Management and Discussion Analysis Interim Consolidated Financial Statements (In US dollars) COALCORP MINING INC. Six months ended December 31, 2010

Transcription

1 Management and Discussion Analysis Interim Consolidated Financial Statements (In US dollars) COALCORP MINING INC. Six months ended December 31,

2 COALCORP MINING INC. (the Company ) Management s Discussion and Analysis of Financial Condition and Results of Operations For the Six Months Ended December 31, 2010 Information contained in this discussion is given as of February 22, 2011 unless otherwise indicated. All amounts are in US dollars unless otherwise noted. This Management s Discussion and Analysis ( MD&A ) should be read in conjunction with the unaudited consolidated financial statements and accompanying notes of the Company for the six month period ended December 31, 2010, and the audited consolidated financial statements and accompanying notes and related MD&A of the Company for the fiscal year ended June 30, The Company s consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ( GAAP ), all amounts are reported and measured in US dollars, and all volumes and weights are reported on the metric system. Forward Looking Information The MD&A contains certain forward-looking statements. Forward-looking statements generally can be identified by the use of statements that include words such as believe, expect, anticipate, intend, plan, estimate, may, will or other similar words or phrases suggesting future outcomes or other expectations, beliefs, estimates, plans, objectives, assumptions, projections, intentions or statements about future events or performance. Similarly, statements contained in, but not limited to, the sections Overview, Results of Operations, Liquidity and Capital Resources, Outlook and Changes in Accounting Policies of this MD&A, including those with respect to expectations concerning assets, prices, foreign exchange rates, earnings, production, market conditions, capital expenditures, commodity demand, risks, availability of regulatory approvals, corporate objectives and plans or goals, are or may be forward-looking statements. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forwardlooking statements, including, but not limited to, the factors discussed under Risk and Uncertainties. Although the forward-looking statements contained in this MD&A are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure readers that actual results will be consistent with these forward-looking statements. Investors and others should carefully consider risk factors including, without limitation, those set out under the heading Risks and Uncertainties, and not place undue reliance on forwardlooking statements. Forward-looking statements are made as of the date of this MD&A and the Company assumes no obligation to update or revise any forward looking statements to reflect new events or circumstances, except as required by law. 2

3 Forward-looking statements in this MD&A include, but are not limited to, statements with respect to: the implementation of the Company s business strategy which it is intended will capitalize on the board of directors (the Board ) and management s expertise and enable the Company to invest in, and aid growth in, projects in the mining, metallurgical and mineral industries; approval from the TSX Venture Exchange ( TSXV ) for listing on Tier 1 of the TSXV as an investment issuer; the development of the Company s potential investment opportunities; and the release of the restricted cash proceeds of $8 million, which are currently being held in escrow pursuant to the terms of the Escrow Agreement (as defined herein). Selected Financial Information Three months ended December 31 Six months ended December 31 ($ thousands) Revenue from continuing operations Loss from continuing operations (656) (5,440) (196) (10,407) Earnings (loss) from discontinued operations 740 (14,604) 1,126 (23,678) Net Earnings (loss) 84 (20,044) 930 (34,085) Basic earnings (loss) per share ($): Continuing operations 0.00 (0.03) 0.00 (0.06) Discontinued operations 0.00 (0.09) 0.01 (0.14) ($ thousands) December 31, 2010 June 30, 2010 Total assets 58,113 52,366 Total long and short term obligations 14,922 16,935 Overview of the Company s Business Minutes of Settlement The Company, Xira Investment Inc. ( Xira ) and certain former members of the Company s management and other parties to various claims amongst them entered into minutes of settlement 3

