by approximately $9,286,055.
The Company's exposure to the Canadian dollar on quarterly exploration expenditures throughout the
three months ended March 31, 2011 was $516,430. A 10% depreciation or appreciation of the U.S. dollar
against the Canadian dollar would affect the consolidated statement of operations and comprehensive
loss by approximately $51,643.
(b)Credit risk:
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet
its contractual obligations. The Company manages its credit risk through its counterparty ratings and
credit limits.
The Company's cash and cash equivalents and short term investments are held through large Canadian
financial institutions. Short-term investments are composed of financial instruments issued by
Canadian banks and companies with high investment-grade ratings. These instruments mature at various
dates over the current operating period and are normally cashable on a designated monthly date.
Amounts receivable primarily consists of HST receivable with expected payment from the Canadian
government.
The total cash and cash equivalents and amounts receivable represent the maximum credit exposure. The
Company limits its credit risk exposure by holding bank accounts and any short term investments with
reputable banks with high credit ratings.
(c)Liquidity risk:
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short and
long term business requirements. The Company believes that these sources will be sufficient to cover
its cash requirements for the upcoming year. The Company's cash is invested in liquid investments
with quality financial institutions and is available on demand for the Company's programs and is not
invested in any asset backed commercial paper.
As at March 31, 2011, the Company's liabilities have contractual maturities as summarized below:
Less than
Total 1 year
Trade and other payables $ 4,474,187 $ 4,474,187
Amounts payable on exploration and evaluation asset acquisition 1,140,516 1,140,516
$ 5,614,703 $ 5,614,703
(d)Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Company's bank accounts earn interest
income at variable rates. The Company's future interest income is exposed to changes in short-term
rates. An increase or decrease in the annual interest rate of 1% would result in a corresponding
increase or decrease of annual interest income by $910,976.
(e)Fair value of financial instruments
The fair values of amounts receivable and accounts payable and accrued liabilities approximate their
carrying values due to the short-term nature of these instruments. The fair value of the amounts
payable on mineral property acquisitions approximates their carrying value as there was no material
change to the discount rate used to calculate the fair value since initial recognition.
There are three levels of the fair value hierarchy that prioritize the inputs to valuation techniques
used to measure fair value, with Level 1 inputs having the highest priority. The levels and the
valuation techniques used to value financial assets and liabilities are described below:
(i)Level 1 - Quoted Prices in Active Markets for Identical Assets
Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Cash equivalents, including demand deposits and money market instruments, are valued using
quoted market prices. Marketable equity securities are valued using quoted market prices in
active markets, obtained from securities exchanges. Accordingly, these items are included in
Level 1 of the fair value hierarchy.
(ii)Level 2 - Significant Other Observable Inputs
Quoted prices in markets that are not active, quoted prices for similar assets or liabilities
in active markets, or inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liability.
(iii)Level 3 - Significant Unobservable Inputs
Unobservable (supported by little or no market activity) prices.
The following table illustrates the classification of the Company's financial instruments recorded at
fair value within the fair value hierarchy as at March 31, 2011.
Financial assets at fair value
Level 1 Level 2 Level 3 March 31, December 31,
2011 2010
Cash and cash equivalents $ 91,097,591 $ - $ - $ 91,097,591 $ 98,877,647
Held for trading 91,097,591 - - 91,097,591 98,877,647
Trade receivables 151,549 - - 151,549 154,805
Financial assets 151,549 - - 151,549 154,805
Total financial
asset at fair value $ 91,249,140 $ - $ - $ 91,249,140 $ 99,032,452
Financial liabilities at fair value
Level 1 Level 2 Level 3 March 31, December 31,
2011 2010
Trade and other payables $ 4,474,187 $ - $ - $ 4,474,187 $ 6,351,570
Amounts payable on
exploration and evaluation
asset acquisition - 1,140,516 - 1,140,516 1,112,992
Total financial liabilities
at fair value $ 4,474,187 $ 1,140,516 $ - $ 5,614,703 $ 7,464,562
13.Subsequent events
In April 2011, the Company announced various management and board changes that were effective in March and
April 2011. Various commitments have been recorded as a result of these changes in management. As at March
31, 2011, the Company accrued $232,223 as termination payments. As of April 2011, the Company has committed
$1,649,593 as termination payments. These termination payments will be paid over a period of one to six
months commencing in April 2011.
On May 3, 2011, the Company announced its decision to cancel the listing of its shares on AIM with an
effective date of June 3, 2011. The Company's shares will continue to trade on the TSX.
14.First time adoption of IFRS
The Company adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. IFRS 1, "First-time
adoption of International Financial Reporting Standards", provides guidance for the initial adoption of
IFRS. IFRS 1 requires retrospective application of the standards in the transition statement of financial
position, with all adjustments to assets and liabilities taken to deficit unless certain mandatory and
optional exemptions are applied.
The Company has applied the following exemptions to its opening statement of financial position:
(a)Business combinations
The Company has elected to not apply IFRS 3 to business combinations that occurred before the date of
transition to IFRS, which is an election permitted on first-time adoption of IFRS. IFRS 3 is
applicable for business combinations occurring on or after January 1, 2010.
(b)Cumulative foreign currency translation differences
As permitted by the IFRS 1 election for cumulative foreign currency translation differences, the
Company has deemed cumulative foreign currency translation differences for foreign operations to be
zero at the date of transition. Any gains and losses on subsequent disposal of foreign operations
will not be impacted by translation differences that arose prior to the date of transition.
(c)Share-based payments
Under IFRS 1, a first time adopter can elect not to apply IFRS 2, "Share-based Payment," to share-
based payments granted after November 7, 2001, that vested the later of (a) the date of the transition
and (b) January 1, 2005. The Company has elected to apply this exemption and to apply IFRS 2 only to
awards unvested at the January 1, 2010, date of transition. IFRS has not been applied to awards that
vested prior to January 1, 2010.
(d)Compound financial instruments
The Company has elected to apply the exemption related to compound financial instruments where the
liability component is no longer outstanding at the date of transition to IFRS. IAS 32, "Financial
Instruments: Presentation," requires an entity to split a compound financial instrument at inception
into its separate liability and equity components. If the liability component is no longer outstanding
at the IFRS transition date, a first-time adopter need not separate the impact of compound financial
instruments between the respective components of equity.
(e)Site restoration provision
IFRS 1 allows first time adopters to not fully comply with the requirements of IFRIC 1, "Changes in
Existing Decommission, Restoration and Similar Liabilities," for such liabilities outstanding at the
IFRS transition date and instead apply a simplified method as set out in IFRS 1. The Company has
elected to apply this exemption related to site restoration provisions. IFRIC 1 dealing with changes
in site restoration provisions will be applied on a prospective basis from the date of transition.
(f)Leases
The Company has elected to apply the IFRS exemption with respect to leases. This election allows the
Company to apply the transitional provisions of IFRIC Interpretation 4, "Determining Whether an
Arrangement Contains a Lease," to determine whether an arrangement existing at the date of transition
to IFRS contains a lease on the basis of facts and circumstances existing at that date.
(g)Borrowing costs
Borrowing costs related to the acquisition, construction or production of qualifying assets must be
capitalized under IAS 23, "Borrowing Costs." In accordance with IFRS 1, the Company has elected to
prospectively apply IAS 23 effective January 1, 2010.
(h)Estimates
IFRS 1 requires that an entity's estimates under IFRS at the date of transition to IFRS must be
consistent with estimates made for the same date under the entity's previous GAAP, unless there is
objective evidence that those estimates were in error. The Company's IFRS estimates as of January 1,
2010 are consistent with its Canadian GAAP estimates for the same date.
IFRS employs a conceptual framework that is similar to Canadian GAAP; however, significant differences
exist in certain areas of recognition, measurement and disclosure. While the adoption of IFRS has not
changed the actual cash flows of the Company, the adoption has resulted in changes to the Company's
reported financial position and results of operations. In order to allow financial statement users to
better understand these changes, the Company's Canadian GAAP opening statement of financial position at
January 1, 2010, and interim statements of financial position at March 31, 2010 and December 31, 2010, and
statements of comprehensive loss, and cash flows for the three months ended March 31, 2010, and the year
ended December 31, 2010, have been reconciled to IFRS and presented below, along with explanations of the
resulting differences.
The Company's Canadian GAAP statement of financial position as at January 1, 2010, has been reconciled to
IFRS as follows:
January 1, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
ASSETS
Current assets:
Cash and cash
equivalents $ 81,583,304 $ - $ (3,632,507) $ - $ 77,950,797
Trade and other
receivables 585,340 - (26,063) - 559,277
82,168,644 - (3,658,570) - 78,510,074
Property, plant and
equipment 1,033,517 - (46,017) (139,708) 847,792
Exploration and
evaluation assets 18,590,951 - (827,764) (2,453,984) 15,309,203
$ 101,793,112 $ - $ (4,532,351) $ (2,593,692) 94,667,069
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other
payables $ 2,764,557 $ - $ (103,092) $ - $ 2,661,465
Amounts payable on
exploration and
evaluation asset
acquisition 568,346 - (17,483) - 550,863
Site restoration
provision (vi) 713,666 (91,103) (27,720) (58) 594,785
Warrant
liabilities (iv)(v) - 32,382,464 (1,412,450) - 30,970,014
4,046,569 32,291,361 (1,560,745) (58) 34,777,127
Amounts payable on
exploration and
evaluation asset
acquisition 445,640 - (14,784) - 430,856
Site restoration
provision (vi) 629,189 (42,096) (26,140) (55) 560,898
5,121,398 32,249,265 (1,601,669) (113) 35,768,881
Shareholders'
equity:
Share capital (iii) 207,735,611 (9,159,992) (28,695,413) - 169,880,206
Equity reserves (iii) 26,158,592 (11,965,110) (2,234,446) - 11,959,036
(iv)(v)
Deficit (137,222,489) (11,124,163) 27,496,358 (2,090,760) (122,941,054)
Cumulative
translation
adjustment (ii) - - 502,819 (502,819) -
Equity
attributable
to equity
holders
of the Company 96,671,714 (32,249,265) (2,930,682) (2,593,579) 58,898,188
$ 101,793,112 $ - $ (4,532,351) $ (2,593,692) $ 94,667,069
The Company's Canadian GAAP condensed statement of financial position as at March 31, 2010, has been
reconciled to IFRS as follows:
March 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
ASSETS
Current assets:
Cash and cash
equivalents $ 122,673,496 $ - $ (1,886,744) $ - $ 120,786,752
Trade and other
receivables 647,684 - (11,026) - 636,658
123,321,180 - (1,897,770) - 121,423,410
Property, plant
and equipment 998,874 - (15,343) (159,401) 824,130
Exploration
and evaluation
assets (vii) 18,824,061 - (289,145) (3,025,699) 15,509,217
$ 143,144,115 $ - $ (2,202,258) $ (3,185,100) $ 137,756,757
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other
