Management's Comments On Unaudited Financial Statements

Transcription

1 Management's Comments On Unaudited Financial Statements The accompanying unaudited interim consolidated financial statements of Greystar Resources Ltd. for the quarter ended March 31, 2004 have been prepared by management and approved by the Audit Committee and the Board of Directors of the Company. These statements have not been reviewed by the Company's external auditors. Signed: "David B. Rovig" President Signed: "K. Peter Miller" Chief Financial Officer Dated: May 10, 2004

2 GREYSTAR RESOURCES LTD. Consolidated Balance Sheets (Unaudited - Prepared by Management) March 31 December ASSETS Current assets: Cash and cash equivalents $ 5,755,471 5,181,550 Short-term investments - 2,099,829 Amounts receivable, prepaids and exploration advances 209, ,276 5,964,673 7,500,655 Equipment 21,983 20,361 Mineral properties 7,325,869 7,325,869 Oil and gas properties 3 3 LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,312,528 14,846,888 Current liabilities Accounts payable and accrued liabilities $ 189, ,372 Loan payable 2,065,000 2,035,000 2,254,561 2,202,372 Shareholders' equity: Share capital 45,861,147 45,699,741 Stock-based payments 1,880,834 1,907,740 Deficit (36,684,014) (34,962,965) 11,057,967 12,644,516 $ 13,312,528 14,846,888 See accompanying notes to consolidated financial statements. Approved by the Board of Directors: Signed: "David B. Rovig" Director Signed: "Brian E. Bayley" Director

3 GREYSTAR RESOURCES LTD. Consolidated Statements of Operations and Deficit For the three months ended March 31, 2004 and 2003 (Unaudited - Prepared by Management) Expenses: Accounting and legal $ 14,529 - Depreciation 1,840 - Foreign exchange (1,754) (708) Investor relations 15,009 20,995 Interest and bank charges 30,438 - Management and consulting fees 38,287 42,735 Office facilities and administrative services 27,689 27,115 Office and sundry 8,148 6,261 Salaries and benefits 12,914 - Stock-based payments 26,500 - Transfer agent, listing and filing fees 16,167 23,119 Travel 11,550 31,341 Less: interest income (38,223) (19,569) 163, ,289 Exploration expenditures 1,557, ,507 Loss for the period 1,721, ,796 Deficit, beginning of period 34,962,965 28,271,224 Deficit, end of period $ 36,684,014 28,733,020 Basic and diluted loss per common share $ Weighted average number of common shares outstanding 18,929,963 15,235,492 See accompanying notes to consolidated financial statements.

4 GREYSTAR RESOURCES LTD. Consolidated Statements of Cash Flows For the three months ended March 31, 2004 and 2003 (Unaudited - Prepared by Management) Cash provided by (used for): Operating activities: Loss for the period $ (1,721,049) (461,796) Items not involving cash: Depreciation 1,840 - Accrued interest 30,000 - Stock-based payments 26,500 - Changes in non-cash working capital balances: Amounts receivable and exploration advances 10,075 63,389 Accounts payable 22,188 (5,948) (1,630,446) (404,355) Investing activities: Resource properties - (37,335) Oil and gas properties - (1,742) Purchase of equipment (3,462) - Redemption of short term investments 2,099,829-2,096,367 (39,077) Financing activities: Common shares issued on exercise of stock options 108,000 - Increase (decrease) in cash 573,921 (443,432) Cash, beginning of period 5,181,550 3,733,657 Cash, end of period $ 5,755,471 3,290,225 Supplementary cash flow information: Cash amount of payments received (made): Interest received $ 38,223 19,569 See accompanying notes to consolidated financial statements.

5 GREYSTAR RESOURCES LTD. Notes to Consolidated Financial Statements March 31, 2004 (Unaudited Prepared by Management) 1. Basis of presentation: The unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring accruals) considered necessary for fair presentation have been included. Operating results for the three month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, The interim financial statements have been prepared by management in accordance with the accounting policies described in the Company s annual financial statements for the year ended December 31, For further information, refer to the Company s consolidated financial statements and footnotes thereto for the year ended December 31, Equipment: December 31, 2003 Additions March 31, 2004 Computer equipment Cost $35,255 3,462 38,717 Depreciation (32,347) (385) (32,732) Automotive equipment Cost 26, ,573 Depreciation (26,573) -- (26,573) Other equipment Cost 567, ,816 Depreciation (550,363) (1,455) (551,818) Total $20,361 1,622 21, Mineral properties: Acquisition costs and options payments: December 31, 2003 March 31, 2004 Colombia acquisition costs $7,325,869 $7,325,869

