Liquidity
The Company’s cash and cash equivalents decreased from $9.5 million at April 30, 2008 to $1.6 million at April 30, 2009. In addition, the Company has a further $1.3 million classified as short-term deposits, of which $259,000 is held as collateral security for the Company’s credit cards. The remainder is held in a GIC that is cashable anytime after 30 days from the investment date. To finance the 2007 and 2008 exploration programs, the Company used proceeds of $15 million from the sale of the Buffalo Head Hills property interest in July 2007 as well as the proceeds from a $10.05 million “flow-through’ private placement and proceeds from a $15.0 million short-form prospectus offering, both of which closed in April 2007. In November 2008, the Company completed a brokered and a non-brokered private placement of “flow-through” common shares for gross proceeds of $3.9 million (see “Capital Resources” below for a description of the financings). In December 2008, the Company received $1.35 million relating to Quebec tax credits (accrued as of October 31, 2008). As uncertainty exists surrounding the timing and amount of these potential tax credits, the Company does not record the tax credits as receivable until a Notice of Assessment is issued. Capitalized property costs are reduced by the amount of the tax refunds received. The Company has applied for additional tax credits with respect to its activities in Quebec, which should be received in 2009 and 2010 if the applications are accepted as filed.
The Company’s working capital as at April 30, 2009 was $3.9 million (April 30, 2008 – $6.5 million working capital deficit), consisting mostly of cash and cash equivalents, short-term deposits and other receivables. During the Current Year, the Company’s cash position decreased by $8.0 million to $1.6 million at April 30, 2009 as compared to the year ended April 30, 2008, where the Company’s cash position decreased by $12.0 million to $9.5 million in cash and cash equivalents. An increase in short-term deposits ($1.1 million), a write down of an investment ($1.1 million), a write-off of resource property costs ($14.5 million) and a gain on early extinguishment of convertible debenture ($13.3 million) represent the largest reconciling items from the consolidated statement of loss and deficit to the consolidated statement of cash flows – operating activities, for the year ended April 30, 2009. The Company’s most significant operating expenses during the Current Year included $1.1 million for salary expense (Comparative Year – $1.1 million), $362,000 for regulatory and shareholder communications expense (Comparative Year – $708,000), $347,000 for office and sundry expense (Comparative Year – $678,000), professional fees of $249,000 (Comparative Year – $393,000) and administrative fees and rent of $361,000 (Comparative Year – $192,000).
The Company’s primary investment activity is the acquisition and exploration of its resource property interests. During the Current Year, the Company spent $8.6 million to explore its resource properties (Comparative Year – $23.5 million) with the most significant expenditures on the Foxtrot (Renard) property in Quebec and the Aviat and Qilalugaq properties in Nunavut. The Company elected not to fund its share of the 2008 exploration program at the 22 Churchill Project. In the Comparative Year, the Company received a cash payment of $15.0 million from the sale of its 45% interest in the Buffalo Head Hills property, Alberta, which did not re-occur in the Current Year.
The Company’s ability to generate cash is very much affected by the current market conditions, its share price and third party interest in its assets. In previous years, the Company was able to sell non-core assets as one means to finance its operations and to further exploration on its material mineral property interests. The Company’s ability to sell non-core assets in the future is dependent on the number of dollars available in the current market. The decrease in available dollars in the current market also affects the Company’s ability to finance its activities through the capital markets because the dilution from an equity financing increases as the share price decreases. Again, the Company is competing with other exploration companies for increasingly limited investment dollars. However, the Company is eligible for investment tax credits with respect to its exploration activities in certain provinces, which will help the Company to continue to finance its operations to some extent; however, the timing and amounts of those tax credits cannot be reliably estimated. The Company has no credit facilities that could be used for ongoing operations because it has no operating cash flow. The funds that the Company does have are invested in tranches for up to 90 days in Bankers’ Acceptance (“BA”) or Bankers’ Deposit Notes (“BDN”) issued by various chartered banks to reduce the Company’s exposure to credit risk or in Guaranteed Investment Certificates (“GICs”), cashable after 30 days, which typically pay a higher interest rate than BAs or BDNs. The Company has no exposure to assetbacked commercial paper. With the early redemption of the Company’s $20.0 million convertible debenture in July 2008, the Company has no long-term debt.
The Company’s most significant fixed costs relates to its leases for office space and then the costs associated with maintaining a TSX listing. The Company’s minimum commitments for its premises consist of approximately $405,000 per year until June 2010, decreasing to approximately $300,000 per year between 2010 and 2013. The Company is able to reduce some of this liability through the sub-lease of excess space. The Company has sufficient financial resources to keep its material landholdings and the majority of its non-material landholdings in good standing into 2010. The Company has also incurred sufficient exploration expenditures on these properties to keep them in good standing with the respective provincial and territorial governments into 2010 as well. The Company’s management actively manages its landholdings in an effort to keep those landholdings with the greatest exploration potential in good standing for as long as possible. The Company’s management regularly reviews its cash position against future plans and makes decisions regarding these plans accordingly. Exploration plans in 2009 will continue to focus on the Company’s 50% interest in the Renard Diamond Project, with a focus on a resource expansion and optimization program, with additional drilling and diamond sampling. Funds from the “flow-through” private placements, which closed in November 2008 and May 2009 are expected to be used for the Company’s share of this work. In addition, the Company intends to conduct an in-depth review, compilation and analysis of its exploration data acquired over several years of fieldwork to refine specific targets of interest on its current mineral properties and to identify new areas with exploration potential. The Company’s management is seeking ways to reduce its overhead expenditures through shared administrative functions, subleases and other means.
The Company expects that it will require additional financing into 2010 to continue to develop the Renard Diamond Project, to further exploration efforts at its other Canadian mineral properties and to continue to meet its corporate and administrative expenses. In the interim, the Company is seeking to maximize the results received from its exploration efforts and to minimize variable expenses to the extent possible.