payables $ 2,923,864 $ - $ (32,261) $ - $ 2,891,603
Amounts payable on
exploration and
evaluation asset
acquisition 604,716 - (9,909) - 594,807
Site restoration
provision (vi) 754,553 (173,939) (8,918) 24,910 596,606
Warrant
liabilities (iv)(v) - 12,429,538 (210,761) - 12,218,777
4,283,133 12,255,600 (261,849) 24,910 16,301,793
Amounts payable
on evaluation
asset
acquisition 474,158 - (7,336) - 466,822
Site restoration
provision (vi) 464,752 (100,142) (5,601) 42,031 401,040
5,222,043 12,155,458 (274,786) 66,941 17,169,655
Shareholders'
equity:
Share capital (iii) 265,840,612 (374,944) (31,321,607) - 234,144,061
Equity reserves (iii)
(iv)(v) 15,183,554 (812,032) (2,215,101) - 12,156,421
Deficit (143,102,094) (10,968,481) 27,762,157 595,039 (125,713,380)
Cumulative
translation
adjustment (ii) - - 3,847,080 (3,847,080) -
Equity attributable
to equity holders
of the Company 137,922,072 (12,155,458) (1,927,471) (3,252,041) 120,587,102
$ 143,144,115 $ - $ (2,202,257) $ (3,185,100) $ 137,756,757
The Company's Canadian GAAP condensed statement of comprehensive loss for the three months ended March 31,
2010, has been reconciled to IFRS as follows:
Three months ended March 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Exploration
expenditures:
Feasibility studies $ 1,145,360 $ - $ (77,124) $ - $ 1,068,236
Other exploration
expenditures (vi) 2,203,029 (125,957) (102,282) - 1,974,790
3,348,389 (125,957) (179,406) 3,043,026
General and
administrative
expenses:
Audit, legal and
other professional
fees 142,501 - (3,454) - 139,047
Depreciation 74,560 - (2,868) (8,937) 62,755
Investor relations 26,718 - (1,019) - 25,699
Management and
consulting fees 479,373 - (15,795) - 463,578
Office facilities
and administration 99,578 - (3,806) - 95,772
Salaries and benefits 647,318 - (20,646) - 626,672
Share-based
compensation (iii) 1,039,059 76,089 (42,959) - 1,072,189
Transfer agent,
listing and
filing fees 68,789 - (2,081) - 66,708
Travel 103,023 - (3,621) - 99,402
2,680,919 76,089 (96,249) (8,937) 2,651,822
Loss from operating
activities 6,029,308 (49,868) (275,655) (8,937) 5,694,848
Other items:
Interest income (267,739) - 10,318 - (257,421)
Finance costs (vi) - 35,124 (1,351) (28) 33,745
Fair value change
on warrant
liabilities (iv)(v) - (140,937) 5,429 - (135,508)
Foreign exchange
loss (gain) 118,036 - (4,540) (2,676,834) (2,563,338)
(149,703) (105,813) 9,856 (2,676,862) (2,922,522)
Loss and comprehensive
loss for the period
attributable to
shareholders of
the Company $ 5,879,605 $(155,681) $ (265,799) $ (2,685,799) $ 2,772,326
Basic and diluted
loss per
common share $ 0.07 $ 0.03
Weighted-average
number of common
shares outstanding 82,524,806 82,524,806
The Company's Canadian GAAP condensed consolidated statements of cash flows for the three months ended
March 31, 2010, has been reconciled to IFRS as follows:
Three months ended March 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Operating activities:
Loss for the period $ (5,879,605) $ 155,681 $ 2,951,598 $ - $ (2,772,326)
Adjustment for
non-cash items:
Depreciation 74,560 - (2,868) (8,937) 62,755
Fair value change
on warrant
liabilities (iv)(v) - (140,937) 5,429 - (135,508)
Finance costs (vi) 65,804 (30,680) (1,351) (28) 33,745
Share-based
compensation (iii) 1,039,059 76,089 (42,959) - 1,072,189
Unrealized foreign
exchange gain 473,521 - 426,848 - 473,521
Other non-cash
income and
expenses (vi) (200,308) (60,153) 86,031 - (174,430)
Change in non-cash
working capital:
Trade and other
receivables (62,344) - (15,037) - (77,381)
Trade and other
payables 188,477 - 87,881 - 276,358
Cash (used in)
generated from
operating
activities (4,727,685) - 3,495,572 (8,965) (1,241,078)
Investing activities:
Exploration and
evaluation asset
acquisition costs (233,110) - 3,581 29,515 (200,014)
Purchase of property,
plant and equipment (39,917) - 613 211 (39,093)
Net cash flows used
in investing
activities (273,027) - 4,194 29,726 (239,107)
Financing activities:
Proceeds from exercise
of stock options 28,181 - (433) (676) 27,072
Proceeds from exercise
of warrants 46,062,723 - (707,541) (1,066,114) 44,289,068
Net cash flow generated
from financing
activities 46,090,904 - (707,974) (1,066,791) 44,316,139
Increase (decrease)
in cash and cash
equivalents 41,090,192 - 2,791,792 (1,046,029) 42,835,955
Cash and cash equivalents,
beginning of period 81,583,304 - (2,791,792) (840,715) 77,950,797
Cash and cash equivalents,
end of period $ 122,673,496 $ - $ - $ (1,886,744) $ 120,786,752
The Company's Canadian GAAP statement of financial position as at December 31, 2010, has been reconciled to
IFRS as follows:
December 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
ASSETS
Current assets:
Cash and cash
equivalents $ 98,343,227 $ - $ 534,420 $ - $ 98,877,647
Trade and other
receivables 773,073 - 5,879 - 778,952
99,116,300 - 540,299 - 99,656,599
Property, plant and
equipment 1,118,743 - 6,074 (184,460) 940,357
Exploration and
evaluation assets 20,903,746 - 113,493 (3,519,809) 17,497,430
$ 121,138,789 $ - $ 659,866 $ (3,704,269) $ 118,094,386
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other
payables $ 6,308,617 $ - $ 42,953 $ - $ 6,351,570
Amounts payable
on exploration
and evaluation
asset acquisition 1,099,339 - 13,653 - 1,112,992
Site restoration
provision (vi) 933,777 (257,911) 3,669 2,521 682,056
Warrant liabilities (iv)
(v) - 6,990,593 35,638 - 7,026,231
8,341,733 6,732,682 95,913 2,521 15,172,849
Site restoration
provision (vi) 229,446 (92,666) 743 69,249 206,772
8,571,179 6,640,016 96,656 71,770 15,379,621
Shareholders' equity:
Share capital (iii) 266,686,662 (374,944) (31,344,367) - 234,967,351
Equity reserves (iii)
(iv)(v) 19,045,240 (226,293) (2,373,749) - 16,445,198
Deficit (173,164,292) (6,038,779) 28,375,452 2,129,835 (148,697,784)
Cumulative
translation
adjustment (ii) - - 5,905,874 (5,905,874) -
Equity attributable
to equity holders
of the Company 112,567,610 (6,640,016) 563,210 (3,776,039) 102,714,765
$ 121,138,789 $ - $ 659,866 $ (3,704,269) $ 118,094,386
The Company's Canadian GAAP statement of comprehensive loss for the year ended December 31, 2010, has been
reconciled to IFRS as follows:
Year Ended December 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Exploration
expenditures:
Feasibility studies $ 10,138,124 $ - $ (267,532) $ - $ 9,870,592
Other exploration
expenditures (vi) 16,125,388 (300,901) (485,265) - 15,339,222
26,263,512 (300,901) (752,797) - 25,209,814
General and
administrative
expenses:
Audit, legal and
other professional
fees 542,163 - (12,863) - 529,300
Depreciation 338,294 - (9,833) (42,112) 286,349
Investor relations 172,993 - (4,923) - 168,070
Management and
consulting fees 2,092,182 - (56,184) - 2,035,998
Office facilities
and administration 460,448 - (12,600) - 447,848
Salaries and benefits 2,014,443 - (53,803) - 1,960,640
Share-based
compensation (iii) 4,515,330 661,829 (147,066) - 5,030,093
Transfer agent,
listing and filing
fees 181,761 - (6,519) - 175,242
Travel 607,965 - (16,075) - 591,890
10,925,579 661,829 (319,866) (42,112) 11,225,430
Loss from operating
activities 37,189,091 360,928 (1,072,663) (42,112) 36,435,244
Other items:
Interest income (1,164,205) - 32,837 - (1,131,368)
Finance costs (vi) - 115,726 (3,364) 2,135 114,497
Fair value change
on warrant
liabilities (iv)(v) - (5,562,037) 161,681 - (5,400,356)
Foreign exchange
loss (gain) (83,083) - 2,415 (4,180,618) (4,261,286)
(1,247,288) (5,446,311) 193,569 (4,178,483) (10,678,513)
Loss and comprehensive
loss for the period
attributable to
shareholders of
the Company $ 35,941,803 $ (5,085,383) $ (879,094) (4,220,595) 25,756,731
Basic and diluted loss
per common share $ 0.43 $ 0.31
Weighted-average number
of common shares
outstanding 83,784,134 83,784,134
The Company's Canadian GAAP consolidated statements of cash flows for the year ended December 31, 2010, has
been reconciled to IFRS as follows:
Year ended December 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Operating
activities:
Loss for the period $ (35,941,803) $ 5,085,383 $ 5,099,689 $ - $ (25,756,731)
Adjustment for non-
cash items:
Depreciation 338,294 - (9,833) (42,112) 286,349
Fair value change
on warrant
liabilities (iv)(v) - (5,562,037) 161,681 - (5,400,356)
Finance costs (vi) 233,684 (117,958) (3,364) 2,135 114,497
Share-based
compensation (iii) 4,515,330 661,829 (147,058) - 5,030,101
Unrealized foreign
exchange (loss)
gain (168,569) - 777,595 - 609,026
Other non-cash
income and
expenses (vi) (363,821) (67,217) 8,737 - (422,301)
Change in non-cash
working capital:
Trade and other
receivables (187,733) - (31,942) - (219,675)
Trade and other
payables 4,355,099 - (750,544) - 3,604,555
Cash (used in)
generated from
operating
activities (27,219,519) - 5,104,962 (39,977) (22,154,534)
Investing
activities:
Exploration and
evaluation
asset acquisition
costs (2,039,571) - (11,073) 858,993 (1,191,651)
Purchase of property,
plant and equipment (415,473) - (2,256) 38,815 (378,914)
Net cash flows used
in investing
activities (2,455,044) - (13,329) 897,808 (1,570,565)
Financing
activities:
Proceeds from
exercise
of stock options 371,763 - 2,018 (10,900) 362,881
Proceeds from
exercise
of warrants 46,062,723 - 250,089 (2,023,744) 44,289,068
Net cash flow
generated
for financing
activities 46,434,486 - 252,107 (2,034,645) 44,651,948
Increase (decrease)
in cash and cash
equivalents 16,759,923 - 5,343,740 (1,176,813) 20,926,850
Cash and cash
equivalents,
beginning of
period 81,583,304 - (5,343,740) 1,711,233 77,950,797
Cash and cash
equivalents,
end of period $ 98,343,227 $ - $ - $ 534,420 $ 98,877,647
Explanatory notes to the IFRS reconciliations above
(i)Functional currency
Under Canadian GAAP - An entity is not explicitly required to assess the unit of measure (functional
currency) in which it measures its own assets, liabilities, revenues and expenses. Under Canadian GAAP, an
entity applies criteria to determine only whether a foreign subsidiary's operation is integrated or self-
sustaining, in which case the temporal or current methods of translation respectively, are then applied to
the subsidiary's financial statement balances and results of operations. Under Canadian GAAP, the Company
prepared its financial statements in Canadian dollars and its Colombian branch and subsidiaries were
determined to be integrated foreign operations.
Under IFRS - The functional currency of the reporting entity and each of its foreign operations must be
assessed independently giving consideration to the primary economic environment in which each operates.
IFRS provides guidance in respect of factors to be considered in determining an entity's functional
currency that are similar to those noted in Canadian GAAP, however unlike Canadian GAAP, IFRS distinguishes
between primary and secondary factors in making such an assessment. Based on the assessment under IFRS,
management has determined that the functional currencies of Greystar Resources Ltd., its Colombian branch
and subsidiaries are the U.S. dollar as this is the currency of the primary economic environment in which
the Company operates. Accordingly, the change in functional currency has been reflected in reporting the
Company's financial position and results of operations under IFRS.
(ii)Change in presentation currency
The Company previously presented its financial statements in Canadian dollars. Under IFRS, the Company's
financial statements are presented in U.S. dollars, the same as its functional currency. The change in
presentation currency results in a cumulative translation adjustment and under IFRS 1, the Company has
elected to eliminate the cumulative translation adjustment on the IFRS transition date.
(iii)Share-based payments
Under Canadian GAAP - The fair value of stock-based awards with graded vesting are calculated as one grant
and the resulting fair value is recognized on a straight-line basis over the vesting period. Forfeitures of
awards are recognized as they occur.
Under IFRS - Each tranche of an award with different vesting dates is considered a separate grant for the
calculation of fair value, and the resulting fair value is amortized over the estimated lives of the
respective tranches. Forfeiture estimates are recognized in the period they are estimated, and are revised
for actual forfeitures in subsequent periods.
(iv)Share purchase warrants
Under Canadian GAAP - The Company's share purchase warrants are measured at fair value at initial
recognition using the Black-Scholes option pricing model, and recorded in equity reserve with no subsequent
re-measurement.
