Please refer below for the December 2011 quarter MD&A of Southern Hemisphere Mining Limited, as issued in Canada.

Transcription

1 ASX: SUH TSX-V: SH Australian Office: Southern Hemisphere Mining Limited PO Box 598 T: West Perth F: WA Chilean Office: Minera Hemisferio Sur SCM Office 41, Zúrich 255 Los Condes, Santiago T: February 2012 Australian Securities Exchange Level 8 Exchange Plaza 2 The Esplanade PERTH WA 6000 Dear Sir/Madam Quarterly Management Discussion and Analysis ( MD&A ) Please refer below for the December 2011 quarter MD&A of Southern Hemisphere Mining Limited, as issued in Canada. This document should be read in conjunction with the corresponding unaudited condensed consolidated interim financial statements for the three and six month periods ended 31 December Yours faithfully Derek Hall Company Secretary

2 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 2011 (All amounts stated in United States dollars, unless otherwise indicated) This MD&A contains certain Forward-Looking Statements, which are prospective and reflect management s expectations regarding Southern Hemisphere Mining Limited s ( SHM, Southern Hemisphere or the Company ) future growth, results of operations, performance and business prospects and opportunities. Forward-looking information can often be identified by forward-looking words such as anticipate, believe, expect, goal, plan, intend, estimate, may and will or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. All statements, other than statements of historical fact, included herein, including without limitation statements regarding potential mineralization and reserves, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, exploration results and future plans and objectives of SHM are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from SHM s expectations are disclosed in its documents filed from time to time with the TSX Venture Exchange and other regulatory authorities and include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore to be mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. SHM undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

3 Background This discussion and analysis of consolidated operating results and financial condition is prepared as at February 13, 2012 and should be read in conjunction with the unaudited interim condensed consolidated financial statements and the accompanying notes of the Company for the three and six month periods ended December 31, 2011 and December 31, 2010 ( December 2011 Financial Statements ). The December 2011 Financial Statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). This management discussion and analysis ( MD&A ) has been prepared in United States dollars, except where otherwise indicated by reference to Canadian dollars ( CAD ), Australian dollars ( AUD ) or Chilean pesos ( CLP ). Additional information relevant to the Company s activities can be found on SEDAR at sedar.com. Company Overview The Company s common shares trade on the Toronto Stock Exchange Venture ( TSX-V ) under the symbol SH and on the Australian Securities Exchange ( ASX ) under the symbol SUH. The Registered Office of the Company is located at Suite 1750, 1185 West Georgia Street, Vancouver, British Columbia, Canada V6E 4E6. Operations are managed from the Company s office located at Suite 7, 1200 Hay Street, West Perth, Western Australia, Australia. The Company also maintains an office in Santiago, Chile. The Company is an exploration and mine development company focused on large tonnage base metal opportunities in Chile, with the stated strategy of creating shareholder value through the discovery and exploitation of mineral deposits. Project overview The Company holds numerous prospective copper/gold project areas and following a review of these project areas, priority has been given to a porphyry copper project at Llahuin, situated 250 km north of Santiago, Chile and a stand-alone copper project at Chitigua, located 90 km north of Calama, Chile. The Company s Los Pumas manganese project, located in northern Chile, has been reduced in priority within the Company s plans, because of the delay in environmental approvals and current manganese market conditions. Corporate Update On December 27, 2011, the Company announced the appointment of Mr Andrés Hevia Hormázabal, as a Non-Executive Director, effective from January 1,