6 GREYSTAR RESOURCES LTD. Notes to Consolidated Financial Statements March 31, 2004 (Unaudited Prepared by Management) 3. Mineral properties, continued: The details of exploration expenditures expensed during the period on mineral properties that the Company had interests in during the period are as follows: 4. Loan payable: Cumulative exploration expenditures Balance, December 31, 2003 $21,600,085 Exploration expenditures: Administration 38,418 Assay 110,179 Consulting 81,549 Drilling 870,129 Equipment and repairs 200,852 Field and office supplies 98,400 Insurance 22,420 Security 94,195 Taxes 8,295 Travel 33,518 1,557,955 Cumulative exploration expenditures, March 31, 2004 $23,158,040 December 31, March 31, Principal $2,000,000 2,000,000 Accrued interest 65,000 35,000 $2,065,000 2,035,000 In March, 2004, the Company negotiated an extension to the repayment date on the loan payable to Belle Isle Investments Ltd. ( Belle Isle ) from March 15, 2004 to June 15, Under the terms of the extension, the Company issued Belle Isle a warrant to purchase 100,000 common shares of the Company at $1.97 per share until September 15, The fair value of these warrants, based on a Black-Scholes pricing model was estimated to be $26,500 and has been included as a stock-based payment in the statement of operations. 5. Share capital: (a) Share Capital: Number of Shares Stated Amount Stock-based Payments Authorized: 100,000,000 common shares without par value Issued: Balance, December 31, ,900,762 $45,699,741 $1,907,740 Issued on exercise of options 65, , Fair value component of options -- 53,406 (53,406) Fair value of loan extension warrants ,500 Balance, March 31, ,965,762 $45,861,147 $1,880,834

7 GREYSTAR RESOURCES LTD. Notes to Consolidated Financial Statements March 31, 2004 (Unaudited Prepared by Management) 5. Share capital, continued: (b) Share purchase options: The continuity of share purchase options is as follows: Balance, December 31, 2003 Granted Exercised Balance, March 31, 2004 Expiry Date Exercise price Expired/ Cancelled March 26, 2004 $ , (27,000) -- June 23, 2004 $ , ,000 December 15, 2005 $ , ,000 February 1, 2007 $ , ,400 April 26, 2007 $ , ,000 June 10, 2007 $ , (20,000) October 21, 2007 $ , (20,000) ,000 February 6, 2008 $ , (25,000) ,000 June 9, 2008 $ , ,000 November 12, 2008 $ , (50,000) 897,000 March 1, 2009 $ , ,000 2,328, ,000 (65,000) (77,000) 2,286,400 Weighted average exercise price $2.22 $2.05 ($1.66) ($3.54) $2.15 On March 1, 2004, the Company granted 100,000 options exercisable on or before March 1, 2009 at a price of $2.05 per share. These options will vest (become exercisable) as follows: 50,000 after June 1, 2004 and 50,000 after September 1, The Company will record a stock based compensation expense of $57,000 each period in which these options become vested. The fair value of the stock option grant was calculated using a Black-Scholes option pricing model assuming the following: Risk free interest rate 3.90% Annual dividends -- Expected stock price volatility 100% Expected life 2.5 years (c) Share purchase warrants: In connection with the loan transaction referred to in Note 5, the Company granted Belle Isle an additional 100,000 shares purchase warrants at a price of $1.97 per share for a period of six months expiring September 15, Using the Black-Scholes options pricing model, the Company recorded stock-based compensation expense of $26,500 being the estimated fair value of the warrants. The following assumptions were used for the Black-Scholes valuation of these stock options granted: Risk free interest rate 2.25% Annual dividends -- Expected stock price volatility 53% Expected life 6 months