Under IFRS - The exercise prices of the Company's share purchase warrants that are issued in connection
with the issuance of equity are denominated in Canadian dollars, which is not the Company's functional
currency. As a result, the proceeds from the exercise of these warrants will vary. These warrants meet the
definition of derivatives under IAS 32 and are therefore, classified as liabilities and measured at FVTPL
at grant date and the end of each reporting period. The Company's share purchase warrants issued as
compensation for mineral property acquisitions and agents' commissions for share issuances are accounted
for under IFRS 2 and are classified as equity. The adoption of IFRS had no impact on these warrants.
(v)Compound financial instruments
Under Canadian GAAP - The Company raised equity by issuing units that consisted of common shares and share
purchase warrants. The gross proceeds were allocated to common shares and warrants using the relative fair
value method.
Under IFRS - IAS 32 requires an entity to split a compound financial instrument at inception into separate
liability and equity components. For proceeds received from the issuance of compound equity instruments
such as units comprised of common shares and warrants, the Company allocated the proceeds using the
residual method whereby the proceeds allocated to the warrants is based on their Black-Scholes fair value
with the remaining proceeds allocated to common shares.
(vi)Site restoration provision
Under Canadian GAAP - The Company uses the best estimate that a third party would charge for the
remediation work to measure the reclamation and closure cost obligations. The Company uses the credit-
adjusted pre-tax risk-free interest rate as a discount rate to measure the net present value of
undiscounted estimated future cash flows.
Under IFRS - Under IAS 37, reclamation and closure cost obligations are measured based on management's best
estimate of the expenditures required to settle the obligations as at the balance sheet date. In the case
that management intends to perform the reclamation and closure activities internally at a lower cost than
if they were performed externally, the lower costs are used to represent management's best estimate. In
addition, the discount rate used to determine the present value of reclamation and closure cost obligations
is the pre-tax rate that does not reflect risks for which future cash flow estimates have been adjusted.
GREYSTAR RESOURCES LTD.
Management's Discussion and Analysis
For the Three Months Ended March 31, 2011
1.INTRODUCTION
The following provides management's discussion and analysis ("MD&A") of the financial condition and results of
operations as at and for the three months ended March 31, 2011, of Greystar Resources Ltd. (the "Company" or
"Greystar"). The Company adopted International Financial Reporting Standards ("IFRS") on January 1, 2011 with a
transition date of January 1, 2010. This MD&A, which has been prepared as of May 11, 2011, supplements and
compliments the Company's unaudited interim consolidated financial statements and notes thereto for the three
months ended March 31, 2011 and 2010, prepared in accordance with IFRS. This MD&A should be read in conjunction
with the audited annual consolidated financial statements and notes thereto for the years ended December 31,
2010 and 2009, prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). All
amounts in this MD&A are expressed in United States dollars unless otherwise indicated.
Additional information relevant to the Company's activities, including the Company's Annual Information Form,
is available on SEDAR at www.sedar.com.
The Company is a precious metals exploration and development company currently working on an alternative way to
develop its wholly owned, multi-million ounce Angostura gold-silver deposit (the "Angostura Project") in north-
eastern Colombia. The Company is committed to developing the Angostura Project but recognizes that there is a
need to consider additional options for its development. Consequently, the Company intends to continue with
studies into the feasibility of an alternative project, which includes an underground mine, whilst the
uncertainty surrounding the definition of Paramo and the exclusion of mining from Paramo affects the permitting
of the Company's open pit/heap leach project. The Company's head office is located in Vancouver, British
Columbia, Canada and its exploration and administrative office in Colombia is located in the city of
Bucaramanga. The Angostura mineral property is located approximately 55 kilometres north-east of Bucaramanga.
The Company is a reporting issuer in British Columbia, Alberta, Ontario and Nova Scotia and trades on the
Toronto Stock Exchange ("TSX") and on the AIM Market of the London Stock Exchange (the "AIM Market"), under the
symbol GSL. On May 3, 2011, the Company announced its decision to cancel the listing of its shares to trading
on the AIM Market with an effective date of June 3, 2011. The Company's shares will continue to trade on the
TSX.
2.HIGHLIGHTS
Results of Operations
The Company adopted IFRS on January 1, 2011, with a transition date of January 1, 2010, and as a result,
differences between IFRS and Canadian GAAP are explained and reconciliations provided under the heading "New
Accounting Policies" in this MD&A.
The net loss for the three months ended March 31, 2011, was $3.6 million compared to $2.8 million for the
comparative period in 2010. Loss per share for the three months ended March 31, 2011 was $0.04 and $0.03 for
the comparative period in 2010.
In December 2009, the Company filed its Environmental Impact Assessment ("EIA") with the Colombian Ministry of
Environment, Housing and Territorial Development ("MAVDT") in respect to the development of an open pit gold-
silver mine at the Company's Angostura Project in Colombia. After a series of Information and Public Hearings
in 2010 and 2011, the Company filed a request with MAVDT to desist from the administrative procedure of the
environmental licensing, as well as the administrative procedure of evaluation and approval of the Work and
Investment Plan before Ingeominas. As a result, the Company has decided it will not proceed with finalization
of the feasibility study on the open pit project at this time. The Company is committed to developing the
Angostura Project, but recognizes that there is a need to consider additional options for its development.
On April 29, 2011, the Company announced the receipt of a positive scoping stage Preliminary Assessment under
National Instrument 43-101 ("Scoping Study") for an underground only operation at the Angostura Project. The
Scoping Study, which evaluated roasting, bio-oxidation ("BIOX") and pressure oxidation ("POX") processing
treatments for the production from Angostura underground resources, estimated that 1.9 million ounces of gold,
7.7 million ounces of silver and 228,316 pounds of copper could be produced over a 14-year mine life. The
Scoping Study is available on SEDAR at www.sedar.com.
Management and Board Changes
In March, 2011, David Heugh was appointed to the position of Chief Operating Officer and Frederick Felder
retired from his position as Executive Vice President. In April 2011, the Company announced it had agreed with
Amber Capital LP, a New York-based investment firm, which controls approximately 18% of the Company's
outstanding shares, to change the members of its board of directors and the members of its executive management
team. Other shareholders, holding approximately 20% of the Company's outstanding shares, advised the Company
that they supported Amber Capital LP's position. The Company appointed Mr. Juan Esteban Orduz and Mr. Rafael
Nieto Loaiza to the Company's board of directors. The Company also appointed Mr. Nieto Loaiza as President of
the Company and Mr. David Rovig as interim Chief Executive Officer to succeed Mr. Steve Kesler in those roles.
It has also been agreed that at the Company's upcoming annual general meeting, the incumbent directors, other
than Messrs. Nieto Loaiza and Orduz, will not stand for re-election and the Company will nominate as directors
certain additional individuals proposed by Amber Capital LP.
3.ANGOSTURA GOLD-SILVER PROJECT UPDATE, COLOMBIA
Permitting
In December 2009, the Company filed its EIA with MAVDT in respect to the development of an open pit gold-silver
mine at the Company's Angostura Project in Colombia following which, there were a series of Information and
Public Hearings in 2010 and 2011. On March 18, 2011, the Company made an announcement clarifying certain
comments made by the Ministry of Mines and Energy of Colombia, which could be incorrectly interpreted to mean
that the Company is fully withdrawing from the Angostura Project. The Company confirmed that that it does not
intend to withdraw from the Angostura Project and it intends simply to desist from ongoing environmental
licensing to allow for future re-filing on terms that reflect concerns. On the March 23, 2011, the Company
filed a request with MAVDT to desist from the administrative procedure of the environmental licensing, as well
as the administrative procedure of evaluation and approval of the Work and Investment Plan before Ingeominas.
As a result, the Company has decided it will not proceed with finalization of the feasibility study on the open
pit project at this time. The Company is committed to developing the Angostura Project, but recognizes that
there is a need to consider additional options for its development. The Company intends to continue with
studies into the feasibility of alternatives, including an underground option, whilst the uncertainty
surrounding the definition of Paramo and the exclusion of mining from Paramo affects the permitting of its open
pit/heap leach part of the project. The Company also will continue to proceed with evaluating the entire
project while working jointly with the MAVDT as well as with the Ministry of Mines and Energy of Colombia in
resolving any outstanding issues, including how the open pit project can be modified to meet concerns and to
proceed with an underground project.
Underground Study
On April 29, 2011, the Company announced the receipt of a Scoping Study for an underground only operation at
the Angostura Project. The Technical Report entitled Mineral Resource Estimate and Preliminary Economic
Assessment for Underground Mining, Angostura Gold-Silver Project, Santander, Colombia prepared by Rodrigo
Mello, MAusIMM, Carlos Guzman, MAusIMM (NCL Ingenier¡a y Construcci¢n Ltda), John Wells, FSAIMM, Giovanny
Ortiz, MAusIMM (Greystar) and dated April 25, 2011 is available on SEDAR at www.sedar.com.
The Scoping Study, which evaluated roasting, BIOX and POX processing treatments for the production from
Angostura underground resources, estimated that 1.9 million ounces of gold, 7.7 million ounces of silver and
228,316 pounds of copper could be produced over a 14-year mine life.
Highlights of the Scoping Study include:
*All three processing routes produce positive returns with roasting being the most economically beneficial
method evaluated.
*Average annual production for the first seven full years of 209,458 gold equivalent ("AuEq") ounces, which is
comprised of 197,840 ounces of gold ("Au") and 582,079 ounces of silver ("Ag").
*Total cash costs of $455 per ounce over the life of mine, net of silver and copper by-product credits.
*Pre-tax internal rate of return ("IRR") of 21.4%(1).
*Estimated initial capital cost of $301.6 million.
*Pre-tax net present value ("NPV") of $400.2 million(1) using a 5% discount rate.
*Mineable Resource ("In Stope Inferred Mineral Resource") of 2.4 million ounces of gold in 13.98 million
tonnes
grading 5.35 grams per tonne ("g/t") of gold, 29.61 g/t of silver and 0.091% copper based on 3 g/t gold cut-
off
grade ('COG").
*Mine life of 14 years at a planned production rate of up to 4,000 tonnes per day.
*Potential Economic Enhancements:
oMineable Resource Expansion - Study does not include mineral resource estimates defined outside of
the
stopes,which comprise an additional indicated mineral resource of 1.44 million ounces of gold and an
additional inferred mineral resource of 1.0 million ounces of gold, at 3 g/t gold COG.
oMineable Resource Expansion - Optimizing COG to enhance tonnage and contained ounces of gold/silver.
oMineral Resource Expansion - Mineralization remains open at depth with deep drilling program ongoing.
oImproved mine design and mineral recovery through ongoing optimization work.
oPotential to increase production scenario and/or enhance mine life from further exploration and
development of known areas of mineralization.
(1) Based on a gold price of $1,170 per ounce and a silver price of $18.25 in the first two years followed by a
life
of mine price of &1,015 per ounce for gold and $15,85 per ounce for silver.
The Scoping Study
The Scoping Study represents an un-optimized, technically feasible design that includes the development of a
mineable resources inventory and a mine plan for the recovery of high-grade veins of the deposit and a
preliminary engineering design for process plant options to extract gold, silver and copper. NCL Ingenier¡a y
Construcci¢n Ltda. completed the mining studies and Alquimia Conceptos S.A. completed the process and
infrastructure components of the Scoping Study. NCL also developed a preliminary economic evaluation of the
project with a pre-tax cash flow analysis.
Economic Evaluation from the Scoping Study
Roasting POX BIOX
Dore Produced Oz 12,983,907 13,040,538 12,995,233
Gold in dore Oz 1,928,577 1,985,209 1,939,904
Silver in dore Oz 7,725,719 7,725,719 7,725,719
Copper in dore lb 228,316 228,316 228,316
Copper in cathodes lb x 1000 17,758 17,758
Sulfuric Acid kt 881
Mine Cost US$/t 40.4 40.4 40.4
Process Cost US$/t 26.02 26.25 27.09
G&A US$/t 5.0 5.0 5.0
Selling Costs US$/oz 5.00 4.89 4.97
Royalty US$/oz 35.0 34.9 35.0
Cathodes Transport US$/t Cu 70.0 70.0
Total Cost US$/oz 509.0 496.9 512.9
Initial Capital KUS$ 301,630 299,447 274,421
Mine KUS$ 20,667 20,667 20,667
Process & Infrastructure KUS$ 280,963 278,780 253,754
Total Capital KUS$ 506,462 504,279 479,253
Mine KUS$ 220,381 220,381 220,381
Process & Infrastructure KUS$ 286,081 283,898 258,872
NPV (5%) KUS$ 400,193 397,040 355,823
IRR % 21.4% 21.5% 21.3%
K = thousands
The Scoping Study includes only the underground portion of the Angostura gold-silver deposit, with a total
mineable resource comprised of In Stope Inferred Mineral Resources of 2.4 million ounces of gold in 13.98
million tonnes grading 5.35 g/t gold, 29.61 g/t silver and 0.091% copper based on 3 g/t gold COG.
