FORAN MINING CORPORATION

Transcription

1 FINANCIAL STATEMENTS NINE MONTHS ENDED JUNE 30, 2011 (Unaudited - Prepared by Management)

2 NOTICE OF NO AUDITOR REVIEW The accompanying unaudited interim financial statements have been prepared by management and approved by the Audit Committee and Board of Directors. The Company s independent auditors have not performed a review of these financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity s auditors.

3 CONSOLIDATED BALANCE SHEETS - UNAUDITED June 30, September 30, ASSETS Current Cash and cash equivalents $ 14,589,968 $ 3,867,030 Accounts receivable 75,891 2,683 Prepaid expenses, advances and deposits (Note 3) 244,284 8,148 Marketable securities (Note 4) 608, ,960 15,518,693 4,181,821 Equipment (Note 5) 135,909 54,291 Mineral properties (Note 6) 8,144,331 3,839,098 $ 23,798,933 $ 8,075,210 LIABILITIES Current Accounts payable and accrued liabilities $ 120,116 $ 49,672 SHAREHOLDERS EQUITY Share capital (Note 8) 57,460,826 41,231,666 Contributed surplus (Note 8(f)) 2,138, ,856 Accumulated other comprehensive earnings (loss) 49,153 (30,688) Deficit (35,969,755) (34,504,976) Total equity attributable to equity holders of the parents 23,678,817 7,670,858 Non-controlling interest (Note 6(a)) - 354,680 23,678,817 8,025,538 $ 23,798,933 $ 8,075,210 Nature and Continuance of Operations (Note 1) Contingency (Note 7) Commitment (Note 10) Subsequent Events (Note 13) Approved on behalf of the Board:, Director, Director

4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - UNAUDITED Three months ended Nine months ended June 30, June 30, Expenses Agency fees $ 1,047 $ 16,149 $ 22,022 $ 27,362 Amortization 6,124 3,992 13,569 15,565 Finder's fee - 20,000-20,000 Interest and bank charges ,023 2,185 Investor relations 12,795-35,101 - Office and administration 34,575 14,336 89,947 24,955 Professional fees 5,916 55,268 46,808 53,831 Property claim renew als - (63,187) - (4,231) Rent 4,283 6,375 16,317 12,292 Repairs and maintenance - 1,388 6,874 3,241 Salaries and benefits 240,036 23, ,079 62,857 Stock-based compensation (Note 8(d)) 166,987 10,131 1,165,381 30, ,489 88,602 1,767, ,450 Other Items Interest income 23,221-27, Gain (loss) on sale of marketable securities (Note 4) - 4,165 56, ,720 Gain on disposal of capital assets ,314 Gain on purchase of noncontrolling interest (Note 6(a)) ,503-23,221 4, , ,187 Loss for the period (449,268) (84,437) (1,464,779) (106,263) Deficit, beginning of period (35,520,487) (34,283,581) (34,504,976) (34,261,755) Deficit, End of Period $ (35,969,755) $ (34,368,018) $ (35,969,755) $ (34,368,018) Basic and fully diluted loss per share $ (0.01) $ (0.00) $ (0.03) $ (0.00) Weighted average number of shares outstanding 64,281,076 30,534,355 56,354,061 30,308,155

5 CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS) - UNAUDITED Three months ended Nine months ended June 30, June 30, Accumulated Other Comprehensive Earnings (Loss), Beginning of Period $ 414,283 $ 30,220 $ (30,688) $ (298,750) Other Comprehensive Earnings (Loss) Unrealized gain (loss) on marketable securities (Note 4) (365,130) 129,068 79, ,038 Accumulated Other Comprehensive Earnings (Loss), End of Period $ 49,153 $ 159,288 $ 49,153 $ 159,288