4 made as of January 31, 2010 (the Minutes of Settlement ). Under the terms of the Minutes of Settlement, among other things, Xira agreed to pay $34 million to the Company payable in tranches. On January 31, 2011 the Company received the last payment of $2 million and, accordingly, all payments and deliverables have now been made or delivered in accordance with the terms of the Minutes of Settlement. Transaction On March 19, 2010, certain of the Company s wholly-owned subsidiaries completed the sale of the La Francia mine and related infrastructure assets (the La Francia I Assets ) and all of the issued and outstanding shares (the Adromi Shares ) of Adromi Capital Corp. ( Adromi ), the holder of the La Francia II Mine, to GS Power Holdings LLC (the Purchaser ), a subsidiary of the Goldman Sachs Group, Inc. (collectively, the Transaction ). Prior to the completion of the Transaction, the Company operated the La Francia coal mine, located in the Cesar region of Colombia, and held an 8.43% interest in Ferrocarriles del Norte de Colombia S.A. Repurchase of Senior Notes Pursuant to the terms of a trust indenture, as supplemented (the Note Indenture ) governing the Company s 12% Senior Secured Guaranteed Notes due August 31, 2011 (the Senior Notes ), the Company was required to use the net available cash from the sale of the La Francia I Assets to purchase the outstanding Senior Notes at the required 102% premium (plus any accrued interest) in accordance with the terms of the Note Indenture (the Restricted Asset Transfer Offer ). Concurrently with the Restricted Asset Transfer Offer, the Company also agreed to purchase all remaining outstanding Senior Notes for 100% of the principal amount (plus any accrued interest) (the Remaining Notes Offer and, together with the Restricted Asset Transfer Offer, the Note Offers ). The Note Offers were completed upon the closing of the Transaction. Of the proceeds, $93.2 million, which represented the net available cash from the sale of the La Francia I Assets, was applied to repurchase the Senior Notes that tendered to the Restricted Asset Transfer Offer and $15.8 million was applied to repurchase the Senior Notes that tendered to the Remaining Notes Offer. The outstanding interest on the Senior Notes was paid prior to closing of the Transaction. The Senior Notes were not all tendered to the Note Offers and currently $8.27 million of Senior Notes remain outstanding and are due for repayment on August 31, Investment in Formation Metals Inc. Pursuant to a subscription agreement dated May 6, 2010, Coalcorp agreed to purchase a Cdn$8,000,000 unsecured convertible debenture (the Debenture ) from Formation Metals Inc. ( Formation ). The Debenture has an initial term of 18 months with an interest rate of 12%, payable in common shares in the capital of Formation ( Formation Shares ), and may be extended by either party for an additional 18 months. The Debenture is convertible into Formation Shares at Cdn$1.50 per Formation Share during the initial term and thereafter, if the term is extended for an additional 18 months, at the market price of the Formation Shares determined as at November 6, If the Debenture were converted as at February 22, 2011, 4

5 Coalcorp would have ownership of and control over approximately 13.1% of the outstanding Formation Shares. During the six months ended December 31, 2010, two interest payments have been made under the Debenture for which Coalcorp received an aggregate of 429,772 Formation Shares. On December 22, 2010, the Company redeemed Cdn$1,000,000 of the Debenture for 666,666 Formation Shares. During the six month period ending December 31, 2010, Coalcorp sold an aggregate 141,300 Formation Shares for net proceeds of Cdn$316,455, representing a gain of Cdn$127,791. Coalcorp currently holds 795,539 Formation Shares, representing approximately 2% of the outstanding Formation Shares. On January 28, 2011, the Company announced that it had entered into an agreement with Formation for the prepayment of the Debenture, which currently has a principle amount of Cdn$7 million outstanding. Pursuant to this agreement, Coalcorp will surrender the Debenture to Formation upon receipt of Cdn$9,333,333 in cash and 400,000 Formation Shares. The prepayment and surrender of the Debenture is subject to certain conditions, including the completion of Formation s previously announced public offering of Formation Shares and regulatory approval. The closing of the transaction is expected to occur on or about March 15, Investment in Gold Hawk Resources Inc. During the six month period ending December 31, 2010, the Company made an investment in Gold Hawk Resources Inc. ( Gold Hawk ). Pursuant to a subscription agreement (the Subscription Agreement ), Coalcorp agreed to purchase 6,000,000 common shares in the capital of Gold Hawk ( Gold Hawk Shares ) at a price of Cdn$1.25 per Gold Hawk Share for an aggregate purchase price of Cdn$7,500,000. As a result, Coalcorp holds approximately 19.2% of the issued and outstanding Gold Hawk Shares. On February 2, 2011 Gold Hawk announced that it had entered into a letter of intent to carry out a non-brokered private placement offering of up to 12,500,000 Gold Hawk Shares at a subscription price of Cdn$2.00 per Gold Hawk Share (the Proposed Financing ). Pursuant to Coalcorp s right of first refusal under the Subscription Agreement, Coalcorp is entitled to purchase Gold Hawk Shares, to maintain its pro-rata portion of the total issued and outstanding Gold Hawk Shares, at the subscription price under the Proposed Financing if the Proposed Financing proceeds. The Proposed Financing remains subject to customary closing conditions including receipt of required regulatory and Gold Hawk shareholder approvals. Gold Hawk anticipates holding a special meeting of its shareholders on or about March 28, 2011 to consider and approve the Proposed Financing, which is expected to close shortly thereafter. 5