8 GREYSTAR RESOURCES LTD. Notes to Consolidated Financial Statements March 31, 2004 (Unaudited Prepared by Management) 5. Share capital, continued: (c) Share purchase warrants, continued: Warrants outstanding at March 31, 2004: Number of Shares Exercise price Expiry Date Warrants 750,000 $1.56 June 15, 2004 Warrants 100,000 $1.97 September 15, , Related party transactions: Related party transactions not otherwise disclosed on these financial statements consist of: (a) (b) Office facilities and administrative services and office expenses to a company with a director and two officers in common of $16,500 ( $16,500); Rent and administrative services for $11,189 ( $10,615) and consulting fees for $33,687 ( $42,375) to a company owned by the president; (c) Accounts payable to a company with a director and two officers in common of $6,536 ( $6,352); 7. Segment disclosures: The Company considers itself to operate in a single segment, being resource exploration and development. All interest revenue for the three months ended March 31, 2004 was derived in Canada. Other geographic information is as follows: South America United States Canada Total March 31, 2004: Loss from operations $163,094 $1,557, $1,721,049 Identifiable assets 5,946,684 7,341,867 23,977 13,312,528 March 31, 2003: Loss from operations $130,960 $330,507 $329 $461,796 Identifiable assets 3,341,978 7,363, ,434 11,429,616

9 GREYSTAR RESOURCES LTD. MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE QUARTER ENDED MARCH 31, 2004 Background This discussion and analysis of financial position and results of operation is prepared as at April 30, 2004 and should be read in conjunction with the unaudited consolidated financial statements for the three months ended March 31, 2004 and the audited consolidated financial statements for the years ended December 31, 2003 and 2002 of Greystar Resources Ltd. (the Company or Greystar ) where necessary. Those financial statements have been prepared in accordance with Canadian generally accepted accounting policies. Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis ( MD&A ) are quoted in Canadian dollars. Additional information relevant to the Company s activities, including the Company s Annual Information Form, can be found on SEDAR at Company Overview Greystar Resources Ltd. is a development stage company engaged in the acquisition and exploration of resource properties. Greystar s primary activity is the Angostura Gold-Silver Project in Colombia. Greystar is a reporting issuer in British Columbia and Ontario and trades on the TSX under the symbol GSL. Highlights Highlights during the first quarter of 2004 include: Continuation of Phase 1 of exploration program, which included approximately 6,000 meters of drilling to March 31, 2004 (8,139 meters to April 30, 2004); Negotiated extension of $ 2 million bridge loan financing; and Completed review of certain anomalous assays from 1997 to 1999 time period to determine impact on grade in indicated resource category. Highlights during the 2003 fiscal year include: Commenced Phase 1 of a planned three phase $14 million exploration program designed to take the Angostura Project through to the feasibility study stage; Negotiated a $5.0 million loan facility of which $2 million was borrowed; and $ 3.6 million of equity funding from the exercise of warrants. 1

10 Angostura Project, Colombia Greystar s main activity continues to be the advancement of its wholly owned Angostura Gold- Silver Project. In July of 2003, Greystar commenced a three-phase program designed to take the Project through a feasibility study provided accumulated information is positive. The total cost of the three-phase program is estimated to be US$14 million, but early successes in the program have led to the possibility that the budget may have to be expanded to provide for additional property acquisitions, testing facilities, and the possibility of an expanded program to deal with a larger resource. Phase 1 of the program involves 20,000 meters of core drilling from surface and underground locations and also about 1800 meters of underground drifting and crosscutting. Over 60 specific targets identified by analysis of previous drilling and geologic studies have been identified for testing or drilling. At December 31, 2003, 9,751 meters in 33 holes had been drilled. To April 30, 2004 an additional 8,139 meters in 27 holes had been drilled for a total Phase 1 performance of 17,890 meters in 60 drill holes. Surface drilling was continuing at that point with 5 operational drills on site. The underground work which will provide for underground drilling access, metallurgical samples, information on ground conditions, and other geological information commenced in January The first portal site was abandoned after about 30 meters of advance due to poor ground conditions. A new tunnel was portaled and at April 30, 2004 had advanced about 80 meters. The primary objective of the Phase 1 program is to provide information to upgrade the current resource estimate and determine more accurately the grade and tonnage of the deposit. Phase 1 is expected to cost US$4.3 million. Because of the late start of the underground portion of Phase 1 it is unlikely that it will be completed by the original target date of July Management does not expect this to result in a problem since Phase 2 of the planned program is simply a continuation of Phase 1. Therefore, as the year progresses the program will simply transition into a continued and expanded drilling program and, after the underground work progresses, the metallurgical testing and other features of the Phase 2 program will be implemented. The drilling in 2003 and that completed in the first quarter of 2004 has identified several new veins and structures and established extensions of previously defined structures such as veins 27, 28 and 29 which were intercepted up to 150 meters to the east of the previously known locations. All of the data accumulated through March 24, 2004 is being processed by the Company s independent consultants so that they can calculate a new resource estimate to be included in a new NI technical report. The report is expected to be available to the Company in the second quarter of In the latter part of 2003 the Company became aware that some of the assays from 1997 through 1999, which were used in the preparation and calculations of resource numbers, were high relative to comparable current data. In early January 2004 the Company announced its concern and using the services of a qualified independent engineer devised a plan to determine the cause and impact of the variance and to incorporate any resultant change into the database. On March 25, 2004 the Company announced that its staff and consultants had examined over 3,000 samples in order to identify high variance results. The Company re-analyzed over 800 core and reject samples, while adding 243 new assays to evaluate the impact on the gold resources. The only measurable impact was a loss of about 1% in grade in the indicated 2