The Scoping Study contemplates a 4,000 tonnes per day ("tpd") underground mine and a 3,300 tpd floatation plant
producing an average of just over 140,000 ounces of gold and just over 570,000 ounces of silver annually over a
14 year mine life. The total mine capital cost is $220 million for the life of the mine, with $108 million for
equipment and $49 million for development. These numbers include a 35% contingency given the preliminary nature
of the analysis.
In all three of the processing options (Roasting, POX and BIOX), the main final product is metal Dore, with a
content of 75% of gold-silver and 25% of copper. In the case of roasting, small productions of copper cathodes
and sulfuric acid were also accounted for and included in the economic evaluation. Pre-tax NPV at 5% discount
rate and IRR of the cash flows have been calculated for a gold price of $1,015 per ounce and a silver price of
$15.85 per ounce. Higher prices were applied to the two initial years of the plan ($1,170 per ounce for gold
and $18.25 per ounce for silver).
All the options show positive results. The option of Roasting shows better NPV and slightly lower IRR compared
to the POX option due to the contribution of copper cathodes and sulfuric acid sales. Without that contribution
this option results in an NPV of $340 million with a 17.8% IRR.
Project sensitivity analysis indicates that the Project NPV is more sensitive to feed grade and metal price
followed by operating costs and then capital costs.
Mine Design and Processing
Different mining methods were analysed for the underground exploitation of the Angostura deposit. Based on the
rock conditions presented, a geotechnical assessment was provided by consultants AKL S.A., whose
recommendations for mining methods were:
*Veins with less than 5 m width = Bench and Fill Stoping
*Veins within 5 m and 20 m width = VCR (Vertical Crater Retreat)
*Veins within 20 m and 40 m width = Blast Hole Open Stoping
The processing operation was designed for a nominal throughput of 3,288 tpd with an average head grade of 5.5
g/t gold, 18 g/t silver per tonne and 0.077% copper. According to mining plan, the ore type composition is: 75%
sulfide; 15% transition and 10% oxide.
The Mine layout was designed considering the following restrictions and criteria:
*Avoid surface accesses and roads above 3,000 meters above sea level.
*Main transport levels should connect the different sectors of production.
*Portals for access to the main transport levels located below 3,000 meters above sea level.
*If possible, use accesses from surface avoiding development of long internal ramps.
*Ore passes will take the ore to the transport level, and ventilation shafts will provide fresh air for every
ramp created. The ventilation shafts will be equipped with fans (range between 200 to 300 thousand cfm) that
have been sized according to the requirements of the mine.
Mineable Mineral Resources ("In Stope Inferred Mineral Resources")
In the preliminary underground study, underground mining potential was restricted by the terms of reference
resulting in a COG of 3.0 g/t gold. The mineral resource estimate is as of March 18, 2011, and includes drill
and assay data up to July 2010. A gold price of $850 per ounce was utilized for the COG calculation. Drilling
results reported subsequent to this period will be incorporated into future resource updates.
In Stope mineral resource estimates consider dilution and the mineral resource estimates were determined from
the selected veins by generating a contour at 3.0 g/t gold COG. These contours were created from plan views at
20 metres. Stopes were created from 20 meter level contours. These polygons were tied between levels to
delineate the corresponding solids representing the stopes. A minimum width of 2 meters was applied for the
construction of the solids. Given the separation of the levels and the width of the veins, the delineation of
the stopes does not accurately follow the limits of the high grade veins, incorporating dilution to the content
of the generated solids. For this reason, no additional dilution factors have been applied to the calculation
of the mineable resources
The terms of reference are detailed below.
Total Mine Cost (Production & Maintenance) 40 US$/t
Process Cost 20 US$/t
G&A 10 US$/t
Selling 10 US$/oz Au
Recovery Au 85 %
Au Price 850 US$/oz
The mining method selected as most suitable for the preliminary economic assessment was bench and fill because
of the narrow width of veins.
Diluted mineable resources contained within stope limits are detailed in the following table.
In Stopes Inferred Mineral Resources, at 3.0 g/t Au COG (diluted)
Ore (t) Au (g/t) Ag (g/t) Cu (%)
Oxide 616,324 5.746 18.514 0.027
VETA DE BARRO 144,203 5.836 8.287 0.009
CENTRAL 112,470 6.000 18.662 0.048
PEREZOSA FAULT 229,678 6.028 11.302 0.022
SILENCIO-LOS LACHES 129,972 4.928 42.477 0.035
Mixed 2,291,293 5.676 21.990 0.043
VETA DE BARRO 435,836 6.200 15.984 0.025
CENTRAL 174,416 3.975 25.204 0.090
PEREZOSA FAULT 945,243 5.507 13.029 0.053
SILENCIO-LOS LACHES 735,798 5.987 36.298 0.030
Sulfide 11,076,011 5.260 31.806 0.105
VETA DE BARRO 1,070,032 5.065 16.345 0.044
CENTRAL 685,539 4.731 16.103 0.169
PEREZOSA FAULT 6,032,143 5.462 15.260 0.094
SILENCIO-LOS LACHES 3,288,297 5.062 70.463 0.131
Total 13,983,628 5.349 29.612 0.091
In addition to the above mineable portion of the resource estimate, Mineral Resources, inside the high grade
veins and outside the stopes at 3.0 g/t Au COG which were not included in the economic assessment but are
included in the Technical Report are as follows:
Outside of the Stopes Mineral Resources, @ 3.0 g/t Au COG
Ore (t) Au (g/t) Au Oz Ag (g/t) Cu (%)
INDICATED
Oxide 499,214 5.43 87,198 15 0.025
Mixed 1,783,624 5.77 330,880 24 0.037
Sulfide 5,642,124 5.62 1,019,271 31 0.102
Sub-total 7,924,963 5.64 1,437,349 28 0.083
INFERRED
Oxide 308,467 5.78 57,328 14 0.028
Mixed 666,322 6.42 137,632 18 0.050
Sulfide 4,207,439 5.94 803,700 35 0.107
Sub-total 5,182,227 5.99 998,661 32 0.095
The mineral resources in this MD&A were estimated using the Canadian Institute of Mining, Metallurgy and
Petroleum (CIM), Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM
Standing Committee on Reserve Definitions.
The mineral resource estimate and the mineable in stope mineral resource estimate are based on 306,915 metres
of drill core from 936 drill holes. Mineral resources that are not mineral reserves do not have demonstrated
economic viability. The estimate of mineral resources may be materially affected by environmental, permitting,
legal, title, taxation, sociopolitical, marketing, or other relevant issues. The quantity and grade of reported
Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to
define these Inferred resources as an indicated or measured mineral resource and it is uncertain if further
exploration will result in upgrading them to an Indicated or Measured mineral resource category.
The Scoping Study is preliminary in nature and includes inferred mineral resources that are considered too
speculative geologically to have the economic considerations applied to them that would enable them to be
categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.
Additional drilling will be required and is planned to better categorize these mineral resources.
Moving Forward
Based upon the results of this Scoping Study, the Company plans to proceed with follow-up diamond drilling,
engineering, metallurgy and other work in order to develop a Preliminary Feasibility Study for an underground
only operation. A diamond drilling program is underway to expand the current underground resource. Trade-off
studies will include different processing options and mining schedules. The Company will continue with further
metallurgical testing to optimize process parameters and project economics.
Qualified Persons
The Scoping Study is based on a NI 43-101 compliant mineral resource estimate reviewed by Rodrigo Mello
(MAusIMM), Independent Consulting Geologist.
The following are the Qualified Persons as defined under National Instrument 43-101 who are responsible for
reviewing and approving the Scoping Study: Carlos Guzm n (MAusIMM), Principal Mining Engineer, was responsible
for the overall preparation of the report, Rodrigo Mello (MAusIMM), Independent Consulting Geologist, was
responsible for the resource estimation and database auditing, John Wells (FSAIMM), Metallurgical Engineer,
provided an independent review and analysis of the metallurgy and process plant, Giovanny Ortiz (MAusIMM), the
Company's Exploration Manager, was responsible for the preparation of the geology, exploration and geological
model. The expert, Americo Delgado, the Company's Superintendent of Metallurgy, was responsible for the
metallurgical testwork program and the review of the process plant design. All of the above Qualified Persons
and experts are independent of the Company with the exception of Mr. Ortiz and Mr. Delgado.
Exploration
In December 2009, the Company initiated an exploration drill program to investigate the mineral potential of
the La Plata mineral property, over which the Company has completed its 100% working interest acquisition, in
the La Baja Valley, located southwest of the Angostura deposit. The Company continued with its program of
exploring the potential of high grade mineralization at the Angostura gold-silver deposit. Evaluation continued
at the near surface oxide gold and deeper sulphide mineralization discovered in 2008 at the Mongora prospect
located 3 km south of the main Angostura deposit.
Los Laches Drill Program
The Company announced additional assay results from the targeted drill program at the Los Laches/El Pozo area
of the Angostura gold-silver deposit. The new drill results from the Los Laches Area, where geology is
structurally complex, continue to provide positive results showing the potential of high grade mineralization
at depth below the envisioned Preliminary Feasibility Study open pit.
Cristo Rey
During 2010, 3,778 meters of core were drilled at Cristo Rey to test higher grade mineralized structures at
depth and along strike. The latest results from diamond drilling in the Cristo Rey area, which marks the
current northern limit of the Angostura deposit, included 189.5 g/t gold and 701 g/t silver over 1.5 meters in
hole CR10-05, 6.89 g/t gold and 85.4 g/t silver over 1.6 meters in hole CR10-04 and 12.45 g/t gold and 96.7 g/t
silver over 1 meter in hole CR10-02. These significant intercepts confirm the presence of mineralization along
strike and down dip in the northern limit of proposed Angostura pit. Mineralization in the Cristo Rey area is
similar in style to the Veta de Barro area immediately to the south where higher grade structures have
considerable strike extent and, although relatively narrow, the structures have very interesting high gold
grade contents.
Angostura High-Grade Veins Drill Program
The Company has started a drill program in 2011 with the objective of improving the category of the resources
inside the veins and to define the continuity of the veins in strike and depth of the Angostura ore body
(including the Cristo Rey and Los Laches/El Pozo areas).
Mongora Drill Program
The Mongora prospect is defined by a large, 500 meter by 300 meter gold-in-soil anomaly. Core drilling to March
2011 consists of 58 drill holes with a total of 20,276 meters, the majority of which have intercepted anomalous
gold grades. Similar to the Angostura deposit, the Mongora prospect hosts higher-grade gold mineralization
including 116 grams of gold per tonne over 2.0 meters, 22.2 grams of gold per tonne over 2.0 meters and 12.35
grams of gold per tonne over 1.6 meters within broader zones of lower-grade gold mineralization. The
mineralization contained in the oxidized and transitional rock at the Mongora area could be very important and
the Company is continuing to evaluate the prospect, as it may potentially provide additional resources.
La Plata
La Plata is located in the California mining district of Colombia. La Plata comprises 78 hectares of mineral
rights contiguous on the majority of its borders with existing Greystar holdings.
The La Plata property lies within a mineralized belt related to the northeast-southwest trending La Baja Fault,
which has given rise to a number of mineralized occurrences where gold and silver mineralization is associated
with flexures along the main fault. This mineralization, which has traditionally been mined by local artisanal
miners, is now the focus of more modern exploration methods.
Exploration carried out by the Company since 2009 identified vein and stock work mineralization associated with
strong alteration hosted in a dacite-porphyry system. Drilling, comprising 18 drill holes and 7,162 meters as
of March 2011, has intersected anomalous gold and silver grades, and additional work is in process to define
the geometry of the mineralization. Rock samples from mine tunnels on site returned gold assays ranging from no
significant gold up to 9.66 grams per ton gold and silver assays ranging from no significant silver up to 94.3
grams per tonne silver. At surface, the mineralized structures have returned grab sample values as high as 9.3
g/t gold, 2,030 g/t silver, 2% copper, 736 parts per million ("ppm") molybdenum, 0.4% lead and 1% zinc.