6 Listing Upgrade and Reclassification On February 15, 2011 the Company filed an application with the TSXV to upgrade its listing from the NEX board to a Tier 1 issuer on the TSXV. Included in the application was the request to reclassify the Company as an investment issuer from its current status as a resource issuer. This move better reflects the business strategy for the Company which is intended to capitalize on the Board s and management s expertise and the Company s capital and allow the Company to invest in, and aid growth in, projects in the mining, metallurgical and mineral industries. The Company s approach to these investments will be one of active involvement, providing assistance and advice on a regular basis. In each case a Company nominee will join the board of the investee company. The Board has adopted an Investment Policy reflecting the above strategy, which will be posted on SEDAR once the Company's application has been approved by the TSX Venture Exchange. There is no assurance that the Company's application will be successful, however management believes that the Company meets the requirements of a Tier 1 investment issuer. Second Quarter 2011 Following closing of the Transaction and receipt of the payments under the Minutes of Settlement, the Company s cash position has substantially improved. See Outlook. The differences between the operating and financial results of the Company for the six and three month period ended December 31, 2010 and the operating and financial results of the Company for the six and three month period ended December 31, 2009 are principally due to the Minutes of Settlement and the Transaction. The Company reported an operating loss from continuing operations before other income (expenses) for the six months ended December 31, 2010 of $945,000, compared to a loss of $4.4 million for the six months ended December 31, Taking into account interest, gain on sale of marketable securities and foreign exchange gain, the Company s pre-tax loss from continuing operations was approximately $196,000 for the six month period ended December 31, 2010, compared to a loss of $10.4 million in the corresponding period in Operating losses from continuing operations before other income (expenses) for the three months ended December 31, 2010 were $707,000, compared to a loss of $1.8 million for the three months ended December 31, Taking into account interest, gain on sale of marketable securities and foreign exchange gain, the Company s pre-tax loss from continuing operations was approximately $656,000 for the three month period ended December 31, 2010, compared to a loss of $5.4 million in the corresponding period in The Company s net earnings for the six month period ended December 31, 2010 were $930,000, taking into account gains from discontinued operations, compared to a loss of $34.1 million in the corresponding period in Net earnings for the three month period ended December 31, 2010 were $84,000, taking into account gains from discontinued operations, compared to a loss of $20.0 million in the corresponding period in

