FORM 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule
13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of: March 2006
Commission File Number: 0-25672
| MIRAMAR MINING CORPORATION |
| (Translation of registrant’s name into English) |
| #300 - 889 Harbourside Drive North Vancouver, British Columbia Canada V7P 3S1 |
| (Address of principal executive offices) |
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F
| Form 20-F | Form 40-F | X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
| Yes | No |
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) 82 —
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MIRAMAR MINING CORPORATION (Registrant) |
| By: /s/ A. David Long
A. David Long, Corporate Secretary |
Dated: April 06, 2006
EXHIBIT INDEX
| 1 | Press Release dated March 31, 2006 |
| 2 | Miramar Mining Corporation Consolidated Financial Statements for the Years ended December 31, 2005 and 2004 |
| 3 | Management’s Discussion and Analysis |
EXHIBIT 1
 |
MIRAMAR MINING CORPORATION Suite 300 – 889 Harbourside Drive, North Vancouver, B.C. V7P 3S1 Canada Tel: (604) 985-2572 Fax: (604) 980-0731 Toll Free: 1-800-663-8780 |
| March 31, 2006 | NEWS RELEASE 06–03 | MAE – TSX MNG – AMEX |
Miramar Announces Year End Results
Year End Financial
Results Show Healthy Financial Position
VANCOUVER — Miramar Mining Corporation (MAE-TSX, MNG–AMEX) today announced its consolidated 2005 annual financial results that report a loss of $11 million for the year, primarily related to an adjustment for reclamation activities at the Con Mine. The Company ended 2005 with consolidated working capital of $64.3 million, which includes cash and equivalents and short term investments of $68.7 million. The Company does not have any long term debt.
“With a positive NIRB recommendation received in March 2006 as a result of the hard work done on the Doris North environmental assessment, and with the very successful drilling reported throughout the year at Hope Bay, 2005 has been one of the most successful years in Company history” said Tony Walsh, President & CEO, “The identification of certain additional activities required at the Con Mine was unexpected, however, the Company has opportunities available to mitigate some of the costs of these activities,” he said.
The Company is now in a position to launch economic studies to evaluate some opportunities for extended and expanded production levels on the Hope Bay belt. The Company intends to deliver a feasibility study at the end of 2006 for the second step in the phased development of the Hope Bay belt. Over the past year, internal studies have indicated that there may be opportunities for larger scale production at Hope Bay and work in 2006 will include examining the viability of larger scale operations. Details on the 2006 program at Hope Bay will be released next week.
The 2006 program has begun and drills are turning at Hope Bay. It is anticipated that the first drill results will be available by the end of April. The Company had also hoped to release the 2005 resource calculation sometime in January. However, industry wide delays in obtaining consultant time have postponed this date. The 2005 resource calculation will be released when available.
Financial Results
For the year ended December 31, 2005, the Company reported a consolidated net loss of $11 million or $0.07 per share compared to a loss of $32.5 million of $0.21 per share in 2004. The loss reported in 2005 includes an adjustment of $8.1 million to increase the asset retirement obligation (“ARO”) for the Con Mine. Excluding this adjustment, the loss would be $2.9 million or $0.02 per share.
During 2005, the Company commenced reclamation activities at the Con Mine. Activities were focused on the reclamation of historic mill roaster tailings. In the fourth quarter of 2005, the Company recorded an adjustment to the liability for asset retirement obligation of $8.1 million. This adjustment is a result of management’s reassessment of cost estimates and is comprised of three components; (a) the impact of additional mill roaster tailings which were excavated in 2005 which make up the majority of the adjustment (b) changes in site closure activities and, (c) the impact of an estimated one year delay in receiving approval of the final remediation plan. This adjustment also includes contingencies for future potential cost increases. The Company believes that the majority of the cash impact of this adjustment (which the Company expects will be approximately $6 million)
will be borne over the next two years. Overall the Company believes that this will not have a significant impact on its financial resources or its ability to fund its current planned activities.
At December 31, 2005, the Company has recorded the fair value of the ARO for the Con Mine to be $19.2 million (which includes the adjustment discussed above) for the expected closure costs to be incurred from 2006 to 2033. A significant portion of the funding for the reclamation activities will be provided by the $10.5 million currently held within two Con Mine reclamation security trusts as well as the proceeds from any assets sales at the Con Mine that will be added to the trusts.
Details of the calculation of the ARO are provided in the notes to the Consolidated Audited Financial Statements and in the Management Discussion and Analysis of the Company for the year ended December 31, 2005.
Miramar Mining Corporation
Miramar is a Canadian gold mining company that controls the Hope Bay project, one of the largest, best-grade undeveloped gold deposits in Canada. The Hope Bay project extends over 1,000 sq. km. and encompasses one of the most prospective undeveloped greenstone belts in Canada.
Miramar’s goal is to build an intermediate gold production profile by maximizing the development potential of the substantial gold resources defined on the Hope Bay belt while continuing to increase the total gold resources on the belt through the expansion of the known deposits and discoveries of new ones.
Any proposal to extend and expand mining operations at Hope Bay would be subject to successful completion of additional drilling, economic studies and permitting procedures.
For more information on Miramar Mining Corporation and its projects, visit our website at www.miramarmining.com.
Forward Looking Statements
Statements relating to permitting, exploration activities and the expected results thereof, and the production potential at the Hope Bay project and the expected results of this work, the Company’s goals to develop the Hope Bay property and its expenditures concerning reclamation activities and costs at the Con Mine are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Forward looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” ‘projects,” “potential” and similar expressions, or that events or conditions “will,” “would,” “may,” “could” or “should” occur. Information inferred from the interpretation of drilling results and information concerning mineral resource estimates may also be deemed to be forward looking statements, as it constitutes a prediction of what might be found to be present when and if a project is actually developed. These forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the forward-looking statements, including, without limitation: risks related to fluctuations in gold prices; uncertainties related to raising sufficient financing to fund the planned work in a timely manner and on acceptable terms; changes in planned work resulting from weather, logistical, technical or other factors; the possibility that results of work will not fulfill expectations and realize the perceived potential of the Company’s properties; uncertainties involved in the estimation of gold reserves and resources; the possibility that required permits may not be obtained on a timely manner or at all; the possibility that capital and operating costs may be higher than currently estimated and may preclude commercial development or render operations uneconomic; the possibility that the estimated recovery rates may not be achieved; risk of accidents, equipment breakdowns and labour
disputes or other unanticipated difficulties or interruptions; the possibility of cost overruns or unanticipated expenses in the work program; the risk of environmental contamination or damage resulting from Miramar’s operations uncertainties as to the timing, results and costs of reclamation activities at the Con Mine and possible need to secure the remediation plan in the light of future development and other risks and uncertainties, including those described in the Miramar’s Annual Report on Form 40-F for the year ended December 31, 2005 and Reports on Form 6-K filed with the Securities and Exchange Commission.
Forward-looking statements are based on the beliefs, estimates and opinions of Miramar’s management on the date the statements are made. Miramar undertakes no obligation to update these forward-looking statements management’s beliefs, estimates or opinions, or other factors, should change.
This news release has been authorized by the undersigned on behalf of Miramar Mining Corporation.
For further
information contact:
Anthony P. Walsh
President & CEO
Miramar Mining Corporation
Tel: (604) 985-2572 Fax: (604) 980-0731
Toll Free: 1-800-663-8780
Email: info@miramarmining.com
EXHIBIT 2
Consolidated Financial Statements
(Expressed in Canadian dollars)
MIRAMAR MINING CORPORATION
Years ended December 31, 2005 and 2004
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Miramar Mining Corporation as
at December 31, 2005 and 2004 and the consolidated statements of operations and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2005
and 2004 and the results of its operations and its cash flows for the year then
ended in accordance with Canadian generally accepted accounting principles.
