FORAN MINING CORPORATION

Transcription

1 FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 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 March 31, September 30, ASSETS Current Cash and cash equivalents $ 15,748,928 $ 3,867,030 Accounts receivable 60,395 2,683 Deposits 5,000 5,000 Prepaid expenses and advances (Note 3) 345,774 3,148 Marketable securities (Note 4) 973, ,960 17,133,777 4,181,821 Equipment (Note 5) 50,047 54,291 Mineral properties (Note 6) 7,382,686 3,839,098 $ 24,566,510 $ 8,075,210 LIABILITIES Current Accounts payable and accrued liabilities $ 240,282 $ 49,672 SHAREHOLDERS EQUITY Share capital (Note 8) 57,460,826 41,231,666 Contributed surplus (Note 8(f)) 1,971, ,856 Accumulated other comprehensive earnings (loss) 414,283 (30,688) Deficit (35,520,487) (34,504,976) Total equity attributable to equity holders of the parents 24,326,228 7,670,858 Non-controlling interest (Note 6(a)) - 354,680 24,326,228 8,025,538 $ 24,566,510 $ 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 Six months ended March 31, March 31, Expenses Agency fees $ 17,677 $ 10,261 $ 20,975 $ 11,213 Amortization 3,586 5,115 7,445 11,573 Interest and bank charges 1, ,297 1,463 Investor relations 17,137-22,306 - Office and administration 30,729 4,446 55,372 9,183 Professional fees 4,303-40,892 - Property claim renew als - 35,143-58,956 Rent 8,849 3,375 12,034 5,917 Repairs and maintenance - 1,583 6,874 1,853 Salaries and benefits 90,896 19, ,043 39,427 Stock-based compensation (Note 8(d)) 843,614 10, ,394 20,262 1,018,406 90,742 1,294, ,847 Other Items Interest income 1,910-4, Gain (loss) on sale of marketable securities (Note 4) 56,520 (90) 56, ,554 Gain on disposal of capital assets ,314 Gain on purchase of noncontrolling interest (Note 6(a)) ,503-58,430 (90) 279, ,021 Loss for the period (959,976) (90,832) (1,015,511) (21,826) Deficit, beginning of period (34,560,511) (34,192,749) (34,504,976) (34,261,755) Deficit, End of Period $ (35,520,487) $ (34,283,581) $ (35,520,487) $ (34,283,581) Basic and fully diluted loss per share $ (0.02) $ (0.00) $ (0.02) $ (0.00) Weighted average number of shares outstanding 55,347,743 30,308,155 52,390,554 30,308,155

5 CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS) - UNAUDITED Three months ended Six months ended March 31, March 31, Accumulated Other Comprehensive Earnings (Loss), Beginning of Period $ (90,688) $ 688,869 $ (30,688) $ (298,750) Other Comprehensive Earnings (Loss) Unrealized gain (loss) on marketable securities (Note 4) 504,971 (658,649) 444, ,970 Accumulated Other Comprehensive Earnings (Loss), End of Period $ 414,283 $ 30,220 $ 414,283 $ 30,220

