Management Discussion and Analysis For the quarter ended July 31, 2007

Transcription

1 Management Discussion and Analysis For the quarter ended July 31, 2007 The following discussion and analysis of the results of operations and financial position of the Company for the quarter ended July 31, 2007 should be read in conjunction with the quarter ended 30 April, 2007, January 31, 2007 audited financial statements and the notes to the financial statements. The effective date of this report is September 28, DESCRIPTION OF BUSINESS CIC Mining Resources Limited s (the Company ) strategy is to acquire interests in leading China based companies engaged in the acquisition, exploration and mining of natural resource properties broken down into three main groups: Strategic Metals, Precious Metals and Base Metals. Precious Metals Division (Two Gold Mine Licenses) (i) (ii) In April 2007, the Company acquired a 30% equity interest in the Hebei Fengning Man Autonomous County Changsheng Gold Mine ( Tao Jin Fengning Gold Mine ) located in China. As consideration the Company issued 12,000,000 common shares and will pay US$7,360,000, of which US$520,000 has been paid. A mine license has been obtained. The Company acquired a 30% equity interest in the Hei Shan Zui Gold Mine ( CIC Sword Gold Mine ) located 30 km from the Tao Jin Fengning Gold Mine. The mine interests are being transferred to Gold Company Fengning Man Gold Mining Company Limited. As consideration the Company is to issue14,000,000 common shares and pay US$1,720,000 to Mr. Song Yuqin, the principle of the venture, which funds are to be paid at the time additional capital is raised. Further, the Company will invest US$6.5 million for resource definition, geological work, mine development and the construction of a 20,000 oz gold concentrate plant as warranted. The gold concentrate, if any, will be processed in China. A mine license has been obtained. Since both gold mines are of same mineralization it is planned in Q3 to aid the Chinese operator to start drilling at CIC Sword Gold Mine to define the resource before they start any mine planning. Further geotechnical studies are also planned using the existing decline shafts at both mines.

2 - 2 - Strategic Metals Division (Tungsten & Tin Mine Licenses) The Company entered into a letter of intent with Judian Group to acquire a 15% interest in two Tungsten mines located in China and established CIC Judian Limited (Hong Kong) for the project. Micon International conducted a site visit in February 2007 and is preparing a National Instrument report. The two producing mines are: (a) Jiangxi Xiushui Xianglushan Tungsten Mine Company (Durham Tungsten Mine & Refinery) and (b) Guangxi Bobai Judian Mining Company Limited (Bishop Tungsten Mine & Refinery). The Durham Tungsten Mine is currently producing tungsten and China Minmetals Corporation holds a 51% stake. The Bishop Tungsten Mine with its Wolframite production facility has just completed start up commissioning. Bishop provides a second operating mine to the Judian Group. The Company has completed a major restructuring of the Judian Group including completing in July 2007 a due diligence report. The Company is working with Micon International to complete a NI report by Q4. Micon International sent a four person team to China in Q1 to review the operation and complete information for the NI report. Base Metals Division (Iron Ore Mine License) In September, 2007, the Company entered into a formal agreement with Benxi Municipal Mining Company Limited, Liaoning Province China, a leading Chinese iron ore miner. Pursuant to the Contract, the Company will form a new steel company in October 2007 to be named CIC China Steel Group Limited in Hong Kong. CIC China Steel Group will be 90% owned by CICM and 10% by Benxi. CIC China Steel Group intends to build a new high grade processing facility at an estimated cost of US$110 million. Funding for the new plant is expected to come from foreign enterprises outside of China who are looking to enter the Chinese iron ore market. Benxi operates an iron ore mine that currently produces approximately 1.1million tonnes of magnetite per year. The ore supply will underpin the economic viability of the new processing facility which is anticipated to have a minimum capacity of 3.2 million tonnes per year for which the Company will have the exclusive rights to sell all surplus capacity above the initial 1.1 million tonnes per year to other iron ore producers. The surplus capacity is estimated to be 2.1 million tonnes per year. According to the contract, the Company will receive 10% of the net income from all ore supplied by Benxi and 60% of net income derived from the additional over capacity processing. Benxi will provide the land and all infrastructure needs including 110KV power, water and roads. Benxi has agreed to deliver all of its mine production to the processing facility.