(signed) KPMG LLP
Chartered Accountants
Vancouver, Canada
March 1, 2006
1
MIRAMAR MINING CORPORATION
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
December 31, 2005 and 2004
================================================================================
-----------------------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 48,723 $ 30,215
Short term investments 20,000 -
Accounts receivables 1,135 2,340
Inventory (note 5) 4,782 7,178
Prepaid expenses 355 267
---------------------------------------------------------------------------------------------
74,995 40,000
Power credits receivable 1,557 1,945
Property, plant and equipment (note 6) 5,569 5,766
Mineral properties (note 7) 170,817 160,003
Cash collateral deposits (note 8) 14,980 14,674
Investment in Northern Orion Explorations Ltd. (note 3) 8,505 9,182
Other assets (note 9) 1,574 707
-----------------------------------------------------------------------------------------------------
$ 277,997 $ 232,277
-----------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 4,748 $ 7,131
Current portion of site reclamation and closure costs (note 10) 5,947 7,485
---------------------------------------------------------------------------------------------
10,695 14,616
Deferred gain (note 2(p)) 1,557 1,945
Provision for site reclamation and closure costs (note 10) 14,536 12,274
Future income tax liability (note 12) 22,801 19,120
-----------------------------------------------------------------------------------------------------
49,589 47,955
Shareholders' deficiency:
Share capital (note 11) 433,990 380,734
Contributed surplus 6,846 5,025
Deficit (212,428) (201,437)
---------------------------------------------------------------------------------------------
228,408 184,322
-----------------------------------------------------------------------------------------------------
$ 277,997 $ 232,277
-----------------------------------------------------------------------------------------------------
Nature of operations (note 1)
Commitments and contingencies (notes 11 and 15)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
/s/ Anthony Walsh Director /s/ David Fennell Director
---------------------------- -------------------------
2
MIRAMAR MINING CORPORATION
Consolidated Statements of Operations and Deficit
(Expressed in thousands of Canadian dollars, except per share amounts)
Years ended December 31, 2005 and 2004
================================================================================
-------------------------------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------------------------------
Revenue:
Sales $ 407 $ 7,567
Interest 1,156 1,562
Other income 1,003 3,136
-----------------------------------------------------------------------------------------
2,566 12,265
Expenses:
Cost of sales 535 22,872
Depreciation, depletion and accretion 1,088 1,979
General and administration 1,520 1,748
Salaries 1,217 1,486
Professional services 592 707
Investor relations 119 171
Interest 241 133
Stock-based compensation 985 2,250
Foreign exchange 2 39
Severances and closure 264 1,583
Write-down of assets 108 4,515
Write-down of capitalized value assigned by asset retirement
obligation (note 10) 8,085 10,508
-----------------------------------------------------------------------------------------
14,756 47,991
-------------------------------------------------------------------------------------------------
Loss from operations before undernoted (12,190) (35,726)
Equity loss (227) (294)
-------------------------------------------------------------------------------------------------
Loss before income taxes (12,417) (36,020)
Income tax recovery (expense) (note 12):
Current (34) (298)
Future 1,460 3,859
-----------------------------------------------------------------------------------------
1,426 3,561
-------------------------------------------------------------------------------------------------
Loss for the year (10,991) (32,459)
Deficit, beginning of year (201,437) (168,978)
-------------------------------------------------------------------------------------------------
Deficit, end of year $(212,428) $(201,437)
-------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.07) $ (0.21)
Weighted average number of common shares outstanding 163,744,437 153,524,708
-------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
--------------------------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the year $ (10,991) $ (32,459)
Items not involving cash:
Depreciation, depletion and accretion 1,088 1,979
Stock-based compensation 985 2,250
Write-down of assets 8,193 15,023
Equity loss 227 294
Future income taxes (1,460) (3,859)
Other 18 (408)
Changes in non-cash working capital:
Accounts receivable 1,205 (763)
Inventory 595 (2,225)
Prepaid expenses (88) 287
Accounts payable and accrued liabilities (3,165) (3,063)
Payments made on site reclamation (note 10) (8,138) -
------------------------------------------------------------------------------------------
(11,531) (22,944)
Investments:
Expenditures on plant, equipment and deferred exploration, net (18,413) (34,295)
Purchase of securities (300) -
Proceeds on sale of assets (notes 3 and 7) 10,769 900
Purchase of collateral deposits, net (306) (8,400)
Purchase of short-term investments (20,000) -
------------------------------------------------------------------------------------------
(28,250) (41,795)
Financing:
Issue of common shares for cash 58,289 15,033
Proceeds from note receivable (note 2(p)) - 10,000
------------------------------------------------------------------------------------------
58,289 25,033
--------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 18,508 (39,706)
Cash and cash equivalents, beginning of year 30,215 69,921
--------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 48,723 $ 30,215
--------------------------------------------------------------------------------------------------
Supplementary information:
Income taxes paid $ 34 $ 431
Non-cash investing and financing activities:
Fair value of stock options allocated to shares
issued on exercise 107 89
Stock-based compensation included in deferred exploration 944 1,087
Asset retirement obligations capitalized to property, plant 8,085 10,508
and equipment and subsequently written off
--------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
1. Nature of operations:
Miramar Mining Corporation (the "Company") was incorporated under the laws
of the Province of British Columbia. In December 2004, the Company made the
decisions to terminate all mining activities at its Con Mine and Giant mine
operations and to commence planned reclamation activities. At December 31,
2005 the Company's principal business activity is the exploration and
development of mineral property interests. The Company's principal mineral
property interest is the Hope Bay Project located in Nunavut, Canada.
The Company is in the process of exploring its mineral property interest
and has not yet determined whether its mineral property interest contains
economically recoverable mineral reserves. The underlying value and the
recoverability of the amounts shown for mineral property is entirely
dependent upon the existence of economically recoverable mineral reserves,
the ability of the Company to obtain the necessary financing to complete
the exploration and development of the mineral property, and future
profitable production or proceeds from the disposition of the mineral
property interest.
2. Significant accounting policies:
(a) Basis of presentation:
These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). These
consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material inter-company balances
and transactions have been eliminated.
(b) Cash and cash equivalents:
Cash and cash equivalents include investments with terms to maturity
of 90 days or less when purchased.
(c) Short-term investments:
Short-term investments with terms to maturity of greater than 90 days
but not more than one year are recorded at the lower of cost and
market determined on an aggregate portfolio basis.
(d) Revenue recognition and inventory:
Revenue from sale of the Company's product is recorded when pervasive
evidence of an arrangement exists, title and risk passes to the buyer
and the sales price is fixed and determinable. Gold and silver
inventory are valued at the lower of net realizable value and cost.
Materials and supplies inventory are valued at average cost less
appropriate allowances for obsolescence.
5
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(e) Property, plant and equipment and mineral properties:
Property, plant and equipment, which includes mine plant and equipment
and mineral properties, is recorded at the lower of cost and estimated
net recoverable amount. Buildings and equipment are depreciated on a
straight-line basis over their estimated useful lives, not to exceed
the period of anticipated recovery of estimated proven and probable
ore reserves. Mining equipment and vehicles are depreciated on a
straight line basis over estimated useful lives of two to 15 years.
Office furniture and computer equipment are depreciated using the
declining balance method at 20% and 30%, respectively. Leasehold
improvements are amortized straight-line over their estimated useful
life.
The cost of mineral properties and related exploration and development
costs are deferred until the properties are placed into production,
sold or abandoned. Capitalized costs are amortized over the estimated
useful life of the properties following the commencement of production
or written off if the properties are sold, allowed to lapse or
abandoned.
(f) Impairment of long-lived assets:
Long-lived assets, which consist primarily of property, plant and
equipment and mineral properties, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. Recoverability of assets to be held
and used are measured by a comparison of the carrying value of the
asset to future undiscounted net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the amount
of the impairment is measured by the amount by which the carrying
amount of the asset exceeds its fair value.
(g) Provision for site reclamation and closure costs:
The Company recognizes the fair value of a future asset retirement
obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived
assets that results from the acquisition, construction, development
and/or normal use of the assets. The Company concurrently recognizes a
corresponding increase in the carrying amount of the related
long-lived asset and is amortized over the life of the asset. The fair
value of the asset retirement obligation is estimated using the
expected cash flow approach that reflects a range of possible outcomes
discounted at a credit-adjusted risk-free interest rate. Subsequent to
the initial measurement, the asset retirement obligation is adjusted
at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. Changes
in the obligation due to the passage of time are recognized in income
as an operating expense using the interest method. Changes in the
obligation due to changes in estimated cash flows are recognized as an
adjustment of the carrying amount of the related long-lived asset and
is amortized over the remaining life of the asset.
6
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(h) Pension expenses and obligation:
The Company maintains defined benefit pension plans and provides
certain non-pension post-retirement benefits consisting of extended
health and other benefits. The cost of providing pension and other
post-retirement benefits is actuarially determined and charged to
operations using the projected unit credit actuarial method based upon
management's best estimate assumptions. Pension fund assets are valued
at fair value. The pension expense for the year includes adjustments
for plan amendments, curtailments, experience gains and losses, and
changes in assumptions that are being amortized on a straight-line
basis over the expected average remaining service lives of the plan
members. Any differences between the cumulative amounts expensed and
the funding contributions are reflected as either an asset or a
liability.
(i) Stock-based compensation:
The Company has a stock option plan which is described in note 11(c).
The Company records all stock-based payments using the fair value
method.
Under the fair value method, stock-based payments are measured at the
fair value of the consideration received or the fair value of the
equity instruments issued or liabilities incurred, whichever is more
reliably measurable, and are charged to operations over the vesting
period. The offset is credited to contributed surplus. Consideration
received on the exercise of stock options is recorded as share capital
and the related contributed surplus is transferred to share capital.
(j) Translation of foreign currency:
The accounts of foreign operations are translated into Canadian
dollars as follows:
o monetary assets and liabilities at the rates of exchange
prevailing at the balance sheet date
o other assets and liabilities at applicable historical exchange
rates
o revenue and expenses at the average rate of exchange for the
period covering the statement of operations except for expenses
related to non-monetary assets which are at the rates used for
the translation of the related assets
Translation gains and losses are included in the statement of
operations.
7
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(k) Derivative financial instruments:
The Company has used forward sales agreements and options for the
purpose of managing price and currency exposures on its anticipated
gold sales. The Company assesses, both at the hedge's inception and on
an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective. Gains and losses relating to
hedging instruments are recorded in income the same period as gold is
produced to meet the hedged commitment. Realized and accumulated
unrealized gains or losses associated with derivative instruments
which have been terminated or cease to be effective prior to maturity,
are deferred under other current, or non-current, assets or
liabilities on the balance sheet and recognized in income in the
period in which the underlying transaction is recognized. In the event
a designated hedged item is sold, extinguished or matures prior to the
termination of the related derivative instrument, any realized or
unrealized gain or loss on such derivative instrument is recognized in
income at that time. The fair value changes in ineffective hedges are
recognized in the statement of operations.
(l) Income taxes:
The Company uses the asset and liability method of accounting for
future income taxes. Under the asset and liability method, future
income tax assets and liabilities are determined based on differences
between the financial statement carrying values of existing assets and
liabilities and their respective income tax bases (temporary
differences) and loss carry forwards. Future income tax assets and
liabilities are measured using substantively enacted or enacted tax
rates expected to be in effect when the temporary differences are
likely to reverse. The effect on future income tax assets and
liabilities of a change in tax rates is included in the results of
operations in the period in which the change is substantively enacted.
Future income tax assets also result from unused loss carry forwards,
resource related pools and other deductions. The amount of future tax
assets recognized is limited to the amount that management considers
more likely than not to be realized.
(m) Loss per share:
Basic loss per share is calculated by dividing loss available to
common shareholders by the weighted average number of common shares
outstanding in the period. For all periods presented loss available to
common shareholders equals the reported loss. Diluted loss per share
is calculated by the treasury stock method. Under the treasury stock
method, the weighted average number of common shares outstanding for
the calculation of diluted loss per share assumes that the proceeds to
be received on the exercise of dilutive stock options are applied to
repurchase common shares at the average market price for the period.