6 CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED Three months ended Nine months ended June 30, June 30, Operating Activities Net loss for the period $ (449,268) $ (84,437) $ (1,464,779) $ (106,263) Items not involving cash: Amortization 6,124 3,992 13,569 15,565 Gain on disposal of capital assets (8,314) Gain on disposal of marketable securities - (4,165) (56,520) (133,720) Gain on purchase of non-controlling interest - - (218,503) - Stock-based compensation 166,987 10,131 1,165,381 30,393 (276,157) (74,479) (560,852) (202,339) Net change in non-cash w orking capital (29,172) (22,683) (238,900) (50,626) Cash used in operating activities (305,329) (97,162) (799,752) (252,965) Investing Activities Purchase of plant and equipment (91,986) - (95,187) - Mineral property expenditures (761,645) (147,396) (1,541,410) (147,396) Proceeds from disposal of capital assets ,983 Proceeds from sale of marketable securities (Note 4) - 71, , ,072 Net cash payment on the purchase of non-controlling interest (Note 6(a)) - - (1,000,000) - Cash provided by (used in) investing activities (853,631) (75,658) (2,504,826) 171,659 Financing Activities Share capital issued, net - 3,558,650 14,027,516 3,558,650 Prepaid share subscription - 500, ,000 Cash provided by financing activities - 4,058,650 14,027,516 4,058,650 Net increase (decrease) in cash and cash equivalents (1,158,960) 3,885,830 10,722,938 3,977,344 Cash and cash equivalents, beginning of period 15,748, ,484 3,867,030 10,970 Cash and cash equivalents, end of period $ 14,589,968 $ 3,988,314 $ 14,589,968 $ 3,988,314 Cash and cash equivalents is comprised of: Guaranteed Investment Certificates $ 3,092,000 $ - $ 3,092,000 $ - Cash 11,497, ,484 11,497, ,484 $ 14,589,968 $ 102,484 $ 14,589,968 $ 102,484 Interest paid $ - $ - $ - $ - Taxes paid $ - $ - $ - $ - Supplemental cash flow information (Note 9)

7 1. NATURE AND CONTINUANCE OF OPERATIONS Foran Mining Corporation (the "Company") was incorporated under the laws of British Columbia and continued in Saskatchewan. The Company's principal business activities include the acquisition and exploration of mineral properties. These unaudited interim consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("GAAP") as applicable to a going concern, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. The Company is in the development stage and has incurred significant operating losses. The Company's ability to continue as a going concern is dependent upon the discovery of economically recoverable mineral reserves, the ability of the Company to obtain necessary financing to complete their development, and future production or proceeds from the disposition thereof. There are no assurances that the Company will be successful in achieving these goals. These unaudited interim consolidated financial statements do not include adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. 2. SIGNIFICANT ACCOUNTING POLICIES These unaudited interim consolidated financial statements include the accounts of Foran Mining Corporation and its wholly-owned subsidiary, Saskatchewan Ltd. The accompanying unaudited interim consolidated financial statements are presented in Canadian dollars and have been prepared in accordance with Canadian GAAP on a basis consistent with those outlined in the Company s audited financial statements for the year ended September 30, These notes do not include all of the information and disclosures required by Canadian GAAP for annual financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the most recent annual financial statements of the Company. Future accounting pronouncements In February 2008, the Accounting Standards Board ("AcSB ) confirmed that Canadian GAAP for publicly accountable enterprises will be converged with International Financial Reporting Standards ( IFRS ) effective calendar year The Company s first financial statements presented in accordance with IFRS will therefore be the year ended September 30, Though IFRS uses a conceptual framework similar to Canadian GAAP, there are some significant differences on recognition, measurement and disclosure requirements. In the period leading up to the changeover, the AcSB will continue to issue accounting standards that are converged with IFRS, thus mitigating some of the impact of adopting IFRS at the changeover date. The International Accounting Standard Board ( IASB ) will, however, also continue to issue new accounting standards during the conversion period. As a result, the final impact of IFRS on the Company s financial statements will only be measurable once all IFRS standards applicable at the conversion date are known. As a result of this convergence, the Company has developed a plan to convert its financial statements to IFRS. Management has not yet completed its quantification of the effects of adopting IFRS. The financial performance and financial position as presented in the Company s Canadian GAAP financial statements may be significantly different when presented in accordance with IFRS.