7 General and Administrative Expenses General and Administrative expenses were $945,000 and $4.4 million for the six month period ended December 31, 2010 and 2009, respectively. For the three month period ended December 31, 2010 and 2009, general and administrative expenses were $707,000 and $1.8 million respectively. Costs in both periods ending December 31, 2010 related primarily to consulting, professional and administration expenses for the continuing operations of the Company and the evaluation of new opportunities. General and Administrative expenses for the six and three month period ending December 31, 2009 were significantly higher due to the costs involved in restructuring the Company s overall operations. Interest income earned on cash and investments during the six month period ended December 31, 2010 amounted to $637,000 (three months ended December 31, $252,000) and related primarily to the interest earned from the investment in Formation. The amount of $755,000 earned during the six month period ended December 31, 2009 (three months ended December 31, $317,000) related to interest earned on cash, short-term investments and restricted cash balances. Total interest expense incurred during the six month period ended December 31, 2010 amounted to $505,000 (three months ended December 31, $250,000), compared to $7.0 million for the same period in 2009 (three months ended December 31, $3.5 million). The difference is primarily due to the repurchase of the Senior Notes at the conclusion of the Transaction. Foreign Exchange Gains/Losses The Company s foreign currency exchange risk affected its monetary assets and liabilities denominated in currencies other than US dollars. For the six month period ended December 31, 2010, the net foreign exchange gain amounted to $489,000, compared to a gain of $497,000 in the same period in For the three month period ended December 31, 2010, the net foreign exchange loss amounted to $79,000, compared to a loss of $183,000 in the same period in The decrease in the foreign exchange gain from 2009 to 2010 was a result of the decreased volatility in the Colombian peso, the Euro and the Canadian dollar exchange rates to the US dollar and the decreased economic activity from last year to this year, and a decline in foreign operations. Results of Discontinued Operations As a result of the Transaction, expenses from discontinued operations have been significantly reduced. The Company recorded net income from discontinued operations of $1.1 million in the six month period ended December 31, 2010 (three months ending December 31, $740,000) compared to losses of $23.7 million for the six month period ended December 31, 2009 (three months ending December 31, $14.6 million). The amounts realized during the six and three month period ending December 31, 2010 relate mainly to the continuing wind 7

8 down of the Company s subsidiaries and include foreign exchange gains offset by professional and consulting fees for the continuing restructuring of the Colombian operations. Results of Continuing Operations As a result of the factors discussed above, the Company recorded losses from continuing operations of $196,000 or a $0.00 loss per share in the six months ended December 31, 2010 compared with losses from continuing operations of $10.4 million or a $0.06 loss per share in the six months ended December 31, The Company recorded a loss from continuing operations of $656,000 or a $0.00 loss per share in the three months ended December 31, 2010 compared with a loss from continuing operations of $5.4 million or a $0.03 loss per share in the three months ended December 31, Net Profit/Loss The Company recorded a net gain of $930,000 or a $0.01 gain per share in the six month period ending December 31, 2010, compared with a net loss of $34.1 million or a $0.20 loss per share in the six month period ending December 31, For the three month period ended December 31, 2010, the company recorded a net gain of $84,000 (December 31, $20.0 million net loss) or a $0.00 gain per share (December 31, $0.12 loss per share). Summary of Quarterly Results Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Financial ($millions except per share) Revenue from continuing operations $0.0 $0.0 $0.0 $0.0 $ 12.7 $ 3.5 $ 2.3 $ 16.2 Earnings from continuing operations (20.3) (14.5) (194.0) (21.1) Net earnings/(loss) (2.2) 6.8 (20.0) (14.0) (191.4) (19.0) Earnings/(loss) per share from continuing operations (0.04) 0.06 (0.12) (0.08) (1.12) (0.12) Net earnings/(loss) per share (0.15) 0.04 (0.12) (0.08) (1.11) (0.11) Cash (used in) provided by continuing operations (7.3) (0.8) (7.5) 3.3 (11.3) (13.2) (24.5) (5.2) Capital expenditures 0.00 (0.0) (0.0) (0.0) (0.0) (0.0) (13.2) (7.9) The quarterly figures for Q3 and Q and Q1 and Q reflect results as reportable subsequent to the Transaction. The figures with respect to prior quarters have not been restated. 8