New Areas of Exploration outside of the Angostura Project Area
Greystar has applied for mineral property rights over 80,000 hectares in other jurisdictions around Colombia,
in the departments of Nari¤o, Cauca, Tolima, Caldas, Santander, Norte de Santander and Cesar with only one
having been granted by Ingeominas to date. Ingeominas is evaluating the other applications to define the free
areas to be granted. Prospecting activities are being carried out to identify other mineral potential in
Colombia.
The information under the heading "Exploration" has been reviewed and approved by Giovanny Ortiz, MAusIMM (the
Company's Exploration Manager), a "qualified person" as that term is defined in National Instrument 43-101 and
Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in respect of AIM
companies, which outline standards of disclosure for mineral projects.
4.RESULTS OF OPERATIONS
The following table sets forth selected financial data for the periods indicated:
Three Months Ended March 31,
2011 2010
Exploration expenditures:
Feasibility studies $ 1,052,349 $ 1,068,236
Other exploration expenditures 4,170,633 1,974,790
5,222,982 3,043,026
General and administrative expenses:
Amortization 80,915 62,755
Administrative expenditures 2,493,304 1,516,878
Stock-based compensation 1,008,990 1,072,189
3,583,209 2,651,822
Interest income (288,739) (257,421)
Finance costs 18,330 33,745
Fair value change on warrant liabilities (2,861,979) (135,508)
Foreign exchange gain (2,057,826) (2,563,338)
Loss for the period $ 3,615,977 $ 2,772,326
Loss per share $ 0.04 $ 0.03
Three months ended March 31, 2011
Total exploration expenditures were $5.2 million for the three months ended March 31, 2011, compared to $3
million for the three months ended March 31, 2010. The increase of $2.2 million was the result of the
following:
* Exploration costs were higher for the three months ended March 31, 2011, due to the increase in meters
drilled
and drilling costs at the Angostura, Los Laches, Mongora and La Plata properties. These drilling
expenditures
totalled $1.7 million during the three months ended March 31, 2011, compared to costs of $1.1 million in the
comparative period of 2010.
* General and administrative expense for the Angostura Project in Colombia (included in other exploration
expense of $4.2 million) was $2.1 million for the three months ended March 31, 2011, compared to costs of $1
million for the comparative period in 2010 due to increases in additional personnel, consultants and
activities
relating to public hearing as the Company anticipated going into development.
General and administrative expenses at the corporate office increased by approximately $0.9 million for
the
three months ended March 31, 2011, compared to the three months ended March 31, 2010. The increase was
a
result of the following:
* Management and consulting fees were up $447,000 in 2011 compared to 2010, due primarily to the engagement of
consultants for finance advisory services, and corporate reorganization consulting services.
* Audit, legal and other professional fees were up $149,000 in 2011 compared to 2010, due primarily to
additional accounting assistance costs and increased legal costs.
* Travel costs were up by $136,000 in 2011 compared to 2010, due primarily to increase travel by corporate
staff
resulting from increased activities in the Public Hearing process, financing, recruitment and project site
visits.
* Salaries and benefits were up $104,000 in 2011 compared to 2010, due primarily to the hiring of additional
senior corporate staff after the first quarter of 2010.
* There has been a general trend for increased general and administrative costs on a quarterly basis
attributable to increased activities and staffing as the Company anticipated moving into development.
There was a $2.9 million gain in the fair value of warrants for the three months ended March 31, 2011, compared
to a gain of $136,000 for the comparative period in 2010, primarily because the market value of the Company's
common shares, on which the fair value of the warrants are based, declined in 2011 compared to 2010.
The Company had a foreign exchange gain of $2.1 million for the three months ended March 31, 2011, compared to
$2.6 million for the three months ended March 31, 2010, primarily due to the large cash held in Canadian funds,
which appreciated against the U.S. dollar by approximately 2.3% during the three months ended March 31, 2011
and 3% in the comparative 2010 period.
5.QUARTERLY INFORMATION
Under IFRS Under GAAP
2011 2010 2009
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Exploration
Expenditures $5,222,982 $9,357,567 $7,179,191 $ 5,630,031 $3,043,026 $6,348,885 $4,320,471 $3,109,753
Administrative
Expenses:
General and
Amortization 2,574,219 1,557,041 1,574,451 1,484,204 1,579,633 740,692 605,644 468,924
Share-based
Compensation 1,008,990 1,140,049 1,027,679 1,790,184 1,072,189 407,883 1,311,757 197,616
Interest Income (288,739) (328,705) (268,032) (277,210) (257,421) (37,511) (28,104) (76,836)
Net Loss 3,615,977 8,346,164 5,234,351 9,403,890 2,772,326 7,828,273 6,049,978 3,643,991
Basic and Diluted
Loss per Share $0.04 $0.10 $0.06 $0.11 $0.03 $0.13 $0.12 $0.11
Notes and Factors Affecting Comparability of Quarters:
1. The Company is a precious metals exploration and development company and has no operating revenue.
Interest
is from funds invested. The amount of interest earned is a function of the amount of funds invested and
interest rates. Interest rates on term deposits dropped significantly in 2009 and remained low during
2010 and 2011. This, however, was offset by the significantly increased levels of cash, which contributed
to increasing level of quarterly interest income in 2010 and 2011.
2. Share-based compensation costs are a non-cash expense and represent the amortization of the estimated
fair
value of stock options granted determined using the Black-Scholes option pricing model. Share-based
compensation varies depending on the amount and fair value of the stock options granted.
3. The increase in exploration expenditures starting in the second half of 2009 is primarily due to efforts
being placed to prepare the feasibility study. Engineering costs for the feasibility study decreased
during the first quarter of 2011 when it was nearing completion.
4. There has been a general trend for increased general and administrative costs on a quarterly basis
attributable to increased activities and staffing as the Company anticipated moving into development.
6.LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flow Information
At March 31, 2011, cash and cash equivalents were $91.1 million, down from $98.9 million at December 31, 2010.
The decrease in cash and cash equivalents is primarily attributed to the use of cash in operations with no
significant cash inflow compared to the receipt of gross proceeds of $46.1 million from the exercise of
warrants in the first quarter of 2010.
The Company's cash resources are invested in short term financial instruments issued by major Canadian
chartered banks. These instruments mature at various dates over the current operating period. The Company does
not invest in asset-backed commercial paper. Cash used in operations including changes in non-cash working
capital was $7.2 million for the three months ended March 31, 2011, compared to $1.2 million for the
comparative period in 2010. For the three months ended March 31, 2011, exploration-related expenditures,
including feasibility study costs, were $5.2 million and represent the major use of funds for the period.
At March 31, 2011, the Company had working capital of $81.3 million, but had not yet achieved profitable
operations and expects to incur further losses in the development of its business. For the three months ended
March 31, 2011, the Company reported a net loss of $3.6 million and as at March 31, 2011, had an accumulated
deficit of $152.3 million. The ability of the Company to continue as a going concern is dependent upon the
Company's ability to arrange additional funds to complete the development of its property and upon future
profitable operations.
There is no material variance between the use of proceeds as stated in the Company's September 22, 2009, short
form prospectus relating to its public offering and the actual application of those funds.
Management of the Company believes that the current level of funds is expected to be sufficient to pay for
committed costs over the next 12 months. Management continues to explore alternative financing sources in the
form of equity, debt or a combination thereof; however, the current economic uncertainty and financial market
volatility make it difficult to predict success. Risk factors potentially influencing the Company's ability to
raise equity or debt financing include: the outcome of the feasibility studies for an underground mine at the
Angostura Project, mineral prices, the political risk of operating in a foreign country including, without
limitation, risks relating to permitting, and the buoyancy of the credit and equity markets. For a more
detailed list of risk factors, refer to the Company's Annual Information Form for the year ended December 31,
2010, which is filed on SEDAR.
Due to the current low interest rate environment, interest income is not expected to be a significant source of
income or cash flow. Management intends to monitor spending and assess results on an ongoing basis and will
make appropriate changes as required.
Commitments
The Company's commitments related to its mineral property acquisitions are discussed below.
(a)Mineral Property Commitments
The Company's mineral properties comprise surface rights, mining titles, exploration licenses, exploitation
permits and concession contracts that provide for gold, silver and other precious metals exploitation in an
area located in the Municipality of California, Santander, Colombia, collectively known as the Colombia
Properties. The licenses, permits and contracts expire at various dates ranging from 2020 to 2038 and
generally can be renewed for an additional 10, 20 or 30 years depending on the applicable mining code.
Certain portions of the Colombia Properties are subject to royalties ranging from 5% to 10% of net profits
after certain additional deductions. In addition, pursuant to the laws of Colombia, the Government of
Colombia currently receives royalties on gold and silver production equal to 4% of 80% of the production
value, which is calculated using the average gold and silver prices published by the London Metal Exchange.
In order to maintain the Company's mineral properties in good standing, the Company is required to make
certain annual fee payments based on the number of hectares and a Colombian wage factor that fluctuates on
an annual basis. As at March 31, 2011, the required annual fee payments related to the Company's mineral
properties totaled approximately $624,000 (2010 - $634,000).
(b)Other Commitments
The following is a schedule of the Company's other commitments as at March 31, 2011:
As of March 31,
2012 2013 2014 2015 2016 2017 and
Thereafter
Consulting & contract Services (a) $ 2,130,049 $ 106,875 $ - $ - $ - $ -
Office operating leases (b) 232,503 129,234 21,367 12,815 8,998 -
$ 2,362,552 $ 236,109 $ 21,367 $ 12,815 $ 8,998 -
(a) Relates to various outsourced professional services
(b) Primarily relates to operating leases for office premises
Various commitments have been recorded as a result of the changes in management during March and April 2011. As
at March 31, 2011, the Company accrued $232,223 as termination payments. As of April 2011, the Company has
committed $1,649,593 as termination payments. These termination payments will be paid over a period of one to
six months commencing in April 2011.
The Company is from time to time involved in various claims, legal proceedings and complaints arising in the
ordinary course of business. The Company does not believe that adverse decisions in any pending or threatened
proceedings related to any matter, or any amount which it may be required to pay by reason thereof, will have a
material effect on the financial condition or future results of operations of the Company.
7.FINANCIAL INSTRUMENTS
The Company's financial instruments are exposed to certain financial risks, including currency risk, credit
risk, liquidity risk, interest risk and price risk.
(a)Currency risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The
Company maintains a significant portion of its investments in Canadian dollars. The Company operates in
Canada and Colombia and a large portion of its expenses are incurred in Colombian pesos and U.S. dollars.
A significant change in the currency exchange rates between the U.S. dollar relative to the Colombian peso
and Canadian dollar could have an effect on the Company's results of operations, financial position or cash
flows. The Company has not hedged its exposure to currency fluctuations.
The Company's exposure to the Colombian peso, expressed in U.S. dollars and Colombian pesos, on financial
instruments is as follows:
March 31, 2011 December 31, 2010
US$ Colombian Peso US$ Colombian Peso
Cash and cash equivalents $ 386,596 726,595,817 $ 94,032 179,975,804
Trade and other receivables 649,812 1,221,301,225 529,412 1,013,284,852
Trade and other payables 2,344,860 4,407,094,745 2,421,976 4,635,613,156
$ 3,381,268 6,354,991,787 $ 3,045,420 5,828,873,812
As at March 31, 2011, with other variables unchanged, a 10% depreciation or appreciation of the U.S. dollar
against the Colombian peso would change the values of the Colombian peso denominated financial instruments
and would affect the consolidated statement of operations and comprehensive loss by approximately $338,000.
The Company's exposure to the Colombia peso on quarterly exploration expenditures throughout the three
months ended March 31, 2011 was $4.8 million. A 10% depreciation or appreciation of the U.S. dollar against
the Colombian peso would affect the consolidated statement of operations and comprehensive loss by
approximately $484,000.