8 3. PREPAID EXPENSES, ADVANCES AND DEPOSITS As at June 30, 2011, the Company's prepaid expenses and advances consisted of the following: June 30, September 30, Exploration advance $ 50,000 $ - Deposits 160,220 5,000 Prepaid expenses 34,064 3,148 $ 244,284 $ 8,148 The exploration advance consisted of an amount paid to a drilling company for work that will be performed subsequent to June 30, The deposit consisted of an amount of $125,000 for the purchase of a trailer camp that was delivered in August 2011 and an amount of $35,220 for a security deposit comprised of the first and last three months of rent pertaining to an office lease agreement that was entered into in March 2011 (see Note 10). 4. MARKETABLE SECURITIES As at September 30, 2010, the Company owned marketable securities with a fair value of $303,960. In November 2010, the Company exchanged certain assets with Copper Reef Mining Corporation ( Copper Reef ) (see Note 6(a)). As part of the agreement, the Company was issued 3,000,000 common shares of Copper Reef. During the nine months ended June 30, 2011, the Company sold marketable securities for total proceeds of $131,771, resulting in a realized gain of $56,520. As at June 30, 2011, the Company owned marketable securities that were classified as available for sale and carried at fair market value based on quoted market prices as follows: Balance, September 30, 2010 $ 303,960 Shares received on the purchase of non-controlling interest (Note 6(a)) 300,000 Disposal of shares (75,251) Unrealized gain 79,841 Balance, June 30, 2011 $ 608, EQUIPMENT As at June 30, 2011, the Company's equipment consisted of the following: Accumulated Net Book Cost Amortization Value Computer and survey equipment $ 70,975 $ 26,981 $ 43,994 Equipment 175, ,393 29,643 Furniture and fixtures 30,325 10,077 20,248 Trailers 22,409 12,895 9,514 Vehicles 37,690 5,180 32,510 $ 336,435 $ 200,526 $ 135,909

9 5. EQUIPMENT (continued) As at September 30, 2010, the Company's equipment consisted of the following: Accumulated Net Book Cost Amortization Value Computer and survey equipment $ 30,305 $ 25,710 $ 4,595 Equipment 175, ,869 34,167 Furniture and fixtures 13,498 9,509 3,989 Trailers 22,409 10,869 11,540 $ 241,248 $ 186,957 $ 54, MINERAL PROPERTIES Other McIlvenna Saskatchewan Manitoba Bay Projects Projects Kisseynew Other Total Balance, September 30, 2010 $ 3,636,979 $ 171,025 $ 31,092 $ 1 $ 1 $ 3,839,098 Acquisition Costs Purchase of non-controlling interest (Note 6(a)) 2,745,320 50, ,795,320 Other acquisition costs and license fees ,240 12, ,367 Total Acquisition Costs 2,745, ,240 12, ,972,687 Exploration Costs Administration 2, ,279 Analysis 51, ,242 Camp costs 1,728 1,728 Consulting 426,131 26,789 4, ,518 Drilling 507, ,751 Equipment and communications 87, ,903 Fuel 80, ,374 Permitting 8, ,116 Salaries and benefits Staking - 20,000 2, ,012 Transportation and travel 143, ,920 Total Exploration Costs 1,310,266 47,126 6, ,364,043 Purchase of non-controlling interest (Note 6(a)) - - (31,495) (1) (1) (31,497) Balance, June 30, 2011 $ 7,692,739 $ 432,391 $ 19,201 $ - $ - $ 8,144,331

10 6. MINERAL PROPERTIES (continued) a) McIlvenna, Saskatchewan As at September 30, 2010, the Company owned a 75% joint venture interest in the McIlvenna mineral property located in Saskatchewan ("McIlvenna"), which consisted of 30 claims totalling more than 17,400 hectares ("ha"). In November 2010, the Company purchased the remaining 25% of McIlvenna from Copper Reef (the "JV Purchase Agreement"). Under the terms of the JV Purchase Agreement, the companies exchanged assets and cash, resulting in the Company owning a 100% direct interest in McIlvenna and providing Copper Reef with a Net Tonnage Royalty of $0.75 per tonne ore extracted, with a right of first refusal in favour of the Company. The JV Purchase Agreement was recorded by the Company as follows: Increase in mineral properties (McIlvenna Bay) $ 2,745,320 Receipt of 3,000,000 common shares of Copper Reef 300,000 Increase in mineral properties (other Saskatchewan projects) 50,000 Elimination of non-controlling interest 354,680 $ 3,450,000 Cash payment to Copper Reef $ 1,000,000 Issuance of 4,000,000 common shares of the Company to Copper Reef 2,200,000 Decrease in mineral properties (Manitoba projects and other) 31,497 Gain on JV Purchase Agreement 218,503 $ 3,450,000 Cameco Corporation ("Cameco") and BHP Billiton ("Billiton") collectively hold a 1% royalty interest in McIlvenna, which can be purchased from Cameco and Billiton for $1,000,000. b) Other Saskatchewan Projects As at June 30, 2011, the Company held interests ranging from 50% to 100% in 5 mining claim groups in its Saskatchewan property portfolio, exclusive of McIlvenna, that consisted of 31 claims totalling more than 19,700 hectares. As a result of the JV Purchase Agreement, the Company added 1 claim totaling 895 hectares to its Saskatchewan properties in the North Hanson Lake area during the nine months ended June 30, The Company has committed, through previous mineral property ownership agreements associated with these Saskatchewan projects, to pay various net smelter and net profits interest royalty fees. The net smelter royalty fees range from 2% - 2.5% and the net profits interest royalty fees range from 6% - 10%. Teck Resources Limited holds a sliding scale back-in right to the majority of these Saskatchewan claims.