3 Special Projects & Project Pipeline (i) (ii) (iii) (iv) (v) The Company has a 90% interest in the Tao Jin property, now renamed as Golden Harvest (Du Jiagou Gold Mine, Li County, Gansu Province), which is located in Li County, Long Nan District, Gansu Province, People s Republic of China. The remaining 10% interest is held by Gansu Jiuzhou Mining Exploration Company Limited and Tianshui Lantian Geological Geotechnical Engineering Co. Limited. The Golden Harvest property consists of two contiguous exploration leases which are known to contain several potentially economic, structurally hosted gold deposits. In fiscal 2007, the Company acquired Ten Investment Mining Company Limited ("TIM"), a Chinese entity that holds a database of 50 emerging gold concentrate mines in China, including all processing metallurgical data, contacts and production rates. In April 2007, the Company entered into an agreement to acquire a 30% interest in Mongolian Molybdenum Corporation Limited ( MMC ), a Mongolian mining company. As consideration the Company will issue 4,000,000 common shares and pay cash of US$6,760,000 over two years. MMC owns three exploration licenses totaling 288 square km that are located 70 km from the Chinese border with Mongolia. One lease contains a potential gold deposit in which exploration drilling was previously conducted by Anglo Ashanti Gold. An application by MMC for a Gold and Molybdenum mining license is in progress. Ores mined in prior operations by MMC were sent to China for processing. The Company continues to keep its Buffalo Head Hills Property in Alberta in good standing. The Company is currently evaluating and compiling plans for an exploration program on the Buffalo Head Property. This property was staked on behalf of the Company in The Company acquired a 16.8% equity interest in Kong Group Holding s 11 gold lease concessions in North Sulawesi, Indonesia. As consideration the Company s interest the Company has agreed to raise US$22 million over two years for geological work, process and mine design and concentrate plant design and construction. The Company has established CIC Kong Group Limited (Hong Kong) to develop a 40,000 oz gold concentrate plant. Significant past drilling by Newmont (1060 drill holes) have been conducted. It is anticipated that any gold concentrate will be sent to China for final processing. This fits in with the Company s gold strategy detailed in previous press releases where the Company and its partners produce a gold concentrate with final processing completed in China. This strategy will eliminate the significant development and plant costs associated with a processing facility while still obtaining most of the benefits from the resources. The Company earned RMB 1,200,000 (US$157,000) from work done in June 2007 for PT Newport, the majority owner in the property.

4 Other The Company is a reporting issuer in British Columbia, Alberta and Ontario and trades in US$ funds on the CNQ Exchange under the symbol CICM.U. OVERALL PERFORMANCE Golden Harvest (Du Jiagou Gold Mine, Gansu Province) Property (formally Tao Jin Property) The Golden Harvest property consists of two contiguous exploration leases which are known to contain several potentially economic, structurally hosted gold deposits. Golden Harvest is located near the village of Liba in Li County, Long Nan District, Gansu Province, China approximately 1,200 km west-southwest of Beijing. The project was acquired by the Company from CIC Resources Limited, and our President, Stuart Bromley, who acquired it from the Tianshui General Team of the Gansu Bureau of Geology and Exploration for Nonferrous Metals, also known as the Tianshui Geological Group (TGG), subject to a scheduled payment of agreed funds. The TGG was a Chinese state controlled entity now run by the province and is based in the city of Tianshui in Gansu Province. The remaining 10% interest in the Golden Harvest property is held by Gansu Jiuzhou Mining Exploration Company Limited and Tianshui Lantian Geological Geotechnical Engineering Co. Limited. In August 2006, a 500 kilogram bulk sample of oxide material was taken from an open pit site on the Golden Harvest property near the No.5 mine. The sample was delivered to the Beijing General Research Institute of Mining & Metallurgy which is an independent laboratory that is not certified in accordance with western certifications, although it has a Grade A Chinese certification. The bulk sample will be subjected to an oxide column test and other tests at a future date subject to raising new capital in A new drilling program is also dependent on financing. In August 2006, a technical review relating to the Golden Harvest drilling program was commenced by SRK Beijing. GBM Engineering contracted Tim Mann Mining Engineer to conduct a review of the mining and related economics of the Golden Harvest gold mine. GBM Engineering inspected the site and the mining operations of a third party. It also inspected the No. 5 mine facilities and reviewed the drill core from the Company's prior drilling. This information was used to assist the Company in planning its drill programs and possible mining methods. Mechanical Process Design Services Australia provided a detailed process flow sheet on possible processing of hard rock gold deposits to support the work of Tim Mann. In March 2007 after detailed reviews of the property and the Company s change in business approach, a local partner is being sought to operate the project. Further development work to mining including drilling will be dependant on the selection of a local partner, capital raising and government approvals.