9 Liquidity and Capital Resources The cash and cash equivalents balance as at December 31, 2010 was $20.5 million including discontinued operations, compared to $2.4 million as at December 31, Pursuant to the Minutes of Settlement, the Company received an additional $2 million on January 31, The restricted cash balance as at December 31, 2010 was $8.0 million compared to $35.5 million as at December 31, In connection with the Transaction, and included in restricted cash, $8.0 million is currently held in escrow to cover indemnities provided to the Purchaser. Pursuant to the Escrow Agreement, this amount was to be held in escrow until the end of the survival period, which expired November 30, These funds are currently subject to the outstanding litigation discussed below and therefore remain in escrow. Following closing of the Transaction and receipt of payments pursuant to the Minutes of Settlement, the Company s cash position has substantially improved and is believed to be sufficient to meet the Company s future requirements. Other Investing Activities Coalcorp purchased the Debenture, with an initial term of 18 months and an interest rate of 12%, payable in Formation Shares. The Debenture is convertible into Formation Shares at Cdn$1.50 per Formation Share during the initial term and thereafter, if the term is extended for an additional 18 months, at the market price of the Formation Shares determined as at November 6, If the Debenture were converted as at February 22, 2011, Coalcorp would have ownership of and control over approximately 13.1% of the outstanding Formation Shares. During the six month period ended December 31, 2010, the Company received 429,772 Formation Shares in settlement of interest. 159,873 of such Formation Shares were received in the three month period ended December 31, The fair market value of the Formation Shares has increased resulting in an unrealized gain of $1.1 million, which is recorded on the balance sheet as accumulated other comprehensive income. Additionally, the value of the Formation Shares underlying the Debenture increased by $1.3 million, which is also recorded as accumulated other comprehensive income. The Company also purchased 6,000,000 common Gold Hawk Shares at a price of Cdn$1.25 per Gold Hawk Share for an aggregate purchase price of Cdn$7.5 million. As a result, Coalcorp holds approximately 19.19% of the issued and outstanding Gold Hawk Shares. The fair market value of the Gold Hawk Shares has increased resulting in an unrealized gain of $4.5 million, which is recorded on the balance sheet as accumulated other comprehensive income. 9

10 In addition, short term investments of $18.5 million as at December 31, 2010 are currently held in thirty to ninety-day highly liquid vehicles with reputable Canadian financial institutions. Financing Activities In the six month period ending December 31, 2010, interest expense was incurred in the amount of $505,000 as compared to accrued interest of $7.0 million in the same six month period in In the three month period ending December 31, 2010, interest expense was incurred in the amount of $250,000 as compared to accrued interest of $3.5 million in the same three month period in The decrease in interest expense is primarily related to the decrease in outstanding Senior Notes pursuant to the Note Offers. Use of Proceeds from the Transaction The Board is implementing the Company s business strategy which it is intended will capitalize on the Board s and management s expertise and enable the Company to invest in, and aid growth in, projects in the mining, metallurgical and mineral industries. To date proceeds from the Transaction have been used to invest in Formation and Gold Hawk as well as for general corporate purposes. Commitments & Expenditures Debt Pursuant to the terms of the Note Indenture, the Company was required to use the net available cash from the sale of the La Francia I Assets to purchase the outstanding Senior Notes at the required 102% premium (plus any accrued interest). $8.27 million of Senior Notes were not tendered to the Note Offers and remain outstanding. See Repurchase of Senior Notes above. The Company has an obligation to pay $496,200 of interest bi-annually in relation to the outstanding Senior Notes. The Company has sufficient cash resources to meet these commitments. Cash & Short Term Investments As at December 31, 2010, the Company had a cash position of $27.1 million, which included cash, short term investments and restricted cash. See Liquidity and Outlook. To minimize the Company s exposure to credit risk, the Company holds its cash balances predominantly in a major Canadian financial institution with an AA- rating from Standard & Poor s. The Company does not invest in asset-backed securities. In Colombia, the Company holds its primary cash balances in internationally-recognized banks with stable, investment grade ratings. 10