For the years ended December 31, 2005 and 2004, diluted loss per share
is the same as basic loss per share as the affect of all outstanding
options and warrants would be anti-dilutive.
8
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
2. Significant accounting policies (continued):
(n) Use of estimates:
The preparation of financial statements requires management to make
estimates that affect the reported values of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Significant areas requiring the
use of management estimates relate to the determination of impairment
of assets, site reclamation and closure obligations, assumptions used
in determining stock-based compensation, future income taxes and rates
for amortization of property, plant and equipment. Actual results
could differ from these estimates.
(o) Variable interest entities:
Effective January 1, 2005, the Company adopted the Canadian Institute
of Chartered Accountants ("CICA") Accounting Guideline 15,
"Consolidation of Variable Interest Entities" ("AcG-15") on a
prospective basis. AcG-15 prescribes the application of consolidation
principles for entities that meet the definition of a variable
interest entity ("VIE"). An enterprise holding other than a voting
interest in a VIE could, subject to certain conditions, be required to
consolidate the VIE if it is considered its primary beneficiary
whereby it would absorb the majority of the VIE's expected losses,
receive the majority of its expected residual returns, or both. The
adoption of this new standard had no effect on the consolidated
financial statements as management has determined the Company does not
have variable interests in any VIE's.
(p) Power credits and deferred gain:
On April 4, 2003, the Company completed the sale of the Bluefish
hydroelectric power plant ("Bluefish") to Northwest Territories Power
Corporation. Bluefish is a 7.0 mega volt-ampere hydroelectric power
generating facility, located 25 miles of Yellowknife, which supplies
power to the Company's Con Mine. Sale consideration included a
non-interest bearing note for $10 million which was paid on December
31, 2004, the supply of power to the Con Mine, free of charge, equal
to the historic generation profile of Bluefish until December 31, 2004
and the supply of power to the Con Mine, free of charge, at an annual
rate of 5 million kilowatts and 18,000 kilo volt-ampere of demand for
a five year period from 2005 to 2009, (the "Power Credits"). The
Company recorded a deferred gain of $7.0 million relating to the fair
value consideration of the Power Credits. As the Power Credits are
consumed, the Company recognizes a corresponding gain in the statement
of operations. During the year ended December 31, 2005, approximately
$0.4 million (2004 - $2.4 million) of the fair value of the Power
Credits were consumed and has been recorded in site closure and
reclamation costs incurred in 2005. In 2004, the fair value of the
Power Credits consumed were recorded in cost of sales with a
corresponding gain in other income.
9
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
3. Investment in Northern Orion Explorations Ltd.:
At January 1, 2005, the Company had 200,247 shares of Northern Orion
Explorations Ltd. ("Northern Orion") and a net proceeds interest royalty
("NPI") in certain Northern Orion mineral properties which it acquired
pursuant to a restructuring agreement with Northern Orion. The NPI entitles
the Company to receive the economic equivalent of a 2.5% net smelter return
on certain of Northern Orion's mineral properties as well as 50% of the
proceeds from the disposition of certain Northern Orion mineral properties,
all to a maximum of $15 million. During 2005, the Company sold all
remaining shares of Northern Orion and recorded the proceeds as a reduction
of the carrying value. Recovery of the remaining carrying value of $8.5
million is dependant upon the receipt of net proceeds from eventual
production from the properties or their sale by Northern Orion.
4. Related parties:
The Company holds 7.2% of Maximus Ventures Ltd ("Maximus"), a company
related by virtue of common directors. The Company supplied services on a
cost recovery basis to Maximus totalling $1,188,680 (2004 - $516,123)
during the year ended December 31, 2005.
During the year ended December 31, 2005, the Company's investment in
Sherwood Copper Corporation ("Sherwood") was reduced from 38.3% to 13.3% as
a result of Sherwood issuing shares to outside interests. During the period
in 2005 the Company had significant influence over Sherwood, the Company
supplied services on a cost recovery basis to Sherwood totaling $122,344
(2004 - $366,769).
These transactions are recorded at their exchange amount in these
consolidated financial statements which is the amount of consideration
received as established and agreed to by the Company and, as appropriate,
Maximus or Sherwood.
5. Inventory:
-----------------------------------------------------------------
2005 2004
-----------------------------------------------------------------
Gold and silver $ 1,162 $ 1,570
Materials and supplies 3,620 5,608
-----------------------------------------------------------------
$ 4,782 $ 7,178
-----------------------------------------------------------------
10
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
6. Property, plant and equipment:
-----------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------
Accumulated
depreciation and
Cost depletion and Net book Net book
write-downs value value
-----------------------------------------------------------------------------------------
Mine plant and equipment $ 118,008 $ 115,903 $ 2,105 $ 2,261
Exploration equipment 2,060 446 1,614 1,506
Construction in progress 1,217 - 1,217 1,216
Computer equipment 1,366 861 505 566
Leasehold and office 534 406 128 123
Other 94 94 - 94
-----------------------------------------------------------------------------------------
Total $ 123,279 $ 117,710 $ 5,569 $ 5,766
-----------------------------------------------------------------------------------------
During the year ended December 31, 2005, the Company returned the Giant
Mine property back to the Department of Indian Affairs and Northern
Development.
7. Mineral properties:
The following is a summary of exploration and development costs incurred to
December 31, 2005:
-----------------------------------------------------------------------------------------
Back River Hope Bay Total
-----------------------------------------------------------------------------------------
Balance, December 31, 2004 $ 8,292 $ 151,711 $ 160,003
Additions:
Drilling - 3,997 3,997
Sample analysis - 532 532
Personnel and contracts - 3,336 3,336
Stock-based compensation - 944 944
Supplies and equipment 132 799 931
Other exploration costs - 627 627
Title and claim management - 317 317
Transportation and freight - 2,908 2,908
Camp and infrastructure - 1,531 1,531
Environmental and permitting - 3,157 3,157
Feasibility and studies - 958 958
--------------------------------------------------------------------------------------
132 19,106 19,238
Disposition of mineral property (8,424) - (8,424)
-----------------------------------------------------------------------------------------
Balance, December 31, 2005 $ - $ 170,817 $ 170,817
-----------------------------------------------------------------------------------------
On February 18, 2005, the Company assigned to Dundee Precious Metals Inc.
its option to purchase from Kinross Gold Corporation 60% of the Back River
project, including the Goose and George Lakes deposits. The Company
received proceeds of approximately $10 million for the reimbursement of
past exploration costs and inventory acquisition incurred by the Company on
the Back River Project plus 5%.
11
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
8. Cash collateral deposits:
The Company has established the following cash deposits with chartered
banks to serve as collateral for letters of credit pledged in favour of
various governmental agencies and others under several water licenses and
mineral exploration and mining agreements. The Company has also established
two reclamation security trusts for the reclamation of the Con Mine (note
15(c)). The deposits are invested in guaranteed investment certificates and
bear interest at market rates. These funds will be returned to the Company
upon completion of reclamation of the property to which they relate.
--------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------
Con Mine reclamation security trust $ 10,506 $ 10,000
Giant Mine water license - 200
Con Mine road permit 50 50
Golden Eagle reclamation 341 341
Talapoosa reclamation 233 233
Hope Bay water licenses and land permits 3,850 3,850
--------------------------------------------------------------------------
$ 14,980 $ 14,674
--------------------------------------------------------------------------
9. Other assets:
--------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------
Investments $ 134 $ 134
Investment in Sherwood 180 -
Pension asset (note 13) 1,260 573
--------------------------------------------------------------------------
$ 1,574 $ 707
--------------------------------------------------------------------------
10. Site reclamation and closure:
The Company has recorded provisions for site reclamation and closure costs
for the estimated cost of site closure and reclamation relating to past
mining activities at the Con Mine. The following is a reconciliation of the
changes in the provision for site reclamation and closure during the year:
------------------------------------------------------------------------------------
2005 2004
------------------------------------------------------------------------------------
Balance, beginning of year $ 19,759 $ 8,528
Change in estimate for site closure and reclamation costs 8,085 10,508
Site closure and reclamation costs incurred (8,138) -
Accretion expense 777 723
------------------------------------------------------------------------------------
Balance, end of year $ 20,483 $ 19,759
------------------------------------------------------------------------------------
Allocated between:
Current portion $ 5,947 $ 7,485
Non-current portion 14,536 12,274
------------------------------------------------------------------------------------
$ 20,483 $ 19,759
------------------------------------------------------------------------------------
12
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
10. Site reclamation and closure (continued):
The Company's operations are affected by federal and local laws and
regulations concerning environmental protection. Under current regulations,
the Company is required to meet performance standards to minimize
environmental impact and to perform site restoration and other closure
activities. The Company's provisions for future site closure and
reclamation costs are based on known requirements. It is not currently
possible to estimate the impact on financial results, if any, of future
legislative or regulatory developments.
In the fourth quarter of 2005, the Company recorded an adjustment to the
liability for asset retirement obligation by $8.1 million. This adjustment
is a result of management's re-assessment of cost estimates and is
comprised of three components: (a) the impact of additional mill roaster
tailings which were excavated in 2005 and will be treated before they are
placed in the tailings ponds, which adjustment represents the majority of
the adjustment as it extends the arsenic processing phase of reclamation to
2007 rather than completion in 2006; (b) changes in site closure
activities, including the impact of a lengthened period of post-closure
water treatment and monitoring, now assumed to be 25 years rather than 12
years, and the addition of rock cover to the tailings ponds rather than
vegetation alone; and (c) the impact of an estimated one year delay in
receiving approval of the final remediation plan, which results in the
Company incurring certain holding costs to maintain personnel required for
closure activities and additional monitoring and environmental studies. The
Company has $10.5 million on deposit in Con Mine reclamation security
trusts that will be applied, in part, to offset the reclamation costs as
they are incurred. The Company is required by regulatory agencies to post
security for the site closure and reclamation activities, excluding the
arsenic processing activities, and, based on the Company's estimate for
these costs, the Company does not currently anticipate that the regulatory
agencies will require additional funds to be contributed to the reclamation
security trusts.