The Company's exposure to the Canadian dollar, expressed in U.S dollars and Canadian dollars, on financial
instruments is as follows:
March 31, 2011 December 31, 2010
US$ CDN$ US$ CDN$
Cash and cash equivalents $ 90,490,815 $ 87,938,974 $ 97,022,814 $ 96,498,890
Trade and other receivables 240,405 233,626 249,539 248,192
Trade and other payables 2,129,326 2,069,279 3,929,595 3,791,313
$ 92,860,546 $ 90,241,879 $ 101,201,948 $ 100,538,395
As at March 31, 2011, with other variables unchanged, a 10% depreciation or appreciation of the U.S. dollar
against the Canadian dollar would change the values of the Canadian dollar denominated financial
instruments and would affect the consolidated statement of operations and comprehensive loss by
approximately $9.3 million.
The Company's exposure to the Canadian dollar on quarterly exploration expenditures throughout the three
months ended March 31, 2011 was $516,000. A 10% depreciation or appreciation of the U.S. dollar against the
Canadian dollar would affect the consolidated statement of operations and comprehensive loss by
approximately $52,000.
(b) Credit risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its
contractual obligations. The Company manages its credit risk through its counterparty ratings and credit
limits.
The Company's cash and cash equivalents and short term investments are held through large Canadian
financial institutions. Short-term investments are composed of financial instruments issued by Canadian
banks and companies with high investment-grade ratings. These instruments mature and are cashable at
various dates over the current operating period. Amounts receivable primarily consists of Harmonized Sales
Tax receivable with expected payment from the Canadian government.
The total cash and cash equivalents and accounts receivable represent the maximum credit exposure. The
Company limits its credit risk exposure by holding bank accounts and any short term investments with
reputable banks with high credit ratings.
(c) Liquidity risk
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short and long
term business requirements. The Company believes that these sources will be sufficient to cover its cash
requirements for the upcoming year. The Company's cash is invested in liquid investments with good quality
financial institutions and is not invested in any asset backed commercial paper.
As at March 31, 2011, the Company's liabilities have contractual maturities as summarized below:
Less than
Total 1 year
Trade and other payables $ 4,474,187 $ 4,474,187
Amounts payable on exploration and evaluation asset acquisition 1,140,516 1,140,516
$ 5,614,703 $ 5,614,703
(d) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Company's cash in bank accounts and investments
earn interest income at variable rates. The Company's future interest income is exposed to changes in
short-term rates. Assuming cash remains constant, an increase or decrease in the annual interest rate of 1%
would result in a corresponding increase or decrease of annual interest income by $911,000.
(e) Fair value of financial instruments
The fair values of amounts receivable and accounts payable and accrued liabilities approximate their
carrying values due to the short-term nature of these instruments. The fair value of the amounts payable on
mineral property acquisitions approximates their carrying value as there was no material change to the
discount rate used to calculate the fair value since initial recognition.
There are three levels of the fair value hierarchy that prioritize the inputs to valuation techniques used
to measure fair value, with Level 1 inputs having the highest priority. The levels and the valuation
techniques used to value the Company's financial assets and liabilities are described below:
(i)Level 1 - Quoted Prices in Active Markets for Identical Assets
Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Cash equivalents, including demand deposits and money market instruments, are valued using
quoted market prices. Marketable equity securities are valued using quoted market prices in
active markets, obtained from securities exchanges. Accordingly, these items are included in
Level 1 of the fair value hierarchy.
(ii)Level 2 - Significant Other Observable Inputs
Quoted prices in markets that are not active, quoted prices for similar assets or liabilities
in active markets, or inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liability.
(iii)Level 3 - Significant Unobservable Inputs
Unobservable (supported by little or no market activity) prices.
The following table illustrates the classification of the Company's financial instruments recorded at fair
value within the fair value hierarchy as at March 31, 2011.
Financial assets at fair value
Level 1 Level 2 Level 3 March 31, December 31,
2011 2010
Cash and cash equivalents $ 91,097,591 $ - $ - $ 91,097,591 $ 98,877,647
Held for trading 91,097,591 - - 91,097,591 98,877,647
Trade receivables 151,549 - - 151,549 154,805
Financial assets 151,549 - - 151,549 154,805
Total financial asset
at fair value $ 91,249,140 $ - $ - $ 91,249,140 $ 99,032,452
Financial liabilities at fair value
Level 1 Level 2 Level 3 March 31, December 31,
2011 2010
Trade and other payables $ 4,474,187 $ - $ - $ 4,474,187 $ 6,351,570
Amounts payable on
exploration and
evaluation asset
acquisition - 1,140,516 - 1,140,516 1,112,992
Total financial liabilities
at fair value $ 4,474,187 $ 1,140,516 $ - $ 5,614,703 $ 7,464,562
8.TRANSACTIONS WITH RELATED PARTIES
Pursuant to a service agreement, the Company pays Rovig Minerals, Inc., a company owned by the Company's
Chairman for services provided in relation to this role. Amounts paid include reimbursement for certain
personal insurance expenses and costs for office facilities in Billings, Montana. The service agreement will
expire on May 15, 2011.
The Company pays Ionic Management Corp. ("Ionic"), a company related by virtue of a director and one officer in
common, for corporate and administrative services in Vancouver, BC. These services are provided on a month-to-
month basis and may be cancelled by either party on one month's notice.
Pursuant to a service agreement, the Company paid Mr. Steve Kesler, a director of the Company, for consulting
services. The service agreement terminated on May 16, 2010, after which Mr. Steve Kesler assumed the role of
President and CEO of the Company.
Transactions with related parties were in the normal course of operations and are measured at an exchange
amount established and agreed to by the related parties.
In addition to the above, the Company reimburses Rovig Minerals, Inc., Ionic, and Mr. Steve Kesler for out-of-
pocket direct costs incurred on behalf of the Company. Such costs include travel, postage, courier charges,
printing and telephone charges.
Related party expenditures recorded for the following periods were:
Three Months Ended March 31
2011 2010
Rovig Minerals Inc. $ 72,723 $ 225,739
Ionic Management Corp.
16,795 15,865
Steve Kesler - 54,906
9.CRITICAL ACCOUNTING ESTIMATES
Exploration and Evaluation Assets
The application of the Company's accounting policy for and determination on recoverability of capitalized
exploration and evaluation expenditure requires judgement in determining whether future economic benefits are
likely, which may be based on assumptions about future events or circumstances. Estimates and assumptions made
may change if new information becomes available. If, after expenditure is capitalized, information becomes
available suggesting that the recovery of expenditure is unlikely, the amount capitalized is recognized in loss
in the period that the new information becomes available. As at March 31, 2011, amounts capitalized to
exploration and evaluation assets total $18.1 million.
Amounts Payable on Exploration and Evaluation Asset Acquisition
Included in the Company's balance sheet is the fair value of the amounts payable on exploration and evaluation
asset acquisition. The fair value of the amounts payable on exploration and evaluation asset acquisition was
determined by discounting the stream of future cash payments at the estimated prevailing pre-tax risk free
interest rate. Changes in assumptions can materially affect the fair value estimate, and therefore, the
existing models do not necessarily provide a reliable single measure of the fair value.
Site Restoration Provision
The Company assesses its site restoration provision annually. Significant estimates and assumptions are made
in determining the site restoration provision as there are numerous factors that will affect the ultimate
liability payable. These factors include estimates of the extent and costs of rehabilitation activities,
technological changes, regulatory changes, cost increases, and changes in discount rates. Those uncertainties
may result in future actual expenditure differing from the amount currently provided. The provision at the
date of the statement of financial position represents management's best estimate of the present value of the
future site restoration costs required. Changes to estimated future costs are recognized in the statement of
financial position by adjusting the site restoration asset and liability. To the extent that the site
restoration provision was created due to exploration activities, the amount capitalized is reduced immediately
by a charge to exploration expenses for the same amount.
Income taxes
Judgement is required in determining whether deferred tax assets are recognized in the statement of financial
position. Deferred tax assets, including those arising from unutilized tax losses, require management to
assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilize
recognized deferred tax assets. Estimates of future taxable income are based on forecast cash flows from
operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows
and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred
tax assets recorded at the date of the statement of financial position could be impacted. Additionally, future
changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company
to obtain tax deductions in future periods.
Fair value of share-based compensation and warrants issued
The fair value of share-based compensation and warrants issued with Canadian dollar exercise prices are subject
to the limitation of the Black-Scholes option pricing model that incorporates market data and involves
uncertainty in estimates used by management in the assumptions. Because the Black-Scholes option pricing model
requires the input of highly subjective assumptions, including the volatility of share price, changes in
subjective input assumptions can materially affect the fair value estimate.
10.FIRST TIME ADOPTION OF IFRS
The Company adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. IFRS 1, "First-time
adoption of International Financial Reporting Standards," provides guidance for the initial adoption of IFRS.
IFRS 1 requires retrospective application of the standards in the transition statement of financial position,
with all adjustments to assets and liabilities taken to deficit unless certain mandatory and optional
exemptions are applied.
The Company has applied the following exemptions to its opening statement of financial position:
(a)Business combinations
The Company has elected to not apply IFRS 3 to business combinations that occurred before the date of
transition to IFRS, which is an election permitted on first-time adoption of IFRS. IFRS 3 is applicable
for business combinations occurring on or after January 1, 2010.
(b)Cumulative foreign currency translation differences
As permitted by the IFRS 1 election for cumulative foreign currency translation differences, the Company
has deemed cumulative foreign currency translation differences for foreign operations to be zero at the
date of transition. Any gains and losses on subsequent disposal of foreign operations will not be impacted
by translation differences that arose prior to the date of transition.
(c)Share-based payments
Under IFRS 1, a first time adopter can elect not to apply IFRS 2, "Share-based Payment," to share-based
payments granted after November 7, 2001, that vested the later of (a) the date of the transition and (b)
January 1, 2005. The Company has elected to apply this exemption and to apply IFRS 2 only to awards
unvested at the January 1, 2010, date of transition. IFRS has not been applied to awards that vested prior
to January 1, 2010.
(d)Compound financial instruments
The Company has elected to apply the exemption related to compound financial instruments where the
liability component is no longer outstanding at the date of transition to IFRS. IAS 32, "Financial
Instruments: Presentation," requires an entity to split a compound financial instrument at inception into
its separate liability and equity components. If the liability component is no longer outstanding at the
IFRS transition date, a first-time adopter need not separate the impact of compound financial instruments
between the respective components of equity.
(e)Site restoration provision
IFRS 1 allows first time adopters to not fully comply with the requirements of IFRIC 1, "Changes in
Existing Decommission, Restoration and Similar Liabilities," for such liabilities outstanding at the IFRS
transition date and instead apply a simplified method as set out in IFRS 1. The Company has elected to
apply this exemption related to site restoration provisions. IFRIC 1 dealing with changes in site
restoration provisions will be applied on a prospective basis from the date of transition.
(f)Leases
The Company has elected to apply the IFRS exemption with respect to leases. This election allows the
Company to apply the transitional provisions of IFRIC Interpretation 4, "Determining Whether an Arrangement
Contains a Lease," to determine whether an arrangement existing at the date of transition to IFRS contains
a lease on the basis of facts and circumstances existing at that date.
(g)Borrowing costs
Borrowing costs related to the acquisition, construction or production of qualifying assets must be
capitalized under IAS 23, "Borrowing Costs." In accordance with IFRS 1, the Company has elected to
prospectively apply IAS 23 effective January 1, 2010.
(h)Estimates
IFRS 1 requires that an entity's estimates under IFRS at the date of transition to IFRS must be consistent
with estimates made for the same date under the entity's previous GAAP, unless there is objective evidence
that those estimates were in error. The Company's IFRS estimates as of January 1, 2010 are consistent with
its Canadian GAAP estimates for the same date.
IFRS employs a conceptual framework that is similar to Canadian GAAP; however, significant differences exist in
certain areas of recognition, measurement and disclosure. While the adoption of IFRS has not changed the actual
cash flows of the Company, the adoption has resulted in changes to the Company's reported financial position
and results of operations. In order to allow financial statement users to better understand these changes, the
Company's Canadian GAAP opening statement of financial position at January 1, 2010, and interim statements of
financial position at March 31, 2010 and December 31, 2010, and statements of comprehensive loss, and cash
flows for the three months ended March 31, 2010, and the year ended December 31, 2010, have been reconciled to
IFRS and presented below, along with explanations of the resulting differences.