11 resource category using a 3.0 gram gold per tonne cut off value. The other resource categories, using both 0.5 and 3.0 gram gold per tonne cut off values, were unaffected as to both grade and tonnage. Oil and Gas Properties, Colorado Greystar has interests in three natural gas prospects (8899 gross acres), which contain two wells in Moffat County, Colorado. One well produces small quantities of natural gas and the other well is shut-in. Revenues from the one producing well have been nominal and the decision was made in the 4th quarter of 2003 to write down the carrying value of the three gas prospects to a nominal amount. The leases are being maintained in good standing but because the main focus of the Company is advancement of the Angostura Project in Colombia, there is no intention to expend additional funds on these properties. Management intends to sell or farm out the Company s interests in these properties. 3

12 Selected Annual Financial Data As the Company is an exploration company, revenues are limited to interest earned on cash and short-term deposits. Operations expenditures can be categorized into two main groups comprising administrative expenses and exploration expenditures. Mineral property acquisition costs, which include option payments, are capitalized to the property. Cash inflows are predominately from share issuances. The following chart summarizes selected financial information: Selected Financial Information ($, except per share data) Q1 Q1 Fiscal year ended December Operations: Administrative expenses 163, ,289 2,546, , ,861 Exploration expenditures 1,557, ,507 3,550, , ,000 Write-down of oil and gas properties ,644 17,990 1,076,770 Net loss 1,721, ,796 6,691,741 1,201,684 1,820,412 Basic and diluted loss per share Dividends per share Balance Sheet: Total assets 13,312,528 11,429,616 14,846,888 11,897,360 8,468,624 Total long-term liabilities Cash Flows From (Used In): Operating (1,630,446) (404,355) (4,068,497) (1,037,836) (1,055,667) Investing 2,096,367 (39,077) (2,100,965) (580,155) 680,943 Financing 108,000-7,617,355 4,658, ,320 Net Increase (Decrease) 573,921 (443,432) 1,447,893 3,040, ,596 The $1,986,346 increase in administrative expenditures in 2003 is mainly due to stock-based payments ($1,870,740), primarily stock options to directors and employees of the Company. In 2003 Greystar early adopted the fair valued based method of accounting for stock options granted to employees. Higher professional fees, reflecting increased compliance costs, higher interest costs, reflecting interest on the $2.0 million bridge loan, and increased costs in general due to an increased level of corporate activity, were responsible for the balance of the increased costs in The increase in administrative expenditures in 2002 is due to stockbased payments and higher investor relations costs, which included the hiring of an investor relations consultant. Exploration expenditures on the Angostura Project increased significantly in 2003 relative to 2002 and In July 2003, Greystar commenced a planned US$14 million exploration and 4