Although the ultimate amount to be incurred is uncertain, the liability for
site closure and reclamation for the Con Mine and the Hope Bay exploration
camps has been estimated to be $24.9 million on an undiscounted basis
($20.5 million discounted) and is to be expended from 2006 to 2033. For
purposes of determining the fair value of the obligation, a discount rate
of 9.8%, an inflation factor of 2.0% and a market risk premium of 8% have
been applied. As required by regulatory agencies and GAAP, cost estimates
include contractor markups, provision for administration and engineering
and a provision for unforeseeable circumstances. However, the Company
expects to use its employees wherever possible to complete the reclamation
activities, which could reduce actual costs below the accrued liability.
13
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
11. Share capital:
(a) Authorized:
500,000,000 common shares without par value
(b) Issued:
--------------------------------------------------------------------------------------
Common shares
------------------------------
Number
of shares Amount
--------------------------------------------------------------------------------------
Balance, December 31, 2003: 151,634,893 $ 371,309
Issued:
Common shares for cash, net of issue costs 7,600,000 14,271
Future income tax effect of flow-through shares - (5,696)
On exercise of warrants 211,437 412
On exercise of stock options 328,500 438
--------------------------------------------------------------------------------------
Balance, December 31, 2004 159,774,830 380,734
Issued:
Common shares for cash, net of issue costs 26,070,000 57,679
Future income tax effect of flow-through shares - (5,140)
On exercise of stock options 456,600 717
--------------------------------------------------------------------------------------
Balance, December 31, 2005 186,301,430 $ 433,990
--------------------------------------------------------------------------------------
On October 18, 2004, the Company completed a private placement of
7,600,000 flow-through common shares at a price of $2.00 per common
share for gross proceeds of $15.2 million. In consideration for their
services, the underwriters received commissions of $0.8 million and
brokers' warrants exercisable to purchase 375,000 common shares at
$2.00 per common share until October 18, 2005. The fair value of these
warrants at the grant date was $0.1 million and has been shown on a
net basis in share capital. Pursuant to the financing agreement, the
Company must incur Canadian exploration expenditures as defined in the
Income Tax Act (Canada) in the amount of $15.2 million by December 31,
2005, which amount has been incurred.
On September 30, 2005, the Company completed a private placement of
7,320,000 flow-through common shares at a price of $2.05 per common
share for gross proceeds of approximately $15 million. In
consideration for their services, the underwriters received
commissions of $0.8 million and brokers' warrants exercisable to
purchase 366,000 common shares at $2.05 per common share until
September 30, 2006. The fair value of these warrants at the grant date
was $0.1 million and has been shown on a net basis in share capital.
Pursuant to the financing agreement, the Company must incur Canadian
exploration expenditures as defined in the Income Tax Act (Canada) in
the amount of $15.0 million by December 31, 2006.
On October 14, 2005, the Company completed a private placement of
250,000 flow-through common shares at a price of $2.05 per common
share for gross proceeds of $512,500. Pursuant to the financing
agreement, the Company must incur Canadian exploration expenditures as
defined in the Income Tax Act (Canada) in the amount of $512,000 by
December 31, 2006.
14
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
11. Share capital (continued):
(b) Issued (continued):
On November 22, 2005, the Company completed a private placement to
Newmont Mining Corporation of Canada Limited of 18.5 million common
shares at a price of $2.35 per unit for gross proceeds of
approximately $43.5 million. Each unit consists of one common share
and one warrant to purchase an additional common share at $2.75 per
common share until November 22, 2009.
(c) Stock options:
Stock options are granted at the closing market price of the common
shares on the last trading day before the date of grant. Options have
a maximum term of ten years and usually terminate 30 days following
the termination of the optionee's employment. The vesting periods of
stock options granted vary with terms determined by the Board of
Directors. At December 31, the Company had stock options outstanding
as follows:
-----------------------------------------------------------------------------------------
2005 2004
----------------------------- --------------------------
Average Average
Share exercise Share exercise
options price options price
-----------------------------------------------------------------------------------------
Outstanding, beginning of year 6,263,578 $ 2.18 4,107,339 $ 1.54
Granted 3,054,706 1.32 3,273,060 2.96
Exercised (456,600) 1.33 (328,500) 1.07
Forfeited or expired (1,412,000) 2.24 (788,321) 2.55
-----------------------------------------------------------------------------------------
Outstanding, end of year 7,449,684 $ 1.87 6,263,578 $ 2.18
-----------------------------------------------------------------------------------------
Exercisable 6,921,684 $ 1.83 5,483,578 $ 2.02
-----------------------------------------------------------------------------------------
The stock-based compensation costs reflected in the consolidated
financial statements were estimated using the Black-Scholes option
pricing model with the following weighted average assumptions: a
risk-free interest rate of 3.61% (2004 - 3.4%), a dividend yield of 0%
(2004 - 0%), an expected volatility of 60% (2004 - 55%) and expected
lives of stock options of 4.85 years (2003 - 4.3 years). The weighted
average fair value of options granted in 2005 was $1.38 (2004 -
$1.55).
As at December 31, 2005, 6,921,684 options were fully vested and
expire as follows:
----------------------------------------------------------
Year Number Exercise price
----------------------------------------------------------
2006 1,087,421 $ 1.19
2007 430,000 1.22
2008 1,063,997 1.96
2009 2,007,560 2.86
2010 2,332,706 1.29
----------------------------------------------------------
15
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
11. Share capital (continued):
(d) Warrants and brokers compensation options:
At December 31, the Company had warrants and brokers' compensation
options outstanding and exercisable as follows:
-----------------------------------------------------------------------------------------------------
2005 2004
----------------------------- ---------------------------
Average Average
Warrants and exercise Warrants exercise
options price and options price
-----------------------------------------------------------------------------------------------------
Outstanding, beginning of year 1,316,267 $ 2.26 1,361,204 $ 2.26
Granted 18,866,000 2.74 375,000 2.00
Exercised - (211,437) 1.95
Forfeited or expired (1,316,267) 2.26 (208,500) 2.10
-----------------------------------------------------------------------------------------------------
Outstanding, end of year 18,866,000 $ 2.74 1,316,267 $ 2.26
-----------------------------------------------------------------------------------------------------
12. Income and resource taxes:
At December 31, 2005, the Company has unused tax loss carry forwards in
Canada of $46.2 million (2004 - $42.5 million) expiring between the years
2006 and 2015 which are available to reduce taxable income and capital
losses of $68.2 million (2004 - $55.6 million) which are available
indefinitely, but can only be utilized against capital gains. The Company
has investment tax credits totaling approximately $1.8 million (2004 - $1.5
million) The tax effect of the significant components within the Company's
future tax asset (liability) at December 31 was as follows:
---------------------------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------------------------
Loss carry forwards $ 14,509 $ 15,284
Capital losses 12,752 9,896
Property, plant and equipment 19,561 16,081
Canadian resource deductions 3,745 4,458
Reclamation liabilities 7,368 6,664
Other 1,517 4,535
---------------------------------------------------------------------------------------
59,452 56,918
Valuation allowance (54,508) (54,875)
---------------------------------------------------------------------------------------
Net future tax asset 4,944 2,043
Future income tax liability of Hope Bay Gold (8,382) (8,382)
Future income tax liability on flow-through shares (19,363) (12,781)
---------------------------------------------------------------------------------------
Net future income tax liability $ (22,801) $ (19,120)
---------------------------------------------------------------------------------------
16
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
12. Income and resource taxes (continued):
The income tax expense differs from the amounts computed by applying the
combined federal and provincial income tax rate of 34.1% (2004 - 34.1%) to
pre-tax losses as a result of the following:
----------------------------------------------------------------------------------------
2005 2004
----------------------------------------------------------------------------------------
Earnings (losses) before equity loss and income taxes $ (12,190) $ (35,726)
----------------------------------------------------------------------------------------
Computed "expected" tax expense (recovery) $ (4,157) $ (12,183)
Adjustment to income taxes resulting from change in valuation
allowance (367) 7,514
Adjustment to future tax assets and liabilities for enacted
changes in tax rates 1,200 -
Permanent differences 1,158 767
Share issue costs (453) (331)
Capital taxes 34 298
Other 1,159 374
----------------------------------------------------------------------------------------
Income taxes (recovery) $ (1,426) $ (3,561)
----------------------------------------------------------------------------------------
13. Pension plan and other post-retirement benefits:
The Company has four defined benefit pension plans covering substantially
all of the employees at the Con Mine and the Giant Mine. These plans are
funded on an ongoing basis, based on periodic actuarial valuations and
statutory requirements. In addition, the Company, by practice, provides for
other post-retirement benefits. The ultimate liability for these benefits
is estimated for accounting purposes on an ongoing basis using periodic
actuarial calculations.