4 Mr Yang Xifu did not seek re-election at the Company s Annual General Meeting held on November 30, 2011 and therefore ceased to be a Director of the Company on December 1, On June 1, 2011, Mr Eduardo Valenzuela resigned as a Non-Executive Director, concurrently Mr John Tarrant was appointed as a Non-Executive Director. Previous Financings On October 27, 2010, the Company announced the successful completion of a capital raising which was approved by shareholders. The capital raising, comprising the issue of approximately 47.6 million new fully paid ordinary shares at a price of AUD0.42 per share to raise AUD20 million before costs, was made to institutional and sophisticated investors in three tranches. These funds were intended to fund a two year exploration program on the Company s copper / gold concessions as well as front end engineering on the Los Pumas manganese project and exploration of the Company s iron sands project. The progress of the Company with respect to these projects is set out in the Project Update below. The funds applied to date have been used for these purposes and are further detailed in Note 5 of the December 2011 Financial Statements. Project Update Llahuin In July 2011, the Company entered into an option agreement to purchase the Llahuin Amapola copper/gold properties. Refer to the news releases lodged on SEDAR July 13, 2011 and July 14, 2011 detailing this acquisition. The Llahuin exploration project is located 250 km north of Santiago at an elevation of 1300 metres and is 17 km south of the mining town of Combarbala, which has a population of 14,000 and full amenities including easy connection to the hydropower energy system. The Llahuin exploitation licenses cover an area of 7.72 square km and have similar geological characteristics to the nearby Carmen de Andacollo copper mine. The Llahuin porphyry is one of a cluster of four potential targets, within the Amapola licenses, that have been defined by surface reconnaissance and mapping. The Llahuin porphyry is the main target. All the targets are part of the same porphyry copper gold system and exhibit similar geology, with medium sized early dioritic stockwork with propylitic to potassic (biotite) alteration emplaced in a North-South regional fault system. Argillic- quartz sericite alteration zones are evident in the upper zones and borders of the hydrothermal system within the volcanic wall rocks. At the Llahuin porphyry, a NNE trending elongated late granodioritic stockwork intrudes the early dioritic porphyry The mineralisation in the Llahuin porphyry is related to the early dioritic porphyry stockwork with abundant stockworks of quartz and variable amounts of magnetite, biotite, tourmaline, actinolite, calcite, copper oxides, iron oxides and some pyrite, chalcopyrite, covelite, chalcocite and molybenite. The mineralisation is mainly associated with veinlet systems. 3

5 Geophysics (magnetic and Induced Polarization IP ) surveys have been completed and the results are providing guidance to an accelerated resource drilling campaign, which is underway utilising three diamond drills and one reverse circulation drill. To date a total of 12,336 metres of reverse circulation and 4,024 metres of diamond drilling has been completed. For drill highlights, refer to the new releases lodged on SEDAR July 18, 2011, August 18, 2011, October 13, 2011, December 2, 2011 and February 2, These results indicate a porphyry with a target copper equivalent grade in excess of 0.4% Cu. The Company plans to complete a maiden JORC compliant resource estimate for the Llahuin project by the end of the first quarter of This is expected to lay the foundations for the commencement of a Scoping Study, which is also anticipated to commence during the first quarter of Chitigua The Chitigua project is located on the highly prospective western fault, north of the El Abra mine and south of the Quebrada Blanca Mine. This metallogenic zone includes the Chuquicamata and Escondida mines. The Chitigua concession covers an area of approximately 200 square km and is located 90 km north of Calama. Access is via the city of Calama that services Chuquicamata, RT, MM and Gaby mines and the El Abra mine. By the end of June 2011, two zones had been drill tested and from these results the Breccia zone, which is adjacent to the western fault, was selected for further drilling. Refer to the new release lodged on SEDAR July 8, 2011 for highlights of these drilling programs and analysis results. The Company has also completed an IP survey on the Breccia zone to assist in the planning of future drill-hole locations. Drill collar pads have been completed and a further diamond drilling campaign is due to commence in the first quarter of Los Pumas The Los Pumas manganese project in northern Chile is located 175 km inland from the port of Arica and is a multiple layered tabular style occurrence with a surface expression over 3.6 km in length. It is the subject of a completed preliminary assessment and awaits environmental approvals, water supply agreements and completion of final pit plans, ongoing test work and a feasibility study. During March 2011, Coffey Mining delivered an Updated Resource Estimate which increased the total measured and indicated resources to 18.3 million tonnes at 7.58% manganese consisting of a measured resource of 5.27 million tonnes at a grade of 7.39% manganese, and an indicated 4