13 development program for this property. The large increase in expenditures in Q1 of 2004 relative to Q1 of 2003 reflects continuation of this exploration and development program. Cost recoveries from the Company s oil and gas properties have been nominal relative to total expenditures on the properties. In 2001, these properties were written down by $1,076,770 to an estimated recoverable value in the anticipation that the properties would be sold or farmed out. Such efforts were unsuccessful and in 2003, these properties were written down by an additional $698,644 to nominal carrying values. Equity financing activities remain the single major source of cash inflows, as the Company is an exploration company without operating revenues. The Company seeks equity financing as needs dictate and market conditions permit. Results of Operations Three months ended March 31, 2004 Greystar incurred a loss of $1,721,049 in Q1 of 2004 compared with $461,796 for Q1 of Exploration expenditures on the Angostura Project were $1,557,955 in the first quarter of 2004, which is almost five times the level of spending in 2003 and reflects continuation of the active exploration program started in July Interest expense on the $2 million borrowed from Belle Isle in September 2003, increased from $nil in Q1 of 2003 to $30,438 in Q1 of Year ended December 31, 2003 Greystar incurred a loss of $6,691,741 for the year ended December 31, 2003 compared to a loss of $1,201,684 for The main reasons for higher expenses in 2003 are increased mineral property exploration expenditures in Colombia (from $687,331 in 2002 to $3,550,638 in 2003), increased stock based payments (from $37,000 in 2002 to $1,870,740 in 2003) and the increased expense for the write-down of oil and gas properties (from $17,990 in 2002 to $698,644 in 2003). Accounting and legal: Increased legal fees in 2003 relate to compliance matters, the financing transaction with Belle Isle Investments Ltd. and the drafting of a shareholder rights plan. Interest and bank charges: The $35,000 increase in interest expense in 2003 relates to debt of $2 million incurred in September Stock based payments: During 2003, the CICA Accounting Standards Board amended the rules relating to the accounting treatment for stock options. The Company chose to early adopt the new rules for all stock options granted on or after January 1, 2003 in accordance with one of the transitional provisions permitted. Stock options granted 5

14 during 2002 were accounted for in accordance with the old rules, which allowed for proforma disclosure of the fair value of options granted to employees. Had the new accounting rules for stock based compensation been applied retroactively to 2002, the expense for 2002 would have increased from $37,000 to $389,000. Exploration expenditures: It is the Company s accounting policy that exploration and development expenditures incurred prior to the determination of the feasibility of mining operations are charged to operations as incurred. The increase in costs for 2003 reflects the Phase I program activity which commenced in July Write-down of oil and gas properties: The write-down of the gas properties in Colorado is a recognition of declining revenue received from the one producing well and recognition of the fact that additional funds are not likely to be allocated for these properties while the Company s primary focus is the advancement of the Angostura Project in Colombia. Financial Condition / Capital Resources As of March 31, 2004, Greystar s working capital was $3,710,112 down from $5,298,283 at December 31, The drop is due to expenditures on the Angostura Project during the quarter. During the quarter the Company received $108,000 from the exercise of stock options and converted a short-term investment ($2,099,829 at December 31, 2003) into an investment with an initial term to maturity of less than 90 days. During 2003, Greystar made arrangements with Belle Isle Investments Ltd. ( Belle Isle ) to borrow up to $5,000,000. Greystar borrowed $2,000,000 from Belle Isle and also received proceeds of $5,617,355 from the exercise of warrants. The loan with Belle Isle is secured by a first ranking general security interest in all of the Company s personal property. Phase 1 of the work program for Angostura is expected to cost US$4,300,000, of which approximately US$3,300,000 had been expended as of March 31, To provide flexibility in arranging new equity financing and to ensure continuation of the work program on the Angostura Project, management negotiated an extension for the maturity date on the Belle Isle loan from March 15, 2004 to June 15, As consideration the Company granted Belle Isle 100,000 warrants to purchase common shares of the Company at $1.97 per share expiring September 15, The fair value attributed to the granting of these warrants, using a Black-Scholes option pricing model, is estimated to be approximately $26,500. The total exploration and development costs for the Angostura Project are budgeted to be approximately US$9.5 million by the end of Administrative costs are estimated to be approximately $825,000 for Additional equity will be required for funding requirements of 2004 and provide working capital for operations in