Summary information related to the defined benefit pension plans and other
benefits are as follows:
------------------------------------------------------------------------------------------------
Pension benefit plans Other benefit plans
---------------------------- ----------------------------
2005 2004 2005 2004
------------------------------------------------------------------------------------------------
Accrued benefit obligation $ 18,880 $ 17,182 $ 176 $ 158
Fair value of plan assets 15,790 16,282 - -
------------------------------------------------------------------------------------------------
Funded status - plan deficit (3,090) (900) (176) (158)
Unamortized actuarial loss (gain) 4,350 1,681 20 (138)
Unamortized experience loss - 88 - -
------------------------------------------------------------------------------------------------
Accrued benefit asset (liability) $ 1,260 $ 869 $ (156) $ (296)
------------------------------------------------------------------------------------------------
17
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
13. Pension plan and other post-retirement benefits (continued):
Reconciliation of accrued benefit obligation:
----------------------------------------------------------------------------------------------
Pension benefit plans Other benefit plans
-------------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------------------------------------------------
Balance, beginning of year $ 17,182 $ 16,621 $ 158 $ 142
Current service cost 230 275 - -
Interest cost 998 1,024 7 7
Benefits paid (3,023) (1,243) (78) (73)
Actuarial losses 3,425 981 89 82
Loss (gain) due to curtailment 68 (476) - -
----------------------------------------------------------------------------------------------
Accrued benefit obligation,
end of year $ 18,880 $ 17,182 $ 176 $ 158
----------------------------------------------------------------------------------------------
Reconciliation of plan assets:
----------------------------------------------------------------------------------------------
Pension benefit plans Other benefit plans
-------------------------------------------------------
2005 2004 2005 2004
----------------------------------------------------------------------------------------------
Fair value, beginning of year $ 16,282 $ 14,927 $ - $ -
Expected return on plan assets 1,063 1,109 - -
Employer contributions 847 952 - -
Benefits paid (3,023) (1,243) - -
Actuarial gains 621 537 - -
----------------------------------------------------------------------------------------------
Fair value of plan assets, end of year $ 15,790 $ 16,282 $ - $ -
----------------------------------------------------------------------------------------------
Pension expense during the year for the pension plans is $458,000 (2004 -
$469,000). Other benefit plans recovery for the year is $61,800 (2004 -
$101,300). Pension expense for the year was comprised of the following:
--------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------
Current service cost $ 230 $ 275
Interest cost 998 1,024
Expected return on plan assets (1,063) (1,109)
Amortization of experience gains 136 165
Amortization of past service costs 89 89
Loss due to curtailment 68 26
--------------------------------------------------------------------------------
$ 458 $ 470
--------------------------------------------------------------------------------
The measurement date for the plan assets and the benefit obligation was
December 31, 2005. Payments are being made to fund the excess of the
accrued benefit obligation over the fair value of plan assets in accordance
with applicable legislation. For purposes of measuring other benefits,
benefits are assumed to be terminated in two years due to mine closure. In
two of the plans, the effective date of the last actuarial valuation was
January 1, 2005 and the next valuation will be January 1, 2006. In one plan
the effective date of the last actuarial valuation was June 30, 2005, and
this plan was terminated on June 30, 2005.
18
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
13. Pension plan and other post-retirement benefits (continued):
The significant actuarial assumptions used in 2005 and 2004 in the
measurement of the Company's benefit obligation are shown in the following
table:
----------------------------------------------------------------------------------------
Pension
benefits Other benefits
----------------------------------------------------------------------------------------
Discount rate used for accrued benefit obligation 6.00% 6.00%
Discount rate used for benefit costs 5.00% 5.00%
Expected long-term rate of return on plan assets 7.00% N/A
Weighted average rate of compensation increase N/A N/A
----------------------------------------------------------------------------------------
The actual allocation of plan assets is shown in the following table:
--------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------
Cash and short-term $ 139 $ 129
Bonds 5,879 5,980
Canadian Equity Pension Trust 2,478 2,967
Dividend Income Fund 7,082 6,942
Overseas equities 212 262
--------------------------------------------------------------------
$ 15,790 $ 16,280
--------------------------------------------------------------------
14. Financial instruments:
Fair value estimates are made at the balance sheet date, based upon
relevant market information and information about the financial instrument.
These estimates are, in part, subjective in nature and involve
uncertainties in significant matters of judgment. Changes in assumptions
and market conditions could significantly affect these estimates. The
carrying values of all financial instruments approximate fair values,
except for investments presented in other assets. In addition, the fair
value of the investment in Northern Orion is not determinable due to the
inherent difficulty in the determination of the fair value of such an
instrument.
The fair value of other assets and the fair value based on the quoted
market value of the investment in Sherwood, Maximus and other at December
31 are as follows:
-----------------------------------------------------------------------------------------------
2005 2004
---------------------------- ----------------------------
Carrying Fair Carrying Fair value
value value value
-----------------------------------------------------------------------------------------------
Investment in Sherwood $ 180 $ 3,634 $ - $ 2,300
Other investments 134 974 134 1,730
-----------------------------------------------------------------------------------------------
19
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
15. Commitments and contingencies:
(a) Miramar Con Mine Ltd. ("MCML") is committed to the purchase of
$780,000 of liquid oxygen per annum through 2007 subject to an ongoing
purchase option in the Company's favour at the discounted value of the
remaining payments.
(b) As part of the arrangement to sell a previously owned hydro electric
asset, the Company entered into an indemnity agreement with NERCO
Minerals Company ("NERCO"), the previous owner of the Con Mine, in
which the Company agreed to hold NERCO harmless against any future
third party claims that relate to environmental conditions of the Con
Mine. The terms of the indemnity agreement provide for no limitation
to the maximum potential future payments under the guarantee. The
Company has not provided for any current carrying amount of the
liability, contingent or otherwise, for the obligations under the
guarantee. The Company granted the indemnification in order to allow
NERCO to release a similar guarantee provided by Red Lion Management
Ltd. ("Red Lion") in connection with the acquisition of the Con Mine.
Red Lion held a security interest in all the assets of the Con Mine,
including the hydro electric asset, as collateral for the indemnity
against environmental liability given to NERCO. As security for the
indemnification given to NERCO, the Company granted a security
interest on the Con Mine assets to NERCO and agreed that the net
proceeds from the sale of these assets will be placed in a reclamation
security trust, to be used to pay for the reclamation of the mine.
(c) On August 8, 2000, MCML received a renewal water licence for the Con
Mine issued under the Northwest Territories Waters Act. This licence
expires on July 29, 2006. As a condition of a water license held by
the MCML, the Company maintains security deposits for the cost of
future reclamation. In 2004, the Company completed an agreement with
DIAND to fund security deposits by depositing $10 million into two
reclamation security trusts established by the Company. The
reclamation security trusts will be used to fund the reclamation of
the site on completion of operations.
(d) In 1995, the Company entered into a joint exploration transaction with
an investor that resulted in the sale of an interest in the assets
comprising the Con Mine. The transaction was based upon an independent
valuation prepared for the Company. In 2000, Canada Revenue Agency
("CRA") issued a re-assessment notice challenging the valuation that
formed the basis for this transaction. This re-assessment does not
give rise to any taxes payable by the Company. However, as part of the
transaction in 1995, the Company agreed to compensate the investor for
any shortfall in the value of the assets transferred to a maximum of
$2.7 million plus accrued interest, which amounts to approximately
$2.3 million at December 31, 2005, such amounts to be payable should a
ruling denying the transfer of certain tax pools be made against the
Company. In 2004, the Company received notification that CRA had
recently reviewed the re-assessment and re-confirmed the original
re-assessment. The Company filed a notice of appeal in March 2005. The
Company subsequently received notification from the Tax Court of
Canada that this case should proceed and the discovery process is
scheduled to commence in April 2006. While management intends to
strenuously defend the independent valuation, the outcome of this
issue is not yet determinable. No provision for these costs has been
recorded at December 31, 2005.
20
MIRAMAR MINING CORPORATION
Notes to Consolidated Financial Statements
(Tabular dollar amounts expressed in thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
================================================================================
15. Commitments and contingencies (continued):
(e) The Company has a long-term lease for office space for its corporate
and exploration office. The Company has minimum commitments under
operating leases for its premises totalling approximately $305,000 per
annum until 2012. The Company has a number of operating leases for
mobile and other equipment used at its exploration properties, which
in aggregate result in commitments of $293,000 per annum and lease
terms ranging from one to two years.
21
EXHIBIT 3
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") provides an analysis of the
financial results of Miramar Mining Corporation (the "Company") for the year
ended December 31, 2005 and compares them with the previous year. In order to
better understand the MD&A, it should be read in conjunction with the
Consolidated Financial Statements and related notes. The Company's consolidated
financial statements are prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") and expressed in thousands of Canadian dollars,
except share amounts. In addition, the Company files annual reports on Form 40-F
with the United States Securities and Exchange Commission, which includes the
Company's consolidated financial statements and a supplementary note reconciling
the material differences between Canadian GAAP and United States GAAP, and their
effect on the Company's financial information. This MD&A is dated as of March
30, 2006. All amounts are expressed in Canadian dollars, except as otherwise
indicated.
OVERVIEW
The Company's mining and exploration assets are primarily gold assets in the
Canadian Arctic. The Company has developed considerable experience in
operations, exploration and logistics in the Canadian Arctic where the Company
has focused its activities for more than ten years. In 2004, the Company
determined that gold production was no longer economically viable at its Con and
Giant mines in Yellowknife, Northwest Territories and terminated all mining
activities. Since then, the Company's business is focused on the exploration and
development of the Hope Bay gold mineral project in Nunavut. The Hope Bay
project is 100% owned by the Company, extends over 1,000 square kilometers and
we believe encompasses one the most prospective undeveloped greenstone belts in
Canada. The belt contains a number of significant gold deposits including the
Doris North Project which is anticipated to become the first new gold mine in
Nunavut.
The Company's goal is to become an intermediate gold producer through the phased
development of the Hope Bay gold project as follows:
Phase 1: Short-term: Development of a small scale, high return gold mine at
Doris North to commence production as expeditiously as possible, with
the objective of generating significant cash flow, after capital
payback, to advance the subsequent phases while minimizing equity
dilution. Doris North is anticipated to produce 155,000 ounces of gold
per year for two years.
Phase 2: Medium-term: To extend and expand production levels by developing
the higher grade, readily accessible upper portions of the Boston,
Doris Central and Madrid deposits, with a target production level of
1
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
approximately 250,000 to 300,000 ounces of gold per annum, generating
sufficient cash flow to advance to phase three.