11 6. MINERAL PROPERTIES (continued) c) Manitoba Projects As at September 30, 2010, the Company held 16 properties totalling more than 30,000 hectares. In November 2010, the Company transferred, as part of the JV Purchase Agreement, 5 Manitoba mining claim groups. The transferred properties had a combined book value of $ 31,495. As at June 30, 2011, two Manitoba mining claim groups remain in the Company s property portfolio and consist of 7 claims totalling 1,603 hectares. 7. CONTINGENCY a) During the year ended September 30, 2003, the Company, with two other companies, formed a general partnership which acquired an interest in the 1999 Investment Co. Limited Partnership. During that same year, the Company received a cash distribution of $281,156 (less a finder s fee of $8,430) from the general partnership which represented the aggregate amount of cash the Company expected to receive from this investment. On September 30, 2006, the Company sold its interest in the partnership to a non-related company. The Company is contingently liable for any liabilities that may arise associated with its investment in the general partnership where the liability originated during the time the Company held an interest in the general partnership. b) The Company has provided an indemnification to subscribers of flow-through shares in an amount equal to the income tax that would be payable by subscribers in the event, and as a consequence, of the Company not incurring and renouncing qualifying CEE as required under the subscription agreement. Companies must pay Part X11.6 tax in respect of each month in the year of renunciation equal to the balance of funds in respect of the renunciation that have not been spent on qualifying CEE times the current prescribed interest rate. If funds remain unspent at the end of the year, there is an extra tax levy of 1/10 of the unspent balance. 8. SHARE CAPITAL a) Authorized An unlimited number of common shares b) Share issuance details Shares Amount Balance, September 30, ,256,076 $ 41,231,666 Issued pursuant to private placements 14,000,000 14,960,000 Share issuance costs - (942,484) Exercise of stock options 25,000 11,644 Issued pursuant to the JV Purchase Agreement (Note 6(a)) 4,000,000 2,200,000 Balance, June 30, ,281,076 $ 57,460,826

12 8. SHARE CAPITAL (continued) b) Share issuance details (continued) On December 2, 2010, the Company completed a non-brokered private placement by issuing 2,000,000 units (each a Unit ) at a price of $0.58 per Unit, for gross proceeds of $1,160,000. Each Unit consisted of one common share of the Company and one-half of one common share purchase warrant, with each whole warrant entitling the holder to purchase one common share of the Company at a price of $0.70 per share expiring on December 22, The warrants are subject to certain conditions before they may be exercised. On March 7, 2011, the Company completed a brokered private placement by issuing 6,000,000 non flow-through common shares at a price of $1.05 per share, for gross proceeds of $6,300,000. The Agents received a cash commission representing 6% of the gross proceeds. On March 11, 2011, the Company completed a non-brokered private placement of 6,000,000 flow-through common shares at a price of $1.25 per share, for gross proceeds of $7,500,000. A finder s fee of $287,500 was earned in relation to the flow-through financing. c) Stock options The Company has a Rolling Stock Option Plan whereby the Company may grant options to directors, officers, employees and consultants of up to 10% of the common shares outstanding at the time of grant. The exercise price, term and vesting period of each option are determined by the board of directors within regulatory guidelines. A summary of the changes in stock options is presented below: Balance, September 30, ,518,750 Granted 2,900,000 Exercised (25,000) Expired or forfeited (31,250) Balance, June 30, ,362,500 During the nine months ended June 30, 2011, the Company granted a total of 2,900,000 incentive stock options to directors, officers, and employees of the Company. The exercise prices ranged from $0.90 to $1.25 per share. All of the stock options expire 5 years from their grant dates and vest over a 2 year period. The weighted average exercise price of the stock options outstanding at June 30, 2011 was $0.95 (September 30, 2010: $0.47) and the weighted average remaining life of the options was 3.91 (September 30, 2010: 2.48) years. The options granted during the nine months ended June 30, 2011 had a weighted average exercise price of $1.18, the exercised options had a weighted average exercise price of $0.40 and the expired options had a weighted average exercise price of $0.40.