15 The number of vested common share purchase options and warrants outstanding at April 30, 2004 was approximately 2.6 million. These options and warrants are exercisable into an equal number of common shares at prices ranging from $1.00 to $4.75 per share. At April 30, 2004 the closing price for Greystar common shares trading on the Toronto Stock Exchange was $2.00 per share. The value of unexercised in the money options and warrants at April 30, 2003 totals approximately $2.46 million. While it is probable that certain of these options and warrants will be exercised, it is not possible to predict the timing or the amount of proceeds. Quarterly Information ($ except per share data) Operations: Basic & Write-down diluted Administrative Exploration of oil & gas Net loss expenses expenditures Properties loss per share Q1 - March 31, ,094 1,557,955-1,721,049 $ 0.09 Q4 - December 31, ,001,163 1,925, ,644 4,521,168 $ 0.28 Q3 - September 30, ,563 1,016,322-1,252,885 $ 0.08 Q2 - June 30, , , ,892 $ 0.03 Q1 - March 31, , , ,796 $ 0.03 Q4 - December 31, , ,507 17, ,450 $ 0.03 Q3 - September 30, , , ,726 $ 0.02 Q2 - June 30, , , ,850 $ 0.02 Q1 - March 31, ,908 97, ,658 $ 0.01 Cash Flows From (Used In): Net Increase Operating Investing Financing (Decrease) Q1 - March 31, 2004 (1,630,446) 2,096, , ,921 Q4 - December 31, 2003 (1,840,354) (2,069,102) 1,711,200 (2,198,256) Q3 - September 30, 2003 (1,296,565) 9,865 5,906,155 4,619,455 Q2 - June 30, 2003 (527,223) (2,651) - (529,874) Q1 - March 31, 2003 (404,355) (39,077) - (443,432) Q4 - December 31, 2002 (267,731) (64,387) - (332,118) Q3 - September 30, 2002 (390,725) (372,693) 62,188 (701,230) Q2 - June 30, 2002 (222,683) - 4,595,928 4,373,245 Q1 - March 31, 2002 (156,697) (143,075) - (299,772) (1) Operating cash flows include both administrative expenses and exploration expenditures. Factors Affecting Comparability of Quarters As of March 31, 2002, Greystar s working capital was down to approximately $510,000, which was insufficient for the Company to meet its ongoing financial requirements. In Q2 of 2002, a $5.15 million private placement ($4.6 million net) was completed to provide operating funds. 7

16 Prior to June 2003, exploration costs for the Angostura Project consisted of planning and care and maintenance activities. Active exploration work was restricted due to a lack of funds. During Q3 of 2003, Greystar received $3.9 million from the exercise of warrants and $2.0 million as a bridge loan, and this enabled the Company to commence Phase 1 exploration work on the Angostura Project. The exercise of warrants in Q4 of 2003 added another $1.7 million to the treasury. Exploration spending on the Angostura Project, which had averaged $216,000 for the previous 6 quarters, increased to $1,016,000 in Q3 of 2003, to $1,925,000 in Q4 and $1,557,955 in Q1 of The increase in administrative expenses from $236,000 in Q3 in 2003 to $2,001,000 in Q4 is due to the recognition of $1,765,000 of stock-based compensation costs. The variance in quarterly cash flows is most affected by financing transactions and expenditures on the Angostura Project. Financings are completed as required and as market conditions permit and cannot be predicted on a quarterly basis. Spending on the Angostura Project depends on the availability of funds to conduct the work. Transactions with Related Parties Greystar pays Rovig Minerals Inc., a company owned by David Rovig for his services as the President of Greystar which amounts include reimbursement for certain personal insurance expenses. Greystar also pays Rovig Minerals Inc., for providing office facilities in Billings, Montana. Greystar pays fees to Quest Management Corp., a company related by virtue of a director and two officers in common, for accounting, regulatory services, management fees, rent, and office services in Vancouver, BC. The following is a summary of amounts paid to these related parties: Rovig Quest Minerals Inc Management Corp Q1 - March 31, 2004 $ 44,877 $ 16,500 Q1 - March 31, 2003 $ 48,572 $ 16,500 Fiscal 2003 $ 181,983 $ 66,000 Fiscal 2002 $ 203,543 $ 66,000 Investor Relations Since June 2002 Greystar has retained an investor relations consultant to raise and maintain public awareness of Greystar and to provide investor relations services. The Company pays a fee of $5,000 per month plus expenses for this program. Mr. Clive H. 8