5 - 5 - In June 2007 a local mining company entered into preliminary discussions with a view of continuing development to possible production. The local mining company owns the former process facility (decommissioned since 2003). Further discussion with other parties is continuing. The Company believes that with its new focus Golden Harvest is a development asset that needs a partner that will conduct all operations. Strategic Direction The Company s focus will be in three key areas: (i) Precious Metal Division (ii) Base Metals Division (iii) Strategic Metals as a non-operator of mines and hold a minority equity interest. Other Properties Buffalo Head Property The Company has a 100% interest in 4 mineral claims in Alberta known as the Buffalo Head Property. The Company is currently evaluating and compiling plans for an exploration program on the Buffalo Head Property. Corporate Finance In April 2007, the Company entered into a corporate finance agreement with Tortuga Merchants Inc., a merchant bank, to raise equity for its China property commitments. The agreement calls for compensation in the form of 600,000 common shares to be issued upon reaching defined milestones, commissions and expense reimbursement. Subsequent to April 30, 2007, 150,000 common shares were issued to Tortuga in accordance with the terms of its agreement. In May 2007, Tortuga and the Company completed a road show to select agents in Canada for future capital raisings. Effects on Cash Flows Over the next fiscal year the Company will need to raise capital by private placement and loans to fund its operations and the funding commitments to maintain its interests in various properties. The Company s loan facility is to maintain its current operations without the need for small, short term private placements. The Company received the credit facility of up to US$11.38 million from an individual in China. The Company has the ability to request funds under this facility, on demand, and will repay advances by issuing common shares at the price equal to the closing price on the day before the funds are requested. The Company settled $640,000 in debt by issuing 1,688,888 common shares in the fiscal year ended January 31, Other Possible Impacts The Company is monitoring new regulations, policies and laws that change the way it operates commercially. The Company will ensure that all its operations are bound by a domestic registered company. Changes to foreign currency import and export will remain a problem due to Chinese government restriction. In particular, the transfer of money from China to Canada is very difficult under the current Company organization.

6 SELECTED ANNUAL INFORMATION The following financial data is derived from the Company s audited financial statements for the three most recently completed financial years ended January 31. For the year ended January 31, Total Revenues Nil Nil Nil Income (loss) before discontinued ($2,731,704) ($599,130) ($122,467) operations and extraordinary items (total) Net income (loss) ($2,731,704) ($599,130) ($385,394) Net income (loss) per share ($0.05) ($0.02) ($0.07) Net income (loss) per share, fully diluted ($0.05) ($0.02) ($0.07) Total assets $10,664,796 $7,073,635 $22,545 Cash dividend declared per share Nil Nil Nil RESULTS OF OPERATIONS During the six months and the quarter ended July 31, 2007, the Company generated revenue of RMB 1,200,000 (US$157,000) from work done in June 2007 for PT Newport. The net loss for the six months was $1,177,670 versus a loss of $885,018 for the same period last year and $348,053 versus $486,641 for the latest quarter. Costs are higher due to the addition of new offices for $160,000 formerly being charged to the Golden Harvest property and now being absorbed in General and Administrative costs (see Accounting Change note below), amortization of the intangible asset for $232,500, investor communications programs and support staff of $81,000, consulting fees of $61,500, stock option compensation of $30,000 and travel expenses of $18,000. Legal fees associated with business operations and the litigation (see Contingency ) was lower than last year by $160,000. For the latest quarter overall costs were in line with the previous year with amortization costs up $116,000, consulting fees up $61,500, stock option compensation up $30,000, office, rent and administration down $119,000, and, management fees down $27,000.