11 Outlook The Company held the following assets as at December 31, 2010: unrestricted net cash proceeds of $19.1 million; restricted cash proceeds of $8.0 million held in escrow pursuant to the terms of the Escrow Agreement, which amount is subject to certain Notices of Claim, see Ongoing Contingencies CNRI Claim ; a Cdn$7,000,000 unsecured convertible debenture with an initial term of 18 months and an interest rate of 12%; 955,138 Formation Shares; and 6,000,000 Gold Hawk Shares. The Board is implementing the Company s business strategy which it is intended will capitalize on the Board s and management s expertise and enable the Company to invest in, and aid growth in, projects in the mining, metallurgical and mineral industries. Related Party Transactions During the six month period ended December 31, 2009, the Company incurred production royalties payable to Blue Pacific Assets Corp. ( Blue Pacific ) amounting to $353,000, ($238,000 for the three month period ended December 31, 2009) related to the La Francia mine. Pursuant to the Minutes of Settlement it was agreed that Blue Pacific would terminate its royalty on production from the La Francia mine and cancel any royalty payments outstanding. All outstanding royalty amounts have since been reversed out of the books of account. During the six and three month periods ended December 31, 2010, the Company did not have any transactions involving related parties. Risks and Uncertainties The Company is exposed to a number of risks and uncertainties. Such risks could materially affect the Company s future results and could cause actual events to differ materially from those described in forward-looking statements relating to the Company. For a description of risks and uncertainties relating to the Company please see the Company s most recent AIF and MD&A for the fiscal year ended June 30, Such risks and uncertainties and the risks and uncertainties described herein may not be the only risks and uncertainties facing the Company. Additional risks not currently known, or not currently considered to be material, may also have an adverse impact on the Company s business. 11

12 Default Although the Company s securities are no longer subject to a management cease trade order or general cease trade order, the Company is still noted in default of applicable securities legislation on the Ontario Securities Commission s list of reporting issuers. The Company will remain noted in default until such time as it: (i) files the Minutes of Settlement, (ii) files the Minutes of Settlement and obtains exemptive relief under subsection 140(2) of the Act so that the Minutes of Settlement are not made public on SEDAR, or (iii) obtains an exemption, pursuant to section 13.1 of National Instrument Continuous Disclosure Obligations ( NI ), from the requirement in section 12.2 of NI to file the Minutes of Settlement as a material contract. Ongoing Contingencies CNRI Claim On November 2, 2010 the Company received a Notice of Claim from Colombian Natural Resources I SAS ( CNRI ) with respect to alleged losses in the amount of $37,450,518. CNRI is claiming indemnification pursuant to an agreement entered into in relation to the Transaction. The claims for indemnification relate to alleged losses resulting, supposedly, from certain assets not being in good working order, additional import VAT and legal expenses. The Company, along with certain of its subsidiaries including Compañia Carbones del Cesar S.A. ( CDC ), received a second Notice of Claim from CNRI with respect to alleged losses in the amount of US$1,110,000. CNRI is claiming indemnification pursuant to certain agreements entered into in relation to the Transaction. The claims for indemnification relate to alleged losses alleged losses to CNRI resulting from the failure to obtain title to one-third of certain real property to be used for the development of a rail spur, supposedly due to CDC s failure to reimburse Carbones del Caribe for certain expenditures in connection with the purchase of such property, and legal expenses. Pursuant to an escrow agreement dated March 19, 2010 among Computershare Trust Company of Canada ( Computershare ), the Company, CNRI and Colombian Natural Resources II SAS (the Escrow Agreement ), Computershare is holding $8,000,000 in escrow in connection with the Transaction. CNRI has instructed Computershare to release the $8,000,000 to CNRI pursuant to the terms of the Escrow Agreement. CNRI has also demanded that the Company pay the balance of CNRI s alleged losses. The Company has directed Computershare not to release any monies pursuant to the terms of the Escrow Agreement as it intends to contest the claims. The Company denies the allegations in the Notices of Claim and intends to vigorously defend against the nature and amount of all such claims. 12