6 resource of million tonnes at a grade of 7.65% manganese. Also reported was an inferred resource of 5.39 million tonnes at a grade of 8.59% manganese. The Updated Resource Estimate, prepared in accordance with the requirements of NI by independent Qualified Person, Mr. Ian Dreyer, P.Eng., was lodged on SEDAR March 25, An easement agreement with the local community over the use of their land for the project has been executed. Agreement has also been reached with the local community owners of land for the Company to purchase water. The water agreement is still however the subject of examination by the judicial system in Chile. Since the lodgement of the amended environmental impact statement ( EIS ) in August 2011 with the Arica Regional Committee, the government has indicated that further archaeological studies are required and the environmental approval is now not expected to be completed before the middle of the year. Further heavy media separation metallurgical test work has been undertaken by Transmin Metallurgical Consultants in Lima, Peru. The results have indicated a need for further analysis of possible crushing circuits. Samples for this analysis have been received in Perth and results are expected during the current quarter. Work is continuing on the Los Pumas project, however, the current manganese market conditions have reduced the priority of the project in the Company s plans. Accordingly, the feasibility study has been delayed but will continue to be progressed in line with the test work results and EIS approval. Other Projects Since the Llahuin and Chitigua projects have been given priority in the Company s plans, there has been limited activity on the other copper/gold projects or the Chanco iron sands project. Future Developments The main focus of the Company in the coming months will be to continue the drilling campaign at Llahuin with a view to completing a maiden JORC compliant resource estimate for the project by the end of the first quarter of In addition, the Company will continue to review opportunities to acquire additional copper projects in the region surrounding Llahuin, with a view to identifying and securing potential satellite projects based around a centrally located hub at Llahuin. Also, subject to weather conditions, a new diamond drilling program will commence at the Chitigua project. On the Los Pumas project, the Company will progress the outstanding items including the environmental impact statement approval and subsequently finalise the feasibility study. 5

7 Selected Financial Data SOUTHERN HEMISPHERE MINING LIMITED The following selected financial information is derived from the December 2011 Financial Statements. Results of Operations: December 31, 2011 (3 months) December 31, 2010 (3 months) Income 204,582 52,748 Expenses (1) 1,107, ,263 Net loss (902,652) (393,515) Dividends per share Nil Nil Basic and diluted loss per share (0.006) (0.003) (1) Expense are shown net of foreign exchange differences. Historical results have been converted to USD. During the 3 months ended December 31, 2011 the Company reported a net loss of 902,652 compared to a net loss of 393,515 in the period ended December 31, Specific expenses of note during the period ended December 30, 2011 include: - 1) Salaries and wages (389,358) which have increased as a result of the strengthening of staff levels in Australia and Chile. With operations expanding in Chile, further staff were required including an in-house lawyer and an accountant. 2) Professional fees (92,393) including tax advice and concession management costs. Over the year, more concessions were acquired by the Company and therefore more costs were incurred in maintaining these concessions. 3) Write off of Chilean VAT tax receivable (437,681), a tax credit recognised within the Chilean subsidiaries as a result of exploration activities. This tax credit is recoverable in future periods claimable against profitable operations. However, as this tax credit is recoverable at a currently indeterminable point in the future, the amount has been written off. If in the future the credit is recovered, then this write off would be reversed. As the Company is in the exploration stage of evaluating mineral interests it has no operating revenue. Interest income is generated from cash on deposit with financial institutions. Funds held during the year increased significantly with the completion of the October 2010 AUD20 million capital raising and therefore interest income also rose. The following is a summary of certain consolidated financial information concerning the Company for each of the last eight reported quarters: Under IFRS Under CGAAP 31 Dec Sept Jun Mar Dec Sep Jun Mar 10 Income 204, , , ,164 52,748 41,716 65,699 61,903 Expenses 1,107, ,568 1,297, , ,263 1,662, , ,685 Net gain (Loss) (902,652) (224,939) (1,620,458) (344,827) (393,515) (1,620,458) (267,017) (795,782) Basic and diluted (0.006) (0.001) (0.004) (0.002) (0.003) (0.016) (0.005) (0.008) loss per share 6

