Results of Operations
The Company’s loss from operations for the Current Year was $4.7 million (a loss of $0.02 per share) as compared to a loss of $27.5 million (a loss of $0.14 per share) for the Comparative Year. The Company’s loss for the Current Year is mainly due to a large write-off of capitalized resource property costs (Current Year – $14.5 million; Comparative Year – $26.3 million) and a gain of $13.3 million (Comparative Year – $Nil) on the early extinguishment of convertible debt. In the Comparative Year, the Company recorded a loss of $5.5 million (before taxes) from the sale of a mineral property interest (Current Year – $nil). Administrative expenses (Current Year – $2.8 million; Comparative Year – $4.2 million) decreased significantly as the Company reduced its in-house laboratory employees, reduced its office space and in general, sought ways to reduce administrative and overhead expenditures. The Company’s interest income declined significantly in the Current Year to $196,000 from $739,000 in the Comparative Year, due to smaller cash balances available for investment and historically low interest rates paid on funds invested.
The Company’s Current Year’s loss of $4.7 million was less than the loss of $27.5 million in the Comparative Year due mostly to a $13.3 million gain (net) on the early extinguishment of the Company’s convertible debentures during the Current Year. In accordance with EIC-96 “Accounting for the early extinguishment of convertible securities through early redemption or repurchase”, the Company recognized a gain, for accounting purposes, of $13.9 million with respect to the liability component of the convertible debentures, which was settled with common shares using a deemed price of $0.90 per share. At the date of the redemption, the Company’s common shares traded at approximately $0.30, resulting in a gain of $13.9 million in the Current Period. As part of this redemption, the Company issued 2,222,222 common shares at a deemed value of $0.90 to the holders. These common shares had a fair market value of $667,000 ($0.30 per share), which reduced the $13.9 million gain on the early extinguishment of convertible debt to $13.3 million in the Current Year. Also during the Current Year, the Company paid $495,000 for severance, which has been included in “Salaries and Benefits” in the Statement of Loss and Deficit, (Comparative Period – $nil); recorded a $1.1 million write-down of an investment (Comparative Year – $513,000) where the decline in its fair value was deemed to be permanent; and wrote-off $14.7 million (Comparative Period – $26.3 million) of capitalized acquisition and exploration costs.
The Company capitalizes all acquisition and exploration costs until the property to which those costs related is placed into production, sold or abandoned. The decision to abandon a property is largely determined from exploration results and the amount and timing of the Company’s write-offs of capitalized resource property costs will vary in a fiscal period from one year to the next and typically cannot be predicted in advance.
During the Current Year, the Company wrote-off capitalized resource property costs of $14.5 million as it reduced its land packages or identified properties where exploration results indicated no further work should be pursued. The most significant write-offs during the Current Year were associated with the Churchill property ($6.8 million), the Aviat One and Two properties in the Eastern Arctic ($5.1 million), the Company’s generative exploration programs ($1.7 million), and other exploration activities in Canada ($0.9 million). The $26.3 million write-off in the Comparative Year included write-offs of $5.3 million for properties in the Northwest Territories; $4.3 million for the Company’s generative exploration programs; $1.7 million for exploration activities in Botswana, $12.7 million of resource property costs capitalized as part of the Ashton acquisition; $1.4 million on its properties in the Western Arctic; $99,000 in Eastern Canada and $562,000 in other areas of Canada. Please see “Critical Accounting Estimates – Impairment of Long-Lived Assets” below for an explanation of the impairment tests performed with respect to the Company’s mineral properties.