13 Indemnities Provided to Directors and Officers The Company has indemnified each of its directors and officers in respect of certain liabilities or expenses which such directors and officers may incur as a result of acting as a director or officer of the Company or other related corporate entity to the Company. The indemnity agreements include an indemnification for all costs, charges, expenses, losses, damages, fees (including any legal, professional or advisory fees or disbursements), liabilities and amounts paid to settle or dispose of any civil, criminal or administrative proceeding. Certain of the claims noted as Settled Contingencies in the Company s MD&A for the fiscal year ended June 30, 2010 include claims against directors and officers of the Company. The Company may be required to indemnify such directors or officers under their respective indemnity agreements in relation to such claims. The Company believes it carries sufficient Directors and Officers insurance to cover any potential claims for indemnity. Settled Contingencies Please refer to the Company s AIF and the MD&A for the fiscal year ended June 30, 2010 for a description of contingencies that have been settled since December 31, Changes in Accounting Policies: 1) The CICA issued three new accounting standards in January 2009: Section 1582, Business Combinations ( Section 1582 ), Section 1601, Consolidated Financial Statements ( Section 1601 ) and Section 1602, Non-Controlling Interest ( Section 1602 ). These new standards will be effective for fiscal years beginning on or after January 1, The Company is in the process of evaluating the requirements of the new standards. Section 1582 replaces Section 1581 and establishes standards for accounting for a business combination. It provides the Canadian equivalent to International Financial Reporting Standards ( IFRS ) 3, Business Combinations. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, Sections 1601 and 1602 together replace Section 1600, Consolidated Financial Statements. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1601 applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of International Accounting Standards 27, Consolidated and Separate Financial Statements, and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, ) In August 2009, the CICA issued certain amendments to Section 3251, Equity. The amendments apply to entities that have adopted Section The amendments require separate presentation on the statements of operations and comprehensive income of income attributable to owners of the Company and those attributable to non-controlling interests. The amendments also 13

14 require that non-controlling interests be presented separately as a component of equity. As the Company has not adopted Section 1602, which is not mandatory until the year beginning January 1, 2011, the amendments are not applicable to the Company in the interim and there is no impact to the financial statements for the period ended December 31, ) In January 2006, the CICA s Accounting Standards Board ( AcSB ) formally adopted the strategy of replacing Canadian GAAP with IFRS for Canadian enterprises with public accountability. On February 13, 2008, the AcSB confirmed that publicly accountable, profit oriented enterprises will be required to report under IFRS for interim and annual financial statements for periods commencing on or after January 1, Accordingly, the Company will be required to have prepared, in time for its fiscal 2012 first quarter filing, comparative financial statements in accordance with IFRS for the six months ended December 31, This will be an ongoing process as the International Accounting Standards Board and the AcSB continue to issue new standards and recommendations. The Company is in the process of evaluating the potential impact of IFRS on its financial statements. The impact of the conversion on the Company s business activities, information technology, data systems, internal controls over financial reporting and disclosure controls are being assessed as part of the IFRS Implementation Plan discussed below. International Financial Reporting Standards The Canadian Accounting Standards Board has confirmed that IFRS will replace current Canadian GAAP for publicly accountable enterprises, including the Company, effective for fiscal years beginning on or after January 1, Accordingly, the Company will apply accounting policies consistent with IFRS beginning with its interim financial statements for the quarter ended September 30, The Company s fiscal 2012 interim and annual financial statements will include comparative fiscal 2011 financial statements, adjusted to reflect any changes in accounting policies resulting from the adoption of IFRS. IFRS Transition Plan The Company has developed a comprehensive IFRS implementation plan and engaged a third party adviser to prepare for this transition. The transition team has completed the identification of the key areas where changes to current accounting policies may be required. The table below summarizes the expected timing of activities related to our transition to IFRS. Identification of key areas for which changes to accounting policies may be required Detailed analysis of all relevant IFRS requirements and identification of areas requiring accounting policy changes or those with accounting policy alternatives Complete Q3-Q4 fiscal

15 Assessment of first-time adoption (IFRS 1) requirements and alternatives. Final determination of changes to accounting policies and choices to be made with respect to first-time adoption alternatives Resolution of the accounting policy change implications on information technology, business processes and contractual arrangements Management and employee education and training Quantification of the Financial Statement impact of changes in accounting policies Preparation of pro forma Q1 fiscal 2012 financial statements consistent with IFRS presentation and disclosure requirements Q3-Q4 fiscal 2011 Q4 fiscal 2011 Q3 fiscal 2011 Q1 fiscal 2012 Throughout the transition process Q4 fiscal 2011 Q4 fiscal 2011 Q1 fiscal 2012 Impact of Adopting IFRS on the Organization The Board and Audit Committee are being regularly updated on the progress of the IFRS implementation plan and with information regarding the potential for changes to significant accounting policies. As part of the implementation plan, our employees and advisors that are involved in the preparation of financial statements are receiving training on the relevant aspects of IFRS and the potential for changes to accounting policies. As part of its analysis of potential changes to significant accounting policies, the implementation team is assessing what changes may be required to its accounting systems and business processes. The team will also assess whether any contractual arrangements may impacted by potential changes to accounting policies. Impact of Adopting IFRS on the Company s Financial Statements The adoption of IFRS may result in changes to significant accounting policies and have an impact on the recognition and measurement of transactions and balances within the Company s financial statements. The key areas which the Company has identified with the most potential for changes to accounting policies include the following: First-time Adoption of IFRS Foreign Currency Share-based Payments Income Taxes 15