6 CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED Three months ended Six months ended March 31, March 31, Operating Activities Net loss for the period $ (959,976) $ (90,832) $ (1,015,511) $ (21,826) Items not involving cash: Amortization 3,586 5,115 7,445 11,573 Gain on disposal of capital assets (8,314) Gain on disposal of marketable securities (56,520) 90 (56,520) (129,555) Gain on purchase of non-controlling interest - - (218,503) - Stock-based compensation 843,614 10, ,394 20,262 (169,296) (75,496) (284,695) (127,860) Net change in non-cash w orking capital (219,778) (20,337) (209,728) (27,944) Cash used in operating activities (389,074) (95,833) (494,423) (155,804) Investing Activities Purchase of plant and equipment (3,201) - (3,201) - Mineral property expenditures (676,065) - (779,765) - Proceeds from disposal of capital assets ,983 Proceeds from sale of marketable securities (Note 4) 131,771 73, , ,335 Net cash payment on the purchase of non-controlling interest (Note 6(a)) - - (1,000,000) - Cash provided by (used in) investing activities (547,495) 73,540 (1,651,195) 247,318 Financing Activities Share capital issued, net 12,871,601-14,027,516 - Cash provided by financing activities 12,871,601-14,027,516 - Net increase (decrease) in cash and cash equivalents 11,935,032 (22,293) 11,881,898 91,514 Cash and cash equivalents, beginning of period 3,813, ,777 3,867,030 10,970 Cash and cash equivalents, end of period $ 15,748,928 $ 102,484 $ 15,748,928 $ 102,484 Cash and cash equivalents is comprised of: Guaranteed Investment Certificates $ 3,092,000 $ - $ 3,092,000 $ - Cash 12,656, ,484 12,656, ,484 $ 15,748,928 $ 102,484 $ 15,748,928 $ 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 AND ADVANCES As at March 31, 2011, the Company's prepaid expenses and advances consisted of the following: March 31, September 30, Exploration advances $ 296,495 $ - Deposit 39,446 - Prepaid expenses 9,833 3,148 $ 345,774 $ 3,148 The exploration advances consisted of amounts paid to a project management company for work that was performed in April and May The deposit consisted of 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 six months ended March 31, 2011, the Company sold marketable securities for total proceeds of $131,771, resulting in a realized gain of $56,520. As at March 31, 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 444,971 Balance, March 31, 2011 $ 973, EQUIPMENT As at March 31, 2011, the Company's equipment consisted of the following: Accumulated Net Book Cost Amortization Value Computer and survey equipment $ 33,506 $ 26,454 $ 7,052 Equipment 175, ,789 29,247 Furniture and fixtures 13,498 9,897 3,601 Trailers 22,409 12,262 10,147 $ 244,449 $ 194,402 $ 50,047

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 - 130,754 12, ,707 Total Acquisition Costs 2,745, ,754 12, ,939,027 Exploration Costs Administration 57, ,385 Assaying, sampling, line - cutting and mapping 21, ,557 Drilling 212, ,763 Equipment rental 30, ,764 Equipment repairs and maintenance 3, ,101 Equipment purchase 7, ,906 Fuel 38, ,080 Geological consulting 176, ,009 Helicopter - 20, ,000 Report writing 2, ,313 Staking - 1, ,972 Field costs 64, ,208 Total Exploration Costs 614,086 21, ,058 Purchase of non-controlling interest (Note 6(a)) - - (31,495) (1) (1) (31,497) Balance, March 31, 2011 $ 6,996,385 $ 373,751 $ 12,550 $ - $ - $ 7,382,686

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") 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 March 31, 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 six months ended March 31, 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 March 31, 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, March 31, ,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 2,300,000 Exercised (25,000) Expired or forfeited (31,250) Balance, March 31, ,762,500 During February 2011, the Company granted a total of 2,300,000 incentive stock options to directors, officers, and employees of the Company at an exercise price of $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 March 31, 2011 was $0.95 (September 30, 2010: $0.47) and the weighted average remaining life of the options was 4.01 (September 30, 2010: 2.48) years. The options granted during the six months ended March 31, 2011 had a weighted average exercise price of $1.25, 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 March 31, 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 3,762,500 2,229,166 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 six months ended March 31, 2011 was $998,394 (2010: $20,262). The fair value of the stock options granted during the six months ended March 31, 2011 was calculated using the following weighted average assumptions: Risk-free interest rate 2.10% % Expected stock price volatility 193% 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, March 31, ,166,667 The following warrants were outstanding as at March 31, 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

14 8. SHARE CAPITAL (continued) f) Contributed surplus Balance, September 30, 2010 $ 974,856 Fair value of stock options vested 998,394 Exercise of stock options (1,644) Balance, March 31, 2011 $ 1,971, SUPPLEMENTAL CASH FLOW INFORMATION The non-cash transactions for the six months ended March 31, 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. 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.

15 11. FINANCIAL INSTRUMENTS (continued) 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 March 31, 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 March 31, 2011, the Company granted a total of 500,000 incentive stock options to new employees of the Company at an exercise price of $0.90 per share. The stock options expire 5 years from their grant dates and vest over a 2 year period.