17 Massey joined the Company on March 15, 2004 to fill the position left vacant by Mr. Ed Baer in January Accounting Estimates Mineral Property Costs It is the Company s accounting policy that exploration and development expenditures incurred prior to the determination of the feasibility of mining operations are charged to operations as incurred. The Company s mineral property account reflects actual costs incurred by it on acquisition costs of its properties. The realization of the Company s investment in these exploration projects is dependent upon various factors, including the discovery of economically recoverable reserves of minerals, the ability to obtain necessary financings and joint venture partners to develop each project s potential, and upon future profitable operations, or alternatively upon the disposal of interests on an advantageous basis. The Company reviews the carrying values of its projects on a quarterly basis and if required, makes an adjustment to reflect the project s realizable value. Capitalized costs are amortized over the estimated useful life of the properties following the commencement of production. As at March 31, 2004, amounts capitalized to mineral properties total approximately $7.3 million. Stock-Based Compensation As a result of the adoption of the new rules regarding employee stock-based transactions, outlined below, the Company recognized stock-based payments expense totaling $1,870,740 for fiscal 2003 (of which $1,522,430 related to stock option grants, and $348,310 related to the value of share purchase warrants) compared to $37,000 for stock option grants in fiscal In order to value stock options granted, the Company uses a Black-Scholes option pricing model which takes into account the current stock price and the option exercise price, expected dividend yields, the historical volatility of the stock, the risk free rate of return for zero-coupon bonds, and the expected average life of the options. Future compensation expense related to option grants will be dependent on the number of options granted and the then current factors listed above. Asset Retirement Obligations The Company has not set up a provision for future site restoration costs, as the amounts involved, at present, are nominal. With the current drilling program in Colombia, each drill site is restored and replanted immediately upon conclusion of drilling activities at each location. When relocating a drill rig to a new site, the drill equipment is broken down and moved using a small tractor rather than building roads and using heavy equipment. This process is time and cost effective and minimizes the impact on the environment. As part of the exploration and development program leading to a feasibility study, consultants will review the impact of future mining activities on the environment and the related costs, as part of the feasibility study. 9

18 Change in Accounting Policy The Company has adopted the recommendations of the new CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective January 1, This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. The standard requires that all stock-based awards made to non-employees be measured and recognized using a fair value based method. The standard encourages the use of a fair value based method for all awards granted to employees, but only requires application of specified accounting methods to direct awards of stock, stock appreciation rights, and awards that call for settlement in cash of other assets. If an alternative other than the fair value based method is used, pro forma fair value based information must be disclosed. The Company does not have any plans, which result in the direct award of stock, stock appreciation rights and awards that call for settlement in cash or other assets. The Company adopted the fair value based method to account for stock-based transactions with employees effective January 1, 2003, but will continue to use the intrinsic value based method to account for stock-based transactions with employees completed during This treatment was adopted because of, and is consistent with, the changes made in the fourth quarter of 2003, to the recommendations of CICA Handbook Section The financial statement impact is described in the Accounting Estimates section above. Outstanding Share Data As at April 30, 2004, there were 18,965,762 Common Shares outstanding. In addition, there were outstanding 2,336,400 director and employee stock options of which 2,236,400 have vested with exercise prices ranging between $1.00 and $4.75 per share. In addition, there were 850,000 warrants of which 400,000 are vested and which expire between June 15, 2004 and September 15, 2004 with exercise prices ranging between $1.56 and $1.97. More information on these instruments and the terms of their conversion are set out in note 7 of the Company s annual financial statements. Risks and Uncertainties The Company competes with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral concessions, claims and other interests, as well as for the recruitment and retention of qualified employees. The Company is in compliance in all material regulations applicable to its exploration activities. Existing and possible future environmental legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted. Before production can commence on any properties, the Company must obtain regulatory and environmental approvals. There is no assurance that such approvals can be obtained on a 10

19 timely basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations. The Company s mineral property is located in Colombia and consequently the Company is subject to certain risks, including currency fluctuations and possible political or economic instability which may result in the impairment or loss of mining title or other mineral rights, and mineral exploration and mining activities may be affected in varying degrees by political stability and governmental regulations relating to the mining industry. Colombia is home to South America s largest and longest-running insurgency. In addition, the acquisition of mining title in Colombia is a very detailed and timeconsuming process and title to mining rights and the area subject to mining rights may be disputed. The Company has incurred losses since its inception and will not achieve profitability until such time as the Angostura Project, assuming a favourable feasibility study, can be developed into a profitable operation. The Company does not have sufficient funds to meet its planned expenditures for External financing, primarily through the issuance of common shares will be required to fund the exploration plans for There can be no assurance, however, that sufficient funds will be raised. Cautionary Statement This MD&A may contain forward looking statements that reflect Greystar s current expectations and projections about its future results. When used in this MD&A, words such as estimate, intend, expect, anticipate and similar expressions are intended to identify forward-looking statements, which, by their very nature, are not guarantees of Greystar s future operational or financial performance, and are subject to risks and uncertainties and other factors that could cause Greystar s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and factors may include, but are not limited to: unavailability of financing, an unfavourable feasibility study regarding the Angostura Project, fluctuations in the market valuation for gold and silver, difficulties in obtaining required approvals for the development of a mine and other factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this MD&A or as of the date otherwise specifically indicated herein. Due to risks and uncertainties, including the risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. Greystar disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Vancouver, Canada April 30,