16 Discontinued Operations Provisions Financial Instruments Business Combinations This list is not intended to be a complete list of areas in which the adoption of IFRS will require a change in accounting policies, but to highlight the areas identified to have the most potential for significant changes. During Q3 fiscal 2011, the Company is beginning the detailed analysis of these key areas necessary to determine whether changes to accounting policies will be required. The Company s Q3 fiscal 2011 MD&A will provide more detailed information on the differences between IFRS and current Canadian GAAP which may result in changes to our current accounting policies. First-time adoption of IFRS The adoption of IFRS requires the application of IFRS 1 First-time Adoption of International Financial Reporting Standards ( IFRS 1 ), which provides guidance for an entity s initial adoption of IFRS. IFRS 1 generally requires retrospective application of IFRS as effective at the end of its first annual IFRS reporting period. However, IFRS 1 also provides certain optional exemptions and mandatory exceptions to this retrospective treatment. We are considering the possibility of electing the following IFRS optional exemptions in the preparation of an opening IFRS statement of financial position as at July 1, 2010, the Company s Transition Date : To apply IFRS 2 Share-based Payments only to equity instruments that were issued after November 7, 2002 and had not vested by the Transition Date. To apply IFRS 3 Business Combinations prospectively from the Transition Date, therefore not restating business combinations that took place prior to the Transition Date. As the analyses of its accounting policies under IFRS continues, the Company may decide to elect to apply these, or other, optional exemptions contained in IFRS 1. IFRS 1 does not permit changes to estimates that have been made previously. Accordingly, estimates used in the preparation of our opening IFRS statement of financial position as at the Transition Date will be consistent with those made under current Canadian GAAP. If necessary, estimates will be adjusted to reflect any difference in accounting policy. Subsequent Disclosures Further disclosures of the IFRS transition process are expected as follows: The Company s MD&A for the future fiscal 2011 interim periods and the year ended December 31, 2010 will include updates on the progress of the transition plan and, to the extent known, information regarding the impact of adopting IFRS on key line items in the annual financial statements. 16

17 The Company s first financial statements prepared in accordance with IFRS will be the interim financial statements for the three months ending September 30, 2011, which will include notes disclosing transitional information and disclosure of new accounting policies under IFRS. The interim financial statements for the three months ending September 30, 2011 will also include fiscal 2011 financial statements for the comparative period, adjusted to comply with IFRS, and the Company s transition date IFRS statement of financial position (as at July 1, 2010). Outstanding Share Data On February 8, 2011, the 24,642,862 warrants previously listed on NEX under the symbol CCJ.WT.H expired unexercised. As at February 22, 2011, the Company has the following securities outstanding: TSX Number Shares Exercise Expiry Proceeds if Symbol Outstanding Issuable on Price Date Exercised Exercise Cdn$ Cdn$ Common shares CCJ.H 173,007, Warrants CCJ.WT.K 19,878,577 19,878, Aug. 17, ,980,000 Warrants CCJ.WT.X 61,873,890 61,873, June 5, ,684,725 Additionally, the Company has 600,000 stock options outstanding which, if exercised, would result in proceeds of approximately Cdn$675,000. Additional Information Additional information relating to the Company, including the Company s annual information form, audited consolidated financial statements and the related MD&A, each for the fiscal year ended June 30, 2010, is available for viewing on SEDAR at and on the Company s web site at The Company cautions that information contained on, or accessible through these websites is current only as of the date of such information. 17