8 Financial Condition: SOUTHERN HEMISPHERE MINING LIMITED December 31, 2011 June 30, 2011 Working capital 11,050,922 15,870,904 Total assets 35,614,577 37,448,248 Total liabilities 115, ,232 Deficit (9,642,508) (8,514,917) Mineral exploration costs comprise the bulk of the Company s expenditures. The cumulative costs of exploration expenditures capitalised for each project are set out in Note 5 of the December 2011 Financial Statements. Details of exploration activities conducted during the quarter on the key projects are described in Project Update in this MD&A. Liquidity and Capital Resources: At December 31, 2011, the Company had a net working capital balance of 11,050,922 including cash and cash equivalents of 10,813,582. The following table summarizes the Company s cash and cash equivalents on hand, cash flows and contributed surplus for the periods ended December 31, 2011 (six months) and June 30, The main variation was completion of the capital raising during the June 30, 2011 period. December 31, 2011 June 30, 2011 Cash and cash equivalents 10,813,582 16,456,189 Cash used in operating activities 1,511,719 1,488,937 Cash used in investing activities 3,569,509 6,602,300 Cash used in / (provided by) financing activities (172,501) (20,202,745) The Company believes that it currently has sufficient financial resources to conduct anticipated exploration programs and meet anticipated corporate administration costs for the upcoming twelve months. However, exploration activities may change due to ongoing results and recommendations, or the Company may acquire additional properties, which may entail significant funding or exploration commitments. In the event that the occasion arises, the Company may be required to obtain additional financing. The Company has no debt and has relied solely on equity financing to raise the requisite financial resources. While it has been successful in the past, there can be no assurance that the Company will be successful in raising future financing should the need arise. Commitments: 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 concessions held to Chilean mining authorities. These payments amount to approximately 350,000 during the next 12 months. 7

9 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. Proposed Transactions Completion of the purchase of the Llahuin project licenses under the Option Agreement dated July 8, 2011 ( Option Agreement ). Under the terms of the Option Agreement, the Company will acquire the licenses by making staged cash payments of 615,000 over the course of 12 months from the date of the Option Agreement and issue shares to the value of 1.25 million, 18 months from the date of the Option Agreement. The total consideration payable is USD1.87 million. As at February 1, 2012, 320,000 remains unpaid of the 615,000 being paid over the 12 month period. Changes in Accounting Policies Please refer to the December 2011 Financial Statements lodged on SEDAR for a complete description of the Company s critical accounting policies. International Financial Reporting Standards ( IFRS ) The Company adopted IFRS on July 1, 2011 with a transition date of July 1, 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 a number of IFRS exemptions to its opening statement of financial position which are explained in Notes 2 and 18 to the December 2011 Financial Statements. Other Accounting considerations relating to Functional Currency and Change in Presentation Currency is also explained in Note 18 to the December 2011 Financial Statements. Outlook for third quarter of FY2012 The International Accounting Standards Board continues to amend and add to current IFRS standards with several projects currently underway. The Company continues to monitor actual and anticipated changes to IFRS standards and related rules and regulations and continues to assess the impacts of these changes on the Company and its reporting, including expected dates of when such impacts are effective. 8

10 Critical Accounting Policies, Estimates and Judgments Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities as at the date of the financial statements, as well as the reported amounts of revenues earned and expenses incurred during the year. These estimates are based on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Significant areas where management judgment is applied include but are not limited to, the following: - recoverability of capitalized exploration and evaluation expenditure - recognition of deferred tax balances - valuation of options and warrants - the ability to continue as a going concern In the opinion of management, all adjustments necessary for fair presentation of the results for the periods presented are reflected in the December 2011 Financial Statements. Financial Instruments Fair value of financial assets and liabilities The consolidated statements of financial position carrying amounts for cash and cash equivalents, approximate fair value due to their short-term nature. Due to the use of subjective judgments and uncertainties in the determination of fair values these values should not be interpreted as being realizable in an immediate settlement of the financial instruments. Fair value hierarchy The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: - Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; - Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and - Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data There were no transfers between Level 1 and 2 during the reporting period. The fair values of financial assets and liabilities carried at amortized cost are approximated by their carrying values. Cash and cash equivalents is ranked Level 1 as the market value is readily observable. 9