Phase 3: Longer-term: To further expand gold level by maximizing the
potential of the very large Madrid deposit, and the remainder of the
Boston and Doris deposits, to a sustained level in the range of
350,000 to 400,000 ounces of gold per annum.
Phases 2 and 3 are based on conceptual plans which depend on future
positive mine engineering and geological, economic and mine engineering
studies as well as permitting and regulatory approval.
Internal studies have indicated that there may be opportunities for larger scale
production at the Hope Bay Project and work in 2006 will include examining the
viability of larger scale operations.
In parallel with these development oriented activities, the Company intends to
continue its exploration efforts at Hope Bay with the objective of discovering
new deposits which could contribute to a sustained intermediate production
profile, while also conducting grassroots exploration in cooperation with
strategic partners to identify longer term opportunities.
To achieve these objectives, the Company needs to successfully complete, among
other things, the current permitting process for the Doris North project,
complete a positive feasibility study in 2006 for the Phase 2 expansion,
complete financing for mine construction, successfully construct and place into
production the Doris North deposit, complete development and permitting of the
Boston, Doris and Madrid deposits and identify additional resources.
2005 Highlights
o Exploration programs in 2005 were successful in the objective to
upgrade the confidence level in resources to support a feasibility
study in 2006 on Phase 2 of the development strategy for Hope Bay.
o Exploration at Naartok resulted in resource expansion at depth and to
the north; holes drilled in this area include 05PMD328 which assayed
11.5 g/t over 66.5 meters.
o Exploration drilling totaling 33,176 meters was completed during 2005,
including 26,310 meters in the Madrid area, 5,325 meters at Doris
Central and 1,541 meters in regional belt targets.
2
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
o A Draft Environmental Impact Study ("DEIS") was submitted on the Doris
North project in June 2005 to the Nunavut Impact Review Board
("NIRB"). The Final Environmental Impact Study ("FEIS") was submitted
on October 31, 2005. NIRB held public hearings to review the project
from January 30 to February 3, 2006. On March 6, 2006, NIRB issued its
final hearing report recommending to the Minister of Indian and
Northern Affairs Canada that the Doris North Project should proceed.
o On November 22, 2005, the Company completed a private placement to
Newmont Mining Corporation of Canada Limited of 18.5 million common
shares at a price of $2.35 per unit for gross proceeds of $43.5
million. Each unit consists of one common share and one warrant to
purchase an additional common share for $2.75 until November 22, 2009.
o In September the Company completed a flow-through equity financing of
7,320,000 common shares issued at $2.05 per share for gross proceeds
of $15 million.
o In February, the sale of the Back River option to Dundee Precious
Metals Inc. was completed generating approximately $10 million of cash
proceeds.
o Consolidated net loss of $11 million or $0.07 per share; included in
the loss is an adjustment to increase the asset retirement obligation
for the Con Mine by $8.1 million. Excluding this adjustment the loss
would be $2.9 million or $0.02 per share.
EARNINGS AND CASH FLOW
For the year ended December 31, 2005, the Company had a net loss of $11 million
or $0.07 per share compared to a net loss of $32.5 million or $0.21 per share in
the same period in 2004. The loss reported in 2005 includes an adjustment of
$8.1 million to increase the asset retirement obligation for the Con Mine. In
2004, the Company had gold mining operations which were operating at a loss and
accounted for $30 million of the reported loss during the year including write
downs on assets and asset retirement obligation and closure costs totaling $16.6
million. In December 2004, the Company terminated gold operations at the Con
Mine and activities were transitioned into reclamation of the property.
3
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selected Financial Data
The following tables summarize total revenue loss and loss per share over the
last three fiscal years and the last eight fiscal quarters (in thousands of
dollars expect per share amounts).
2005 2004 2003
------------------------------------------------------------
Total Revenue $ 2,566 $ 12,265 $ 46,877
Loss $ (10,991) $ (32,459) $ (18,465)
Per Share $ (0.07) $ (0.21) $ (0.14)
Total Assets $ 277,997 $ 232,277 $ 244,482
2005 2005 2005 2005
Q4 Q3 Q2 Q1
------------------------------------------------------------
Total Revenue $ 375 $ 578 $ 614 $ 999
Loss $ (8,348) $ (1,025) $ (481) $ (1,137)
Per Share $ (0.05) $ (0.01) $ (0.00) $ (0.01)
2004 2004 2004 2004
Q4 Q3 Q2 Q1
------------------------------------------------------------
Total Revenue $ 1,670 $ 2,570 $ 4,057 $ 3,968
Loss $ (12,278) $ (6,259) $ (6,868) $ (7,054)
Per Share $ (0.07) $ (0.04) $ (0.05) $ (0.05)
Note: Loss and loss per share figures for 2004 have been restated to reflect the
changes in accounting for site reclamation and closure costs and stock-based
compensation.
OPERATIONS OVERVIEW
Revenue
Interest income for the twelve months in 2005 was $1.2 million compared to $1.6
million in the same period of 2004; interest was higher in 2004 because it
included imputed interest on a note received for the sale of the Bluefish
hydroelectric facility ("Bluefish"). Other income was $1.0 million for fiscal
2005 and includes management fees received from the Department of Indian and
Northern Affairs ("DIAND") for services provided for the Giant Mine, a fee for
services provided to Sherwood Copper Corporation and a gain on the sale of the
option on the Back River mineral property. For the same period in 2004, other
income was $3.1 million which included a gain on the utilization of power
credits which were received as part of the sale of Bluefish. Power credits
utilized in 2005 are credited to the cost of reclamation of the Con Mine which
reduces the accrued asset retirement liability for the mine rather than being
reported as other income. There are no significant amounts of gold sales revenue
reported in 2005 due to termination of mining activity at Con Mine in December
4
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
2004; however, in the third quarter of 2005, the Company had revenue on 760
ounces of residual gold recovered and sold from the process plant in the period.
Operating Costs
As noted above, mining operations ceased in December 2004, however during the
third quarter the Company sold 760 ounces of residual gold for which costs were
0.4 million. During 2005, general and administrative expenses, salaries,
professional services, investor relations and other costs totaled $3.7 million
compared to $4.2 million in 2004. Stock-based compensation of $1.0 million in
fiscal 2005 compared to $2.3 million in 2004 was lower primarily due to lower
fair value per option in 2005 compared to 2004 due to lower average market price
per share. In 2005, options to purchase 1,407,143 common shares were granted or
vested at an average fair value $0.70 per share option, compared to 1,453,480
options in 2004 at an average fair value of $1.55 per share option.
Depreciation, depletion and accretion expense in 2005 was $1.1 million compared
to $2.0 million in the same period of 2004. The decrease results from the
closure of Yellowknife operations and elimination of related equipment
depreciation. Write-down of the asset retirement obligation of $8.1 million in
2005 was recorded to increase the liability for the reclamation of the Con Mine
and is discussed in greater detail in the section below (Asset Retirement
Obligation).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities as well as the reported expenses during the
reporting period. Such estimates and assumptions affect the determination of the
potential impairment of long-lived assets, estimated costs associated with
reclamation and closure of mining properties, and assumptions in determining
stock-based compensation and future income taxes. Management re-evaluates its
estimates and assumptions on an ongoing basis; however, due to the nature of
estimates, actual amounts could differ. The most critical accounting policies
upon which the Company depends are those requiring estimates of gold reserves
and resources and future recoverable gold ounces and assumptions of future gold
prices.
Accounting for Exploration and Development Cost
Exploration expenditures related to mineral properties are deferred only if it
is probable that these costs will be recovered from future operations. The
carrying values of the mineral properties are assessed at the balance sheet date
5
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
to determine whether any persuasive evidence exists that the properties may be
permanently impaired. The Company's progress in its development activities
towards its planned operations is a key factor to be considered as part of the
ongoing assessment of the recoverability of the carrying amount of capital
assets and deferred exploration and development costs. If there is persuasive
evidence of impairment, the asset is written down to its estimated net
recoverable value. Deferred acquisition, exploration and development
expenditures totaled $170.9 million for Hope Bay at December 31, 2005.
Asset Retirement Obligation
Asset retirement obligations are the estimated costs associated with mine
closure and reclamation and recorded as a liability at fair value. The liability
is accreted over time through periodic charges to earnings. In addition, the
asset retirement cost is capitalized as part of the asset's carrying value at
its initial discounted value and is amortized over the asset's useful life. In
the event the actual cost of reclamation exceeds the Company's estimates, the
additional liability for retirement and remediation costs may have an adverse
effect on the Company's future results of operations and financial condition.
During 2005, the Company commenced reclamation activities at the Con Mine.
Activities were focused on the reclamation of historic mill roaster tailings.
Arsenic contained within this material is rendered inert by a process which
utilizes the pressure oxidation circuit at the Con Mine. Reclamation of a
significant portion of these materials was completed as planned in the period
and costs for the reclamation activities were recorded as a reduction of the
liability.
In the fourth quarter of 2005, the Company recorded an adjustment to the
liability for asset retirement obligation of $8.1 million. This adjustment is a
result of management's re-assessment of cost estimates and is comprised of three
components; (a) the impact of additional mill roaster tailings which were
excavated in 2005 and will be treated before they are placed in the tailings
ponds, which adjustment represents the majority of the adjustment as it extends
the arsenic processing phase of reclamation to 2007 rather than completion in
2006; (b) changes in site closure activities, including the impact of a
lengthened period of post-closure water treatment and monitoring, now assumed to
be 25 years rather than 12 years, and the addition of rock cover to the tailings
ponds rather than vegetation alone; and, (c) the impact of an estimated one year
delay in receiving approval of the final remediation plan, which results in the
Company incurring certain holding costs to maintain personnel required for
closure activities and additional monitoring and environmental studies. The
Company has $10.5 million on deposit and has committed the proceeds from any
assets sales at the Con Mine to the Con Mine reclamation security trusts that
6
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
will be applied to, in part, offset the reclamation costs as they are incurred.