7 SUMMARY OF QUARTERLY RESULTS The following is a summary of the results from the eight previously completed financial quarters: July 31, 2007 April 30, 2007 January 31, 2007 October 31, 2006 July 31, 2006 April 30, 2006 January 31, 2006 October 31, 2005 Revenues $167,748 Nil Nil Nil Nil Nil Nil Nil Income (loss) before discontinued and extraordinary items (Total) ($348,053) ($829,617) ($432,500) ($1,413,828) ($486,641) ($398,735) ($418,501) ($139,511) Income (loss) before discontinued and extraordinary items (Per share) Income (loss) before discontinued and extraordinary items (diluted per share) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Net income (loss) (total) ($348,053) ($829,617) ($432,500) ($1,413,828) ($486,641) ($398,735) ($418,501) ($139,511) Net income (loss) (per ($0.01) ($0.02) ($0.00) ($0.03) ($0.01) ($0.01) ($0.01) ($0.01) share) Net income (loss) (diluted per share) ($0.01) ($0.02) ($0.00) ($0.03) ($0.01) ($0.01) ($0.01) ($0.00) Additional Disclosure for Venture Issuers without Significant Revenue As the Company has not had significant revenue from operations in either of its last two financial years, the following is a breakdown of the material costs incurred for the current fiscal quarters and the year ended January 31, Capitalized or Expensed Exploration and Development Costs Period ended July 31, 2007 Period ended April 30, 2007 Year ended January 31, 2007 $ - $1,590,500 $1,266,067 Expensed Research and Development Costs Deferred Development Costs General and Administration Expenses $ 515,801 $829,617 $2,731,704 Any Material Costs (capitalized, deferred or expensed) not referred to above - - -

8 General and administrative expenses Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Amortization 116, , Filing fees and transfer agent 5,675 6,568 4,800 4,223 11,650 9,525 4,704 3,419 Shareholder communications 23,791 40,794 21,534 67,009 40,382 (2,589) 305 6,669 Management/consulting fees 88,500 27,000 27, ,113 54,000 0 (5,840) 5,840 Professional fees 69, , ,211 42,291 69, , ,503 46,846 Rent and administration fees 94, , ,381 66, ,616 54,071 32,298 25,430 Office and miscellaneous 65,682 98,605 52,502 67,494 30,027 1,083 (65,469) 51,307 Stock option compensation 29,682 0 (293,928) 943, Travel 21,949 41, ,200 14, Total 515, , ,500 1,416, , , , ,511 Additional disclosure re:rent and administration fees Q2 Q1 Q4 Q3 Q2 Q1 Notes Office rents - Canada - - 9,381 14,071 14,071 14,071 - China 94, , ,000 39, ,000 - Change in accounting to G&A Admin support - Canada ,846 45,000 40,000 (see note below) - China - 126, ,545-94, , ,381 66, ,616 54,071 As a result of the accounting change with respect to the Beijing facilities, costs formerly capitalized as Golden Harvest property expenditures are now being expensed to General and Administrative costs. Administration support in Canada was reduced as a result of the termination of the Canadian office support program. Exploration and development costs Golden Harvest Gansu Q2 Q1 Q4 Q3 Q2 Q1 Q3 &Q4 Administration , ,254 Assays and Lab ,209 45,065 46,436 work Consulting ,902 68,109 58,000 86, ,690 Drilling (6,821) 414,396 1,031,582 Geology ,465 21,500 14,790 Field work 0 22,500 59,453 88,019 56, , ,738 Travel and 0 0 5,500 11,289 11,432 25,059 84,147 accommodation Total 0 22, , , , ,851 2,193,637

9 - 9 - Disclosure on Outstanding Share Data The following information details the outstanding share capital of the Company as at July 31, 2007 and the years ended January 31, 2007 and 2006: July 31, 2007 January 31, 2007 January 31, 2006 Common shares 76,562,777 61,028,161 50,477,675 Special Warrants Nil Nil Nil Incentive Stock Options 1,725,000 1,625,000 Nil Share Purchase Warrants 0 5,800,190 2,670,219 During the Quarter ended July 31, 2007, the Company: issued 307,692 common shares on the exercise of broker warrants at $0.45 per share after their re-pricing from $1.00; issued 150,000 common shares to Tortuga at a market value of $0.50 per share; issued the 12,000,000 common shares accrued for the Tao Jin Fengning acquisition; and granted stock options to a consultant to acquire 100,000 common shares under the Company s stock option plan for a period of 5 years and an exercise price of US$0.45 per share. LIQUIDITY Since incorporation in June, 2003, the Company s capital resources have been limited. The Company has had to rely upon the sale of equity securities for the cash required for capital acquisitions, exploration and development, and administration. CAPITAL RESOURCES The Company will continue to require funds to acquire and develop its properties and as a result will have to continue to rely on equity and debt financing. There can be no assurance that financing, whether debt or equity, will always be available to the Company in the amount required at any particular time or for any particular period or, if available, that it can be obtained on terms satisfactory to the Company. The Company s properties are in the exploration stage or early stage development, without a known or compliant reserve body of commercial ore. Development of each or any of the properties will only follow upon obtaining satisfactory results. Exploration and development of natural resources involve a high degree of risk and few properties which are explored are ultimately developed into producing properties. There is no assurance that the Company s exploration and development activities will result in any discoveries of commercial bodies of ore. The long term profitability of the Company s operations will be in part directly related to the cost and success of its exploration and development programs, which may be affected by a number of factors.