11 The carrying value of cash and cash equivalents approximates fair value as maturities are less than three months. Financial liabilities The Company has issued share purchase warrants with CAD exercise prices in connection with equity financing arrangements. As at the date of this discussion and analysis, there are no such warrants outstanding. Transactions with Related Parties 1) During the three month period ended December 31, 2011 the Company had certain arrangements in place with related parties to provide administrative, accounting, and management services that the Company required. These services are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and the related parties. Plough Lane Superannuation Pty Ltd - 11,250 Plough Lane Superannuation Pty Ltd is an Australian incorporated company controlled by a director of the Company. Superannuation contributions are made to the company on a monthly basis. 2) Compensation of key management personnel The remuneration of directors and other members of key management personnel during the three months ended December 31, 2011 and 2010 are as follows:- December 31, 2011 December 31, 2010 Salaries and director s fees 181, ,374 Share-based payments , ,374 Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Dividends The Company has not paid any dividends in the past and does not anticipate paying dividends in the near future. 10

12 Risks & Uncertainties SOUTHERN HEMISPHERE MINING LIMITED The Company is subject to a number of risk factors due to the nature of the mining business in which it is engaged, not least are adverse movements in commodity prices, which are impossible to forecast. The Company seeks to counter this risk, as far as possible, by selecting exploration areas on the basis of their recognised geological potential to host economic deposits. Risks and uncertainties associated with the Company s operations are substantially unchanged from the previous quarter. Please refer to the September 2011 Management Discussion and Analysis and the Company s 2011 Annual Information Form for detailed information on Company specific risks and uncertainties. Outstanding Share Data The Company s authorized share capital is unlimited common shares without a par value. As at February 13, 2012 there were 153,092,487 issued and outstanding common shares. In addition, there were 12,131,730 stock options outstanding, at exercise prices ranging from AUD0.25 to AUD0.54. Details of common shares issued during the period are disclosed in full in Note 7 of the December 2011 Financial Statements. Escrowed Shares At December 31, 2011, the Company had no shares in escrow on the TSX and 1,301,700 CDIs in escrow on the ASX in relation to the Centralian transaction referred to which are detailed in Note 5 to the December 2011 Financial Statements Licences and Permits, Laws and regulations The activities of the Company require permits from various government authorities, and are subject to Chilean national and provincial laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health and safety standards, mine safety standards and other matters. Such laws and regulations are subject to change, can become more stringent and compliance can therefore become more costly. Southern Hemisphere Mining Limited draws on the expertise and commitment of its management team, their advisers, its employees and contractors to ensure compliance with current laws and fosters a climate of open communication and co-operation with all regulatory bodies. The Company believes that it holds all necessary licences to complete the exploration activities, and will receive all necessary permits under applicable laws and regulations, and believes it is presently complying in all material respects with the terms of such licences and permits. There is no assurance that future changes in such regulation, if any, will not adversely affect the Company s operations. To the extent such approvals are sought and not obtained, the Company s planned exploration and development activities may be delayed, curtailed, or cancelled entirely. 11

13 Disclosure Controls and Procedures SOUTHERN HEMISPHERE MINING LIMITED Disclosure controls and procedures are designed to provide reasonable assurance that material information is gathered and reported to senior management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to permit timely decisions regarding public disclosure. Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that the Company s disclosure controls and procedures, as defined in Multilateral Instrument Certification of Disclosure in Issuer s Annual and Interim Filings, are effective to ensure that the information required to be disclosed in reports that are filed or submitted under Canadian Securities legislation are recorded, processed, summarized and reported within the time period specified in those rules. In conducting the evaluation it has become apparent that management relies upon certain informal procedures and communication, and upon hands on knowledge of senior management. Management intends to formalize certain of its procedures. Due to the small staff, however, the Company will continue to rely on an active Board and management with open lines of communication to maintain the effectiveness of the Company s disclosure controls and procedures. Lapses in the disclosure controls and procedures could occur and/or mistakes could happen. Should such occur, the Company will take whatever steps necessary to minimize the consequences thereof. Internal Controls and Procedures over Financial Reporting Internal control over financial reporting ( ICFR ) is designed to provide reasonable assurance regarding the reliability of the Company s financial reporting and its compliance with IFRS in its financial statements. The Chief Executive Officer and the Chief Financial Officer have evaluated whether there were changes to the Company s ICFR during the period ended December 31, 2011 that have materially affected, or that are reasonably likely to materially affect, its ICFR. No such changes were identified through their evaluation. 12