The Company is required by regulatory agencies to post security for the site
closure activities, excluding the arsenic processing activities. Based on the
Company's estimate for these costs; the Company does not currently anticipate
that the regulatory agencies will require additional funds to be contributed to
the reclamation security trusts (see Liabilities and Contingencies below for
additional discussion).
The asset retirement obligation for the Con Mine is comprised of two components
(1) processing of historic mill roaster tailings. Arsenic contained within this
material is rendered inert by a process which utilizes the pressure oxidation
circuit; and, (2) site closure and monitoring activities, including building
removal and capping of mine openings, restoration of tailings areas, water
treatment and post-closure monitoring. Although the ultimate amount to be
incurred is uncertain, the fair value of the liability for retirement and
remediation has been estimated to be $19.2 million. As required by regulatory
and GAAP, cost estimates include contractor markups, provision for
administration and engineering, provision for a market risk premium, and a
provision for contingencies. However, the Company expects to use its employees
wherever possible to complete the reclamation activities, which could reduce
actual costs below the accrued liability. The Company has $10.5 million on
deposit and has committed the proceeds from any assets sales at the Con Mine to
the Con Mine reclamation security trusts that will be applied to, in part offset
the reclamation costs as they are incurred. For purposes of determining the fair
value of the obligation a discount rate of 9.8%, an inflation factor of 2.0% and
a market risk premium of 8% have been applied.
Key assumptions in estimating the assets retirement obligation for the Con Mine
include: that historic mill roaster tailings are milled in 2006 and processed in
2007 and final wash down and treatment of storage pits completed in 2006; that
the final abandonment and restoration plan is approved and other site closure
activities commence in 2007; that all buildings are removed and mine openings
capped; that the site is restored to the standard acceptable for commercial-use
property; and water treatment and monitoring continues post-closure for a period
of 25 years.
Key assumptions in estimating the asset retirement obligation for the Hope Bay
exploration camps include removal of exploration camps, reclamation of site pad
and infrastructure, placement of surface stored waste rock underground at Boston
and re-vegetation as needed. The estimate of the cost, based on contractor rates
is at $1.3 million.
7
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Stock-based Compensation
Stock-based compensation is accounted for using the fair value based method.
Under the fair value based method, compensation cost is measured at fair value
of the options at the date of grant and is expensed over the vesting period of
the award. The Company estimates the fair value using the Black-Scholes option
pricing model. The key assumptions used in 2005 were: a risk-free interest rate
of 3.61%, a dividend yield of 0%, an expected volatility of 60% and expected
lives of stock options of 4.85 years. The weighted average fair value of options
granted in 2005 was $1.38 per share option.
EXPLORATION AND DEVELOPMENT ACTIVITIES
The focus for the Company continues to be on the Hope Bay project. The Company
is committed to a strategy of advancing the Hope Bay project to a production
decision while continuing to expand gold resources. The staged development
strategy will focus first on the high grade gold Doris North project, with the
goal of generating cash flow to pay for site infrastructure and to fund the
continued exploration and development of other resources on the Hope Bay belt.
The Company plans to pursue extensions and expansions to the initial phase of
production through the mining of other resources on the Hope Bay belt. The
Company's exploration strategy will focus on expanding and increasing the
confidence level of existing deposits and on continued exploration for new gold
resources in order to support a sustained intermediate production profile. The
Company will continue to conduct grassroots exploration in cooperation with
strategic partners, when possible. To achieve these objectives, the Company
needs to successfully complete the current regulatory process for the Doris
North project, complete a positive feasibility study during 2006 for the Phase 2
expansion, complete financing for mine construction, successfully construct and
place into production the Doris North deposit, complete development of the
Boston, Doris and Madrid deposits and identify additional resources.
During 2005, expenditures at Hope Bay totaled $19.2 million for exploration,
including 33,176 meters of core drilling and the advancement of permitting and
engineering for the Doris North project. Exploration programs for 2005 were
designed to upgrade resources at Boston, Doris Central and Madrid to support a
feasibility study in 2006; to expand the resource at Madrid; and, to conduct
regional exploration work as part of the Company's assessment obligations at
Hope Bay.
Drilling was focused within the Madrid system primarily around the Naartok
deposit where 22,036 meters were drilled. Activity at Naartok focused on
extending mineralization surrounding the wide, high grade interception of hole
05PMD328 which returned 66 meters grading 11.5 grams of gold per tonne. This
8
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
hole was a 105 meter step out from a 2004 hole that intercepted 9.8 grams of
gold per tonne over 64.2 meters and suggests potential for significant
dimensions and thickness. The area of the Naartok resource continues to expand
at depth and to the north and it is expected that as a result of 2005 drilling
additional ounces will be added to the reported resource in 2006. Drilling
within the upper portions of the Naartok East zone has improved continuity and
tightened drill density and is also expected to have a positive impact on
reported resources in 2006 as well as supporting the Phase 2 feasibility study.
Prior to the 2005 work, the Madrid area, which includes Naartok, contained an
indicated resource of 838,000 ounces of gold at a grade of 5.5 grams per tonne
with an additional 2.6 million ounces of gold at a grade of 5.4 grams per tonne
of inferred resources.
Exploration outside the main deposits continues to advance with improved target
selection. Though no significant intersections were recorded in the 2005
regional programs, programs were successful in providing improved understanding
of potential targets.
The Company continues to work towards obtaining permits and licences for the
Doris North project. As a result of the NIRB recommendation in August 2004 to
the Minister of DIAND that the project should not proceed on the basis of the
then existing application, the Company submitted a revised preliminary project
description on Doris North in February 2005. On March 7, 2005 NIRB recommended
to the Minister of DIAND that the project should proceed to a Part 5 review
requiring a public hearing. In April 2005, the Minister accepted NIRB's
recommendation for a Part 5 review which led the Company to submit a revised
draft environmental impact statement ("DEIS") to NIRB in June 2005. In August
2005, NIRB conducted a technical review of the DEIS and issued comments to be
addressed before submission of the final document. The Company revised the draft
document as requested and submitted the final environmental impact statement
("FEIS") on October 31, 2005. Public hearings to review the project were held
the week of January 30 - February 3. On March 6, 2006, NIRB issued its final
hearing report recommending to the Minister of Indian and Northern Affairs
Canada that the Doris North Project should proceed. The NIRB report requires
acceptance by the Minister before NIRB can issue a project certificate.
Subject to the Minister accepting NIRB's recommendation, the Company is
targeting having all required permits for production at Doris North by the end
of 2006, which would permit shipping of construction materials to site in the
summer of 2007, construction in the winter of 2007 and production commencing in
2008.
9
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
CAPITAL PROGRAMS
During fiscal 2005, the Company had capital expenditures of $19.2 million for
exploration and project activities at Hope Bay and $0.1 million for property,
plant and equipment compared to expenditures in 2004 of $34.7 million for
exploration and project activities at Hope Bay and Back River.
FINANCING AND LIQUIDITY
At December 31, 2005, the Company had consolidated working capital of $64.3
million compared to $25.4 million at the end of 2004. At December 31, 2005, the
Company had $68.7 million of cash and cash equivalents and short-term
investments compared to $30.2 million at the end of 2004. At December 31, 2005,
the Company also had $15.0 million in cash collateral deposits for reclamation
bonds which are classified outside of working capital.
On February 18, 2005, the Company assigned to Dundee Precious Metals Inc. its
option from Kinross Gold Corporation to earn a 60% interest in the Back River
project. The Company received approximately $10 million representing the
reimbursement of costs incurred by the Company on the Back River project plus
5%. Dundee is required to issue to the Company 150,000 common shares, or pay the
cash equivalent, if either (i) the total mineral resources on the Goose Lake
property are increased to 1,500,000 ounces of gold or (ii) a decision is made to
place a mine into commercial production on the Back River project. Dundee is
required to issue a further 187,500 common shares, or pay the cash equivalent,
if Dundee exercises its option to earn a 60% interest on the Back River project.
On October 18, 2004, the Company completed a private placement of 7,600,000
flow-through common shares at a price of $2.00 per common share for gross
proceeds of $15.2 million. The Company must incur Canadian exploration
expenditures as defined in the Income Tax Act (Canada) for the entire amount by
December 31, 2005, which amount has been incurred.
On September 30, 2005, the Company completed a private placement of 7,320,000
flow-through common shares at a price of $2.05 per common share for gross
proceeds of $15.0 million. In consideration for their services, the underwriters
received commissions of $0.8 million and brokers' warrants exercisable to
purchase 366,000 common shares at $2.05 per common share until September 30,
2006. The fair value of these warrants at the grant date was $0.1 million and
has been shown on a net basis in share capital. The Company must incur Canadian
exploration expenditures as defined in the Income Tax Act (Canada) in the amount
of $15.0 million by December 31, 2006.
10
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
On October 14, 2005, the Company completed a private placement of 250,000
flow-through common shares at a price of $2.05 per common share for gross
proceeds of $512,000. The Company must incur Canadian exploration expenditures
as defined in the Income Tax Act (Canada) in the amount of $512,000 by December
31, 2006.
On November 22, 2005 the Company completed a private equity placement to Newmont
Mining Corporation of Canada Limited ("Newmont") of 18,500,000 units at $2.35
per unit for gross proceeds of $43.5 million. Each unit consisted of one common
share of the Company and a warrant to purchase a common share of the Company at
$2.75 for a period of 48 months. The common shares comprised 9.9% of the
Company's then issued and outstanding shares and 18% of issued and outstanding
if all warrants were exercised. The Company has agreed to provide to Newmont
periodic access to technical data, information on permitting progress and future
work plans and site visitation rights in consideration for Newmont providing
technical guidance to the Company.
The Company believes it has sufficient cash resources and liquidity to sustain
its planned activities in 2006. The future exploration and development of the
Hope Bay project may require the Company to raise additional capital through a
combination of project debt and equity financings. The Company's strategy is to
use equity financing for exploration activities and to maximize project debt to
build mining infrastructure until sufficient cash flow is generated from mining
production.