The Company's Canadian GAAP statement of financial position as at January 1, 2010, has been reconciled to IFRS
as follows:
January 1, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
ASSETS
Current assets:
Cash and cash
equivalents $ 81,583,304 $ - $ (3,632,507) $ - $ 77,950,797
Trade and other
receivables 585,340 - (26,063) - 559,277
82,168,644 - (3,658,570) - 78,510,074
Property, plant and
equipment 1,033,517 - (46,017) (139,708) 847,792
Exploration and
evaluation assets 18,590,951 - (827,764) (2,453,984) 15,309,203
$ 101,793,112 $ - $ (4,532,351) $ (2,593,692) 94,667,069
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other
payables $ 2,764,557 $ - $ (103,092) $ - $ 2,661,465
Amounts payable on
exploration and
evaluation asset
acquisition 568,346 - (17,483) - 550,863
Site restoration
provision (vi) 713,666 (91,103) (27,720) (58) 594,785
Warrant
liabilities (iv)(v) - 32,382,464 (1,412,450) - 30,970,014
4,046,569 32,291,361 (1,560,745) (58) 34,777,127
Amounts payable on
exploration and
evaluation asset
acquisition 445,640 - (14,784) - 430,856
Site restoration
provision (vi) 629,189 (42,096) (26,140) (55) 560,898
5,121,398 32,249,265 (1,601,669) (113) 35,768,881
Shareholders'
equity:
Share capital (iii) 207,735,611 (9,159,992) (28,695,413) - 169,880,206
Equity reserves (iii) 26,158,592 (11,965,110) (2,234,446) - 11,959,036
(iv)(v)
Deficit (137,222,489) (11,124,163) 27,496,358 (2,090,760) (122,941,054)
Cumulative
translation
adjustment (ii) - - 502,819 (502,819) -
Equity
attributable
to equity
holders
of the Company 96,671,714 (32,249,265) (2,930,682) (2,593,579) 58,898,188
$ 101,793,112 $ - $ (4,532,351) $ (2,593,692) $ 94,667,069
The Company's Canadian GAAP condensed statement of financial position as at March 31, 2010, has been
reconciled to IFRS as follows:
March 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
ASSETS
Current assets:
Cash and cash
equivalents $ 122,673,496 $ - $ (1,886,744) $ - $ 120,786,752
Trade and other
receivables 647,684 - (11,026) - 636,658
123,321,180 - (1,897,770) - 121,423,410
Property, plant
and equipment 998,874 - (15,343) (159,401) 824,130
Exploration
and evaluation
assets (vii) 18,824,061 - (289,145) (3,025,699) 15,509,217
$ 143,144,115 $ - $ (2,202,258) $ (3,185,100) $ 137,756,757
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other
payables $ 2,923,864 $ - $ (32,261) $ - $ 2,891,603
Amounts payable on
exploration and
evaluation asset
acquisition 604,716 - (9,909) - 594,807
Site restoration
provision (vi) 754,553 (173,939) (8,918) 24,910 596,606
Warrant
liabilities (iv)(v) - 12,429,538 (210,761) - 12,218,777
4,283,133 12,255,600 (261,849) 24,910 16,301,793
Amounts payable
on evaluation
asset
acquisition 474,158 - (7,336) - 466,822
Site restoration
provision (vi) 464,752 (100,142) (5,601) 42,031 401,040
5,222,043 12,155,458 (274,786) 66,941 17,169,655
Shareholders'
equity:
Share capital (iii) 265,840,612 (374,944) (31,321,607) - 234,144,061
Equity reserves (iii)
(iv)(v) 15,183,554 (812,032) (2,215,101) - 12,156,421
Deficit (143,102,094) (10,968,481) 27,762,157 595,039 (125,713,380)
Cumulative
translation
adjustment (ii) - - 3,847,080 (3,847,080) -
Equity attributable
to equity holders
of the Company 137,922,072 (12,155,458) (1,927,471) (3,252,041) 120,587,102
$ 143,144,115 $ - $ (2,202,257) $ (3,185,100) $ 137,756,757
The Company's Canadian GAAP condensed statement of comprehensive loss for the three months ended March 31,
2010, has been reconciled to IFRS as follows:
Three months ended March 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Exploration
expenditures:
Feasibility studies $ 1,145,360 $ - $ (77,124) $ - $ 1,068,236
Other exploration
expenditures (vi) 2,203,029 (125,957) (102,282) - 1,974,790
3,348,389 (125,957) (179,406) 3,043,026
General and
administrative
expenses:
Audit, legal and
other professional
fees 142,501 - (3,454) - 139,047
Depreciation 74,560 - (2,868) (8,937) 62,755
Investor relations 26,718 - (1,019) - 25,699
Management and
consulting fees 479,373 - (15,795) - 463,578
Office facilities
and administration 99,578 - (3,806) - 95,772
Salaries and benefits 647,318 - (20,646) - 626,672
Share-based
compensation (iii) 1,039,059 76,089 (42,959) - 1,072,189
Transfer agent,
listing and
filing fees 68,789 - (2,081) - 66,708
Travel 103,023 - (3,621) - 99,402
2,680,919 76,089 (96,249) (8,937) 2,651,822
Loss from operating
activities 6,029,308 (49,868) (275,655) (8,937) 5,694,848
Other items:
Interest income (267,739) - 10,318 - (257,421)
Finance costs (vi) - 35,124 (1,351) (28) 33,745
Fair value change
on warrant
liabilities (iv)(v) - (140,937) 5,429 - (135,508)
Foreign exchange
loss (gain) 118,036 - (4,540) (2,676,834) (2,563,338)
(149,703) (105,813) 9,856 (2,676,862) (2,922,522)
Loss and comprehensive
loss for the period
attributable to
shareholders of
the Company $ 5,879,605 $(155,681) $ (265,799) $ (2,685,799) $ 2,772,326
Basic and diluted
loss per
common share $ 0.07 $ 0.03
Weighted-average
number of common
shares outstanding 82,524,806 82,524,806
The Company's Canadian GAAP condensed consolidated statements of cash flows for the three months ended
March 31, 2010, has been reconciled to IFRS as follows:
Three months ended March 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Operating activities:
Loss for the period $ (5,879,605) $ 155,681 $ 2,951,598 $ - $ (2,772,326)
Adjustment for
non-cash items:
Depreciation 74,560 - (2,868) (8,937) 62,755
Fair value change
on warrant
liabilities (iv)(v) - (140,937) 5,429 - (135,508)
Finance costs (vi) 65,804 (30,680) (1,351) (28) 33,745
Share-based
compensation (iii) 1,039,059 76,089 (42,959) - 1,072,189
Unrealized foreign
exchange gain 46,673 - 426,848 - 473,521
Other non-cash
income and
expenses (vi) (200,308) (60,153) 86,031 - (174,430)
Change in non-cash
working capital:
Trade and other
receivables (62,344) - (15,037) - (77,381)
Trade and other
payables 188,477 - 87,881 - 276,358
Cash (used in)
generated from
operating
activities (4,727,685) - 3,495,572 (8,965) (1,241,078)
Investing activities:
Exploration and
evaluation asset
acquisition costs (233,110) - 3,581 29,515 (200,014)
Purchase of property,
plant and equipment (39,917) - 613 211 (39,093)
Net cash flows used
in investing
activities (273,027) - 4,194 29,726 (239,107)
Financing activities:
Proceeds from exercise
of stock options 28,181 - (433) (676) 27,072
Proceeds from exercise
of warrants 46,062,723 - (707,541) (1,066,114) 44,289,068
Net cash flow generated
from financing
activities 46,090,904 - (707,974) (1,066,791) 44,316,139
Increase (decrease)
in cash and cash
equivalents 41,090,192 - 2,791,792 (1,046,029) 42,835,955
Cash and cash equivalents,
beginning of period 81,583,304 - (2,791,792) (840,715) 77,950,797
Cash and cash equivalents,
end of period $ 122,673,496 $ - $ - $ (1,886,744) $ 120,786,752
The Company's Canadian GAAP statement of financial position as at December 31, 2010, has been reconciled to
IFRS as follows:
December 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
ASSETS
Current assets:
Cash and cash
equivalents $ 98,343,227 $ - $ 534,420 $ - $ 98,877,647
Trade and other
receivables 773,073 - 5,879 - 778,952
99,116,300 - 540,299 - 99,656,599
Property, plant and
equipment 1,118,743 - 6,074 (184,460) 940,357
Exploration and
evaluation assets 20,903,746 - 113,493 (3,519,809) 17,497,430
$ 121,138,789 $ - $ 659,866 $ (3,704,269) $ 118,094,386
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other
payables $ 6,308,617 $ - $ 42,953 $ - $ 6,351,570
Amounts payable
on exploration
and evaluation
asset acquisition 1,099,339 - 13,653 - 1,112,992
Site restoration
provision (vi) 933,777 (257,911) 3,669 2,521 682,056
Warrant liabilities (iv)
(v) - 6,990,593 35,638 - 7,026,231
8,341,733 6,732,682 95,913 2,521 15,172,849
Site restoration
provision (vi) 229,446 (92,666) 743 69,249 206,772
8,571,179 6,640,016 96,656 71,770 15,379,621
Shareholders' equity:
Share capital (iii) 266,686,662 (374,944) (31,344,367) - 234,967,351
Equity reserves (iii)
(iv)(v) 19,045,240 (226,293) (2,373,749) - 16,445,198
Deficit (173,164,292) (6,038,779) 28,375,452 2,129,835 (148,697,784)
Cumulative
translation
adjustment (ii) - - 5,905,874 (5,905,874) -
Equity attributable
to equity holders
of the Company 112,567,610 (6,640,016) 563,210 (3,776,039) 102,714,765
$ 121,138,789 $ - $ 659,866 $ (3,704,269) $ 118,094,386
The Company's Canadian GAAP statement of comprehensive loss for the year ended December 31, 2010, has been
reconciled to IFRS as follows:
Year Ended December 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Exploration
expenditures:
Feasibility studies $ 10,138,124 $ - $ (267,532) $ - $ 9,870,592
Other exploration
expenditures (vi) 16,125,388 (300,901) (485,265) - 15,339,222
26,263,512 (300,901) (752,797) - 25,209,814
General and
administrative
expenses:
Audit, legal and
other professional
fees 542,163 - (12,863) - 529,300
Depreciation 338,294 - (9,833) (42,112) 286,349
Investor relations 172,993 - (4,923) - 168,070
Management and
consulting fees 2,092,182 - (56,184) - 2,035,998
Office facilities
and administration 460,448 - (12,600) - 447,848
Salaries and benefits 2,014,443 - (53,803) - 1,960,640
Share-based
compensation (iii) 4,515,330 661,829 (147,066) - 5,030,093
Transfer agent,
listing and filing
fees 181,761 - (6,519) - 175,242
Travel 607,965 - (16,075) - 591,890
10,925,579 661,829 (319,866) (42,112) 11,225,430
Loss from operating
activities 37,189,091 360,928 (1,072,663) (42,112) 36,435,244
Other items:
Interest income (1,164,205) - 32,837 - (1,131,368)
Finance costs (vi) - 115,726 (3,364) 2,135 114,497
Fair value change
on warrant
liabilities (iv)(v) - (5,562,037) 161,681 - (5,400,356)
Foreign exchange
loss (gain) (83,083) - 2,415 (4,180,618) (4,261,286)
(1,247,288) (5,446,311) 193,569 (4,178,483) (10,678,513)
Loss and comprehensive
loss for the period
attributable to
shareholders of
the Company $ 35,941,803 $ (5,085,383) $ (879,094) (4,220,595) 25,756,731
Basic and diluted loss
per common share $ 0.43 $ 0.31
Weighted-average number
of common shares
outstanding 83,784,134 83,784,134
The Company's Canadian GAAP consolidated statements of cash flows for the year ended December 31, 2010, has
been reconciled to IFRS as follows:
Year ended December 31, 2010
Effect of
Effect of Change in functional
Canadian IFRS presentation currency
Note GAAP adjustment currency (ii) adjustment(i) IFRS
CDN$ CDN$ US$ US$ US$
Operating
activities:
Loss for the period $ (35,941,803) $ 5,085,383 $ 5,099,689 $ - $ (25,756,731)
Adjustment for non-
cash items:
Depreciation 338,294 - (9,833) (42,112) 286,349
Fair value change
on warrant
liabilities (iv)(v) - (5,562,037) 161,681 - (5,400,356)
Finance costs (vi) 233,684 (117,958) (3,364) 2,135 114,497
Share-based
compensation (iii) 4,515,330 661,829 (147,058) - 5,030,101
Unrealized foreign
exchange (loss)
gain (168,569) - 777,595 - 609,026
Other non-cash
income and
expenses (vi) (363,821) (67,217) 8,737 - (422,301)
Change in non-cash
working capital:
Trade and other
receivables (187,733) - (31,942) - (219,675)
Trade and other
payables 4,355,099 - (750,544) - 3,604,555
Cash (used in)
generated from
operating
activities (27,219,519) - 5,104,962 (39,977) (22,154,534)
Investing
activities:
Exploration and
evaluation
asset acquisition
costs (2,039,571) - (11,073) 858,993 (1,191,651)
Purchase of property,
plant and equipment (415,473) - (2,256) 38,815 (378,914)
Net cash flows used
in investing
activities (2,455,044) - (13,329) 897,808 (1,570,565)
Financing
activities:
Proceeds from
exercise
of stock options 371,763 - 2,018 (10,900) 362,881
Proceeds from
exercise
of warrants 46,062,723 - 250,089 (2,023,744) 44,289,068
Net cash flow
generated
for financing
activities 46,434,486 - 252,107 (2,034,645) 44,651,948
Increase (decrease)
in cash and cash
equivalents 16,759,923 - 5,343,740 (1,176,813) 20,926,850
Cash and cash
equivalents,
beginning of
period 81,583,304 - (5,343,740) 1,711,233 77,950,797
Cash and cash
equivalents,
end of period $ 98,343,227 $ - $ - $ 534,420 $ 98,877,647
Explanatory notes to the IFRS reconciliations above
(i)Functional currency
Under Canadian GAAP - An entity is not explicitly required to assess the unit of measure (functional
currency) in which it measures its own assets, liabilities, revenues and expenses. Under Canadian GAAP, an
entity applies criteria to determine only whether a foreign subsidiary's operation is integrated or self-
sustaining, in which case the temporal or current methods of translation respectively, are then applied to
the subsidiary's financial statement balances and results of operations. Under Canadian GAAP, the Company
prepared its financial statements in Canadian dollars and its Colombian branch and subsidiaries were
determined to be integrated foreign operations.