13 8. SHARE CAPITAL (continued) c) Stock options (continued) The following stock options were outstanding as at June 30, 2011: Weighted average Outstanding Vested Exercise Price Expiry Date remaining life 250, ,000 $ 0.72 July 15, years 312, ,500 $ 0.56 January 7, years 500, ,000 $ 0.40 March 16, years 400, ,000 $ 0.40 September 23, years 1,400, ,667 $ 1.25 February 2, years 250,000 83,333 $ 1.25 February 13, years 250,000 83,333 $ 1.25 February 24, years 400, ,333 $ 1.25 February 27, years 250,000 83,333 $ 0.90 April 15, years 250,000 83,333 $ 0.90 May 9, years 100,000 33,333 $ 0.90 June 1, years 4,362,500 2,429,165 d) Stock-based compensation The Company applies the fair value method of accounting for all awards of stock options by using the Black-Scholes Option Pricing Model ( Black-Scholes Model ). The stock-based compensation expense for the stock options that vested during the nine months ended June 30, 2011 was $1,165,380 (2010: $30,393). The fair value of the stock options granted during the nine months ended June 30, 2011 was calculated using the following weighted average assumptions: Risk-free interest rate 2.12% % Expected stock price volatility 187% 155% Expected dividend yield 0.0% 0.0% Expected option life in years e) Share purchase warrants A summary of the changes in warrants is presented below: Balance, September 30, ,166,667 Issued pursuant to private placement (Note 8(b)) 1,000,000 Balance, June 30, ,166,667

14 8. SHARE CAPITAL (continued) e) Share purchase warrants (continued) The following warrants were outstanding as at June 30, 2011: Outstanding Vested Exercise Price Expiry Date 4,166,667 4,166,667 $ 0.12 July 6, ,000, ,000 $ 0.70 December 22, ,166,667 4,416,667 f) Contributed surplus Balance, September 30, 2010 $ 974,856 Fair value of stock options vested 1,165,381 Exercise of stock options (1,644) Balance, June 30, 2011 $ 2,138, SUPPLEMENTAL CASH FLOW INFORMATION The non-cash transactions for the nine months ended June 30, 2011 consisted of the Company issuing 2,200,000 common shares to Copper Reef, the Company receiving 3,000,000 common shares of Copper Reef, and the Company increasing its mineral properties by $2,763,823 and reducing non-controlling interest by $354,680 pursuant to the JV Purchase Agreement. 10. COMMITMENT In March 2011, the Company entered into a five year office lease agreement, which will commence on July 1, 2011 and end on June 30, Future minimum lease payments over the next five years are estimated to be as follows: 2011 $ 26, $ 105, $ 105, $ 105, $ 105, $ 79, FINANCIAL INSTRUMENTS Fair value of financial instruments The carrying amount of current financial assets and current financial liabilities approximate their fair value because of the short term maturities of these items.

15 11. FINANCIAL INSTRUMENTS (continued) Fair value of financial instruments (continued) The Company has designated its cash and cash equivalents as held for trading, which are measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Marketable securities are comprised of shares of Copper Reef and are classified as available for sale. The Company has not entered into any hedging relationships and does not hold any other available for sale securities that would result in the recognition of other comprehensive income or loss. Accounts payable and accrued liabilities are classified as other financial liabilities, which are measured at amortized cost. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. As at June 30, 2011, the Company is confident there will be sufficient access to financial markets to continue to meet its obligations as they become due. The Company does not currently operate any producing properties and as such, is dependent upon the issuance of new equity to advance its exploration properties. Although the Company has been successful in the past in obtaining financing, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain additional financing on a timely basis may cause the Company to postpone development plans, forfeit rights in its properties or joint ventures or reduce or terminate its operations. Reduced liquidity or difficulty in obtaining future financing could have an adverse impact on the Company s future cash flows, earnings, results of operations and financial position. The Company believes there are sufficient funds on hand to meet financial obligations for the current year. 12. CAPITAL DISCLOSURE The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders. The Company considers the items included in shareholder's equity as capital. The Company manages the capital structure and makes adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares, or acquire or dispose of assets. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary. The annual budgets are approved by the Board of Directors. In order to maximize ongoing exploration efforts, the Company does not pay out dividends. The Company's investment policy is to invest its cash in highly rated liquid short-term interest bearing investments with an initial term to maturity of twelve months or less. The Company is not subject to externally imposed capital requirements, except as disclosed. 13. SUBSEQUENT EVENTS Subsequent to June 30, 2011, 250,000 stock options with an exercise price of $0.72 per share were exercised for total proceeds of $180,000.