Liabilities and Contingencies
The Company has the legal obligation to reclaim properties for which it holds
water licenses and exploration and mining agreements. The Company has estimated
these asset retirement obligations at December 31, 2005, in accordance with
accounting guidelines described above, to be an aggregate of $24.9 million on an
undiscounted basis. The properties for which these obligations have been
estimated are the Con Mine in Yellowknife and the Hope Bay properties in
Nunavut. The Company has established cash deposits as collateral for letters of
credit pledged in favour of various governmental agencies and others under
several water licenses and mineral exploration and mining agreements. The
Company has also established two reclamation security trusts for the reclamation
of the Con Mine. The Company has cash collateral deposits totaling $15.0
million.
11
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The reclamation security trusts for the Con Mine were established on December
31, 2004. The Company deposited $9 million of the $10 million proceeds from the
sale of its Bluefish hydro electric facility into a reclamation security trust,
in accordance with an agreement with DIAND. The remaining $1 million of the
proceeds was, and the proceeds from any subsequent sale of assets will be
deposited into a second reclamation security trust. The cost of reclamation was
estimated by the Company on the basis of a draft remediation plan which had been
submitted to the McKenzie Valley Water Board in February 2003. The final plan is
currently under review by the Water Board. Based on comments received to date
from the regulatory review process, the Company has estimated the impact of the
required changes to the plan and recorded an appropriate increase to the
liability. Any further changes upon receiving final approval of the plan could
result in an increase to the estimated liability.
In 1995, the Company entered into a joint exploration transaction with an
investor that resulted in the sale of an interest in the assets comprising the
Con Mine. The transaction was based upon an independent valuation prepared for
the Company. In 2000, Canada Revenue Agency ("CRA") issued a re-assessment
notice challenging the valuation that formed the basis for this transaction. The
re-assessment does not give rise to any taxes payable by the Company. However,
as part of the original transaction, the Company agreed to compensate the
investor for any shortfall in the value of the assets transferred, to a maximum
of $2.7 million plus accrued interest, (approximately $2.3 million at December
31, 2005), should a ruling denying the transfer of certain tax pools be made
against the Company. In 2004, the Company received notification that CRA has
re-confirmed the original re-assessment. As a result, the Company filed a notice
of appeal in March 2005. The Company has received notification from the Tax
Court of Canada that this case should proceed and the discovery process is
scheduled to commence in April 2006. While management intends to strenuously
defend the independent valuation, the outcome of this issue is not yet
determinable. No provision for these costs has been recorded at December 31,
2005.
Contractual Obligations
The following table summarizes the contractual obligations as at January 1, 2006
of the Company for each of the five years commencing with 2006 and thereafter,
in thousands of dollars.
2006 2007 2008 2009 Thereafter
--------- --------- ------- ------- -------------
Oxygen plant $822 $ 612 $ - $ - $ -
Office lease costs 306 316 316 316 1,110
Exploration equipment 293 30 - - -
Site reclamation(1) 6,240 3,059 - - 15,635
12
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) The Company is obligated to fund reclamation and closure costs for its
mining and exploration operations as a condition of associated water licenses.
However, the timing of the payments has not been determined with certainty and
may change depending upon future events. The Company is in the process of
finalizing its abandonment and restoration plan with regulatory agencies for the
Con Mine which will establish the extent and timing of site closure reclamation
activities. Reclamation of exploration sites will be deferred to the extent that
the Company continues to be engaged in actively exploring them.
For additional information related to the Company's obligations and commitments
see note 16 in the annual consolidated financial statements.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements other than the
pension obligations which are described in note 13 of the annual consolidated
financial statements.
OUTLOOK
The outlook for the Company is dependent on the successful exploration and
development of the Hope Bay project. The Company controls 100% of the Hope Bay
project, which has measured and indicated resources totaling 2.1 million ounces
of gold at a grade of 9.6 grams per ton and an additional 4.3 million ounces of
gold at a grade of 7.0 grams per ton in the inferred category.
The Company plans to continue to work towards making a production decision on
the Doris North project, including advancement of the permitting process. The
Company is confident that it will be successful in addressing the concerns of
the regulatory agencies and, if the permitting process is successfully
completed, the Company will make a final decision on a commitment to the
construction process. If the project is approved by the Company, production
could commence during 2008. However, there can be no assurance that the
permitting process will be completed as planned or that the Company will develop
Doris North as anticipated.
As part of the Company's development strategy for Hope Bay, programs have been
completed in 2005 designed to facilitate delivery of a feasibility study in 2006
which, if successful, could demonstrate the opportunity for the development of
significant sustained gold production following the Doris North project.
13
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
As a result of the termination of mining activities at Con and Giant mines, the
Company does not expect to generate significant operating revenue in 2006. The
Company anticipates that final approval for the Con Mine abandonment and
restoration plan will be received in 2006 which will permit the Company to
conduct final reclamation activities in subsequent periods. On June 30, 2005,
the Company returned the Giant Mine property to DIAND in accordance with the
terms of the acquisition agreement. The Company does not have any ongoing
reclamation obligations for the Giant Mine.
RISKS AND UNCERTAINITIES
The Company will require additional capital to pursue its exploration and
development work at Hope Bay. Given the nature of capital market demand for
speculative investment opportunities, there is no assurance that additional
financing will be available for the appropriate amounts and at the times
required. The Company has developed a cash management plan that will enable it
to invest on a priority basis in projects likely to generate favourable results
in the near-to-medium term.
The impact of fluctuations in the price of gold is a risk to the Company's
ability to develop its properties as well as future profitability and cash flow.
As the gold price is denominated in U.S. dollars, the Company is also at
financial risk as the currency exchange rate between Canadian and U.S. dollars
fluctuates. If the Canadian dollar strengthens against to the U.S. dollar,
revenue from future gold sales, which is generated in U.S. dollars, would
convert to fewer Canadian dollars available to pay for operating costs that are
almost entirely incurred in Canadian dollars. Permitting mining projects such as
the Doris North project requires the approval of regulatory agencies which are
beyond the Company's control. As a result, the receipt of approvals for the
project and the timing of grants of necessary permits are inherently uncertain.
FORWARD LOOKING STATEMENTS
Statements relating to exploration work at the Hope Bay project and the expected
results of this work and strategies and plans for the development of the Hope
Bay project, statements related to analyses of financial condition, future
results of operations and other information that are based on forecasts of
future results, estimates of amounts not yet determinable and assumptions of
management are forward-looking statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995. Forward looking
statements are statements that are not historical facts and are generally, but
not always, identified by the words "expects," "plans," "anticipates,"
"believes," "intends," "estimates," "projects," "satisfies," "potential,"
"goal," "objective," "prospective," "strategy", "target," and similar
expressions, or that events or conditions "will," "would," "may," "can," "could"
or "should" occur. Information inferred from the interpretation of drilling
results and information concerning mineral resource estimates may also be deemed
to be forward looking statements, as it constitutes a prediction of what might
be found to be present when and if a project is actually developed. These
forward-looking statements are subject to a variety of risks and uncertainties
14
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
which could cause actual events or results to differ materially from those
reflected in the forward-looking statements, including, without limitation:
risks related to fluctuations in gold prices and currency exchange rates;
uncertainties related to raising sufficient financing to fund the planned work
in a timely manner and on acceptable terms; changes in planned work resulting
from weather, logistical, technical or other factors; the possibility that
results of work will not fulfill expectations and realize the perceived
potential of the Company's properties; uncertainties involved in the
interpretation of drilling results and other tests and the estimation of gold
reserves and resources; the possibility that required permits may not be
obtained on a timely manner or at all; the possibility that capital and
operating costs may be higher than currently estimated and may preclude
commercial development or render operations uneconomic; risk of accidents,
equipment breakdowns and labour disputes or other unanticipated difficulties or
interruptions; the possibility of cost overruns or unanticipated expenses in the
work program; the risk of environmental contamination or damage resulting from
Miramar's operations, risks and uncertainties described under "Risks and
Uncertainties" and elsewhere in the Management's Discussion and Analysis, and
other risks and uncertainties, including those described in the Miramar's Annual
Report on Form 40-F for the year ended December 31, 2005 and Reports on Form 6-K
filed with the Securities and Exchange Commission.
Forward-looking statements are based on the beliefs, estimates and opinions of
Miramar's management on the date the statements are made. Miramar undertakes no
obligation to update these forward-looking statements if management's beliefs,
estimates or opinions, or other factors, should change.
All resource estimates reported in this disclosure are calculated in accordance
with the National Instrument 43-101 of the Canadian securities administrators
and the Canadian Institute of Mining and Metallurgy Classification system. These
standards differ significantly from the requirements of the United States
Securities and Exchange Commission, which permits U.S. mining companies in their
SEC filings to disclose only those mineral deposits that qualify as proven or
probable "reserves" because a determination has been made based on an
appropriate feasibility study that the deposits could be economically and
legally extracted or produced, and, accordingly, resource information reported
in this disclosure may not be comparable to similar information reported by
United States companies. The term "resource(s)" does not equate to "reserves"
and normally may not be included in documents filed with the Securities and
Exchange Commission, and investors are cautioned not to assume that "resources"
will be converted into "reserves" in the future.
This disclosure uses the term "inferred resources". While this term is
recognized by Canadian securities regulations concerning disclosures by mining
companies, the U.S. Securities and Exchange Commission does not recognize it.
"Inferred resources" have a great amount of uncertainty as to their existence
and as to their economic and legal feasibility. It cannot be assumed that all or
any part of the "inferred resources" will ever be upgraded to a high category.
Under Canadian securities regulations, estimates of "inferred resources" may not
form the basis of feasibility or pre-feasibility studies except in rare cases.
Investors are cautioned not to assume that part or all of an "inferred resource"
exist or are economically or legally feasible.