Under IFRS - The functional currency of the reporting entity and each of its foreign operations must be
assessed independently giving consideration to the primary economic environment in which each operates.
IFRS provides guidance in respect of factors to be considered in determining an entity's functional
currency that are similar to those noted in Canadian GAAP, however unlike Canadian GAAP, IFRS distinguishes
between primary and secondary factors in making such an assessment. Based on the assessment under IFRS,
management has determined that the functional currencies of Greystar Resources Ltd., its Colombian branch
and subsidiaries are the U.S. dollar as this is the currency of the primary economic environment in which
the Company operates. Accordingly, the change in functional currency has been reflected in reporting the
Company's financial position and results of operations under IFRS.
(ii)Change in presentation currency
The Company previously presented its financial statements in Canadian dollars. Under IFRS, the Company's
financial statements are presented in U.S. dollars, the same as its functional currency. The change in
presentation currency results in a cumulative translation adjustment and under IFRS 1, the Company has
elected to eliminate the cumulative translation adjustment on the IFRS transition date.
(iii)Share-based payments
Under Canadian GAAP - The fair value of stock-based awards with graded vesting are calculated as one grant
and the resulting fair value is recognized on a straight-line basis over the vesting period. Forfeitures of
awards are recognized as they occur.
Under IFRS - Each tranche of an award with different vesting dates is considered a separate grant for the
calculation of fair value, and the resulting fair value is amortized over the estimated lives of the
respective tranches. Forfeiture estimates are recognized in the period they are estimated, and are revised
for actual forfeitures in subsequent periods.
(iv)Share purchase warrants
Under Canadian GAAP - The Company's share purchase warrants are measured at fair value at initial
recognition using the Black-Scholes option pricing model, and recorded in equity reserve with no subsequent
re-measurement.
Under IFRS - The exercise prices of the Company's share purchase warrants that are issued in connection
with the issuance of equity are denominated in Canadian dollars, which is not the Company's functional
currency. As a result, the proceeds from the exercise of these warrants will vary. These warrants meet the
definition of derivatives under IAS 32 and are therefore, classified as liabilities and measured at
financial assets at fair value through profit or loss at grant date and the end of each reporting period.
The Company's share purchase warrants issued as compensation for mineral property acquisitions and agents'
commissions for share issuances are accounted for under IFRS 2 and are classified as equity. The adoption
of IFRS had no impact on these warrants.
(v)Compound financial instruments
Under Canadian GAAP - The Company raised equity by issuing units that consisted of common shares and share
purchase warrants. The gross proceeds were allocated to common shares and warrants using the relative fair
value method.
Under IFRS - IAS 32 requires an entity to split a compound financial instrument at inception into separate
liability and equity components. For proceeds received from the issuance of compound equity instruments
such as units comprised of common shares and warrants, the Company allocated the proceeds using the
residual method whereby the proceeds allocated to the warrants is based on their Black-Scholes fair value
with the remaining proceeds allocated to common shares.
(vi)Site restoration provision
Under Canadian GAAP - The Company uses the best estimate that a third party would charge for the
remediation work to measure the reclamation and closure cost obligations. The Company uses the credit-
adjusted pre-tax risk-free interest rate as a discount rate to measure the net present value of
undiscounted estimated future cash flows.
Under IFRS - Under IAS 37, reclamation and closure cost obligations are measured based on management's best
estimate of the expenditures required to settle the obligations as at the balance sheet date. In the case
that management intends to perform the reclamation and closure activities internally at a lower cost than
if they were performed externally, the lower costs are used to represent management's best estimate. In
addition, the discount rate used to determine the present value of reclamation and closure cost obligations
is the pre-tax rate that does not reflect risks for which future cash flow estimates have been adjusted.
11.OFF BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
12.OUTSTANDING SHARE DATA
The Company has only one class of share capital, common shares without par value. The number of shares
authorized is unlimited. The Company has issued warrants for the purchase of common shares and also has a stock
option plan.
The following are outstanding at May 11, 2011:
Common shares 84,227,487
Shares issuable on the exercise of warrants 3,365,686
Shares issuable on the exercise of outstanding stock options 6,068,055
13.RISKS AND UNCERTAINTIES
The Company competes with other mining companies, some of which have greater financial resources and technical
facilities, for the acquisition of mineral concessions, claims and other interests, as well as for the
recruitment and retention of qualified employees.
The Company is in compliance in all material respects with regulations applicable to its exploration
activities. Existing and possible future environmental legislation, regulations and actions could cause
additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent
of which cannot be predicted. Before production can commence on any properties, the Company must obtain
regulatory and environmental approvals. There is no assurance that such approvals can be obtained on a timely
basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce
the profitability of operations.
The Company's mineral property is located in Colombia. The Company is subject to certain risks, including
currency fluctuations and possible political or economic instability which may result in the impairment or loss
of mining title or other mineral rights, and mineral exploration and mining activities may be affected in
varying degrees by political stability and governmental regulations relating to the mining industry. The
acquisition of mining title in Colombia is a very detailed and time-consuming process. In addition, title to
mining rights may be disputed.
The Company has incurred losses since its inception and will not achieve profitability until such time as the
Angostura Project can be developed into a profitable operation.
For additional information on risk factors, refer to the Risk Factors section of the Company's Annual
Information Form for the year ended December 31, 2010, which can be found on SEDAR at www.sedar.com.
14.INTERNAL CONTROL OVER FINANCIAL REPORTING
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed by the Company under Canadian Securities laws is recorded, processed, summarized and reported within
the time periods specified under those laws and include controls and procedures designed to ensure such
information is accumulated and communicated to management, including the Chief Executive Officer ("CEO") and
the Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure.
There has been no change in the Company's disclosure controls and procedures during the three months ended
March 31, 2011, that has materially affected or is reasonably likely to materially affect the purposes set out
above.
Internal Controls over Financial Reporting
Management is responsible for the establishment, maintenance and testing of adequate internal controls over
financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with Canadian GAAP.
The Company's management and the Board of Directors do not expect that its disclosure controls and procedures
or internal controls over financial reporting will prevent all errors or all instances of fraud. A control
system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that the
control system's objectives will be met.
Further, the design, maintenance and testing of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control gaps and instances of fraud have been detected. These inherent limitations include
the reality that judgment in decision-making can be faulty, and that simple errors or mistakes can occur.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the controls. The design, maintenance and testing of any system of controls is
based in part upon certain assumptions about the likelihood of future events, and any control system may not
succeed in achieving its stated goals under all potential future conditions.
There has been no change in the Company's internal control over financial reporting during the three months
ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
15.FORWARD LOOKING STATEMENTS
Certain statements included or incorporated by reference in this MD&A, including information as to the future
financial or operating performance of the Company, and its projects, constitute forward-looking statements. The
words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget",
"estimate", "may", "will", "schedule" and similar expressions identify forward-looking statements. Forward-
looking statements include, among other things, statements regarding the estimation of mineral resources,
estimated annual production, estimated pre-tax internal rate of return, estimated capital cost, estimated pre-
tax net present value and estimated mine life relating to an underground option at the Company's Angostura
Project and the future price of gold and silver. Forward-looking statements are based upon a number of
estimates and assumptions made by the Company in light of its experience and perception of historical trends,
current conditions and expected future developments, as well as other factors that Greystar believes are
appropriate in the circumstances. While these estimates and assumptions are considered reasonable by the
Company, they are inherently subject to significant business, economic, competitive, political and social
uncertainties and contingencies. Many factors could cause the Company's actual results to differ materially
from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Such
factors include, among other things, risks relating to permitting, risks relating to the Company's ability to
obtain adequate financing for the development of the Angostura Project, conclusions of economic evaluations;
changes in project parameters as plans continue to be refined; future prices of gold and silver, possible
variations in ore reserves, grade or recovery rates; risks related to fluctuations in the currency market,
risks related to the business being subject to environmental laws and regulations which may increase costs of
doing business and restrict the Company's operations; risks relating to title disputes; risks relating to all
the Company's properties being located in Colombia, including political, economic and regulatory instability,
accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals
or financing or in the completion of development or construction activities. These factors and others that
could affect Greystar's forward-looking statements are discussed in greater detail in the section headed "Risk
Factors" in the Company's Annual Information Form for the year ended December 31, 2010, which can be found on
SEDAR at www.sedar.com. Investors are cautioned that forward-looking statements are not guarantees of future
performance and, accordingly, investors are cautioned not to put undue reliance on forward-looking statements
due to the inherent uncertainty therein. Forward-looking statements are made as of the date of this MD&A, or in
the case of documents incorporated by reference herein, as of the date of such document, and the Company
disclaims any intent or obligation to update publicly such forward-looking statements, whether as a result of
new information, future events or results or otherwise, other than as required by applicable securities laws.
16. QUALIFIED PERSONS
All technical information, except for the Scoping Study, about the Company's mineral properties contained in
this Management's Discussion and Analysis has been prepared under the supervision of Giovanny Ortiz (MAusIMM),
an employee of the Company, who is a "qualified person" within the meaning of National Instrument 43-101 and
Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in respect of AIM
companies, which outline standards of disclosure of mineral projects.
The Scoping Study was reviewed and approved by the following who are the Qualified Persons as defined under
National Instrument 43-101 and Guidance Note for Mining, Oil and Gas Companies issued by the London Stock
Exchange in respect of AIM companies, which outline standards of disclosure of mineral projects: Carlos Guzm n
(MAusIMM), Principal Mining Engineer, was responsible for the overall preparation of the report, Rodrigo Mello
(MAusIMM), Independent Consulting Geologist, was responsible for the resource estimation and database auditing,
John Wells (FSAIMM), Metallurgical Engineer, provided an independent review and analysis of the metallurgy and
process plant, Giovanny Ortiz (MAusIMM), the Company's Exploration Manager, was responsible for the preparation
of the geology, exploration and geological model. The expert, Americo Delgado, the Company's Superintendent of
Metallurgy, was responsible for the metallurgical testwork program and the review of the process plant design.
All of the above Qualified Persons and experts are independent of the Company with the exception of Mr. Ortiz
and Mr. Delgado.
May 11, 2011.
Greystar Resources Ltd.
Greystar (LSE:GSL)
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