10 The Company s revenues, if any, are expected to be in large part derived from the extraction and sale of base, strategic and precious metals from its properties. The price of those commodities has fluctuated widely, particularly in recent years, and is affected by numerous factors beyond the Company s control such as international, economic and political trends, expectations of inflation, currency exchange fluctuations and interest rates. OFF-BALANCE SHEET ARRANGEMENTS None. TRANSACTIONS WITH RELATED PARTIES For the six months ended July 31, 2007, the Company incurred $60,209 in legal fees and $1,740 in interest charges charged by a legal firm in which a director is an associate and management fees of $54,000 paid to another director. The Company also incurred resource property expenditures contracted in connection with costs included in Golden Harvest exploration costs of $22,500 and office support General and Administrative charges of $454,205 paid to a private company controlled by a director of the Company. PROPOSED TRANSACTIONS AND SUBSEQUENT EVENTS 1. In August, 2007, the Company acquired a 30% equity interest in the Hei Shan Zui Gold Mine (CIC Sword Gold Mine) located 30 km from Tao Jin Fengning Gold Mine. The mine interests are being transferred to Gold Company Fengning Man Gold Mining Company Limited. As consideration, the Company is to issue 14,000,000 common shares and pay US$1,720,000 to Mr. Song Yuqin, the principle of the venture, which funds are to be paid at the time additional capital is raised. Further, The Company will invest US$6.5 million for resource definition, geological work, mine development and the construction of a 20,000 oz gold concentrate plant as warranted. The gold concentrate, if any, will be processed in China. 2. In September, 2007, the Company entered into a formal agreement with an iron ore miner in Liaoning Province, China, Benxi Municipal Mining Company Limited. Pursuant to the contract, the Company will issue 2 million shares to Benxi for infrastructure planning and establishment and form a new steel company in Hong Kong in October 2007 to be named CIC China Steel Group Limited 90% owned by the Company and 10% by Benxi. CIC China Steel Group intends to build a new high grade processing facility at an estimated cost of US$110 million. Funding for the new plant is expected to come from foreign enterprises outside of China who are looking to enter the Chinese iron ore market. According to the contract, the Company will receive 10% of the net income from all ore supplied by Benxi and 60% of net income derived from the additional over capacity processing. Benxi will provide the land and all infrastructure needs including 110KV power, water and roads. Benxi has agreed to deliver all of its mine production to the processing facility.

11 CRITICAL ACCOUNTING ESTIMATES The stock-based compensation expense is determined using the Black-Scholes option pricing model. CHANGES IN ACCOUNTING POLICY In the second quarter of fiscal year the Company s corporate offices were relocated to China necessitating an accounting change in local administration costs which now are being charged to General and Administrative. Previously, the office in China supported the work on the Golden Harvest property only. DISCLOSURE CONTROLS AND PROCEDURES Management is responsible for establishing and maintaining disclosure controls and procedures for the Company. Based on an evaluation of the Company s disclosure controls and procedures as of the end of the period covered by this MD&A, management believes such controls and procedures are effective in providing reasonable assurance that material items requiring disclosure are identified and reported in a timely manner. CONTINGENCY The Company has been named as a defendant in an action which claims that, among other things, CIC Resources Limited and Stuart Bromley, the vendors of the Golden Harvest Property, do not own or have an interest in the Golden Harvest property and thereby cannot sell them to the Company. Management is of the opinion that this claim is without merit and intends to vigorously defend the action. The amount of potential loss, if any, from this claim is indeterminable. ADDITIONAL INFORMATION Additional information about the Company can be found on