Risks and Uncertainties
The Company’s securities should be considered a highly speculative investment and investors should carefully consider all of the information disclosed in the Company’s Canadian regulatory filings prior to making an investment in the Company, including the risk factors discussed under the heading “Risk Factors” in the Company’s Annual Information Form available on SEDAR at www.sedar.com.
The Company’s financial condition and future prospects are significantly affected by overall economic conditions.The Company has no source of operating revenue and relies on equity financings and, in recent years, the sale of non-core assets to finance its operations and in particular, to further exploration on its properties. The steep decline in the Company’s share price, while consistent with those in its peer group, makes additional financings more dilutive. Additional financing is also more challenging because there are fewer dollars available to be invested. The Company’s investments (common shares in other publicly-traded exploration companies) have also declined significantly in value, and therefore it would be difficult for the Company to realize funds quickly from the sale of these investments without causing further downward pressure on the share price of the investment companies.
Falling interest rates and smaller cash balances available for investment mean a decrease in interest income, which in recent years has partially offset the Company’s general and administrative expenses. The Company’s overhead expenses cannot be financed with “flow-through” dollars (restricted for use on “grass-roots” exploration at the Company’s Canadian mineral properties) so the Company’s management is making decisions with a view to preserving its “hard dollars” for as long as possible, due to the difficulty in arranging additional financings at this time. The majority of the Company’s expenses at the present time are denominated in Canadian Dollars so its exposure to foreign exchange risk is limited.
The Company has no exposure to asset-backed commercial paper through its short-term investments, which are invested in chartered bank-issued Bankers’ Acceptance or Bankers’ Deposit Notes or Guaranteed Investment Certificates (“GICs”) to minimize, to the extent possible, the Company’s credit risk. The majority of the Company’s receivables consist of sales tax receivables due from the federal government and receivables from companies with which the Company has exploration agreements or options. The maximum amount of the Company’s exposure to credit risk with respect to its receivables is the carrying value of those receivables as at the balance sheet date. The most significant receivable for the Company arises from its responsibilities as the operator of the Renard Diamond Project in Quebec, a joint venture with Diaquem Inc. Under the terms of the joint venture agreement, the Company invoices, and is reimbursed by Diaquem Inc., on a monthly basis. As the operator, the Company is responsible for creating an annual exploration budget, which is pre-approved by both partners annually.
The Company’s liquidity risk, the risk that the Company won’t be able to meet its obligations as they come due, will increase the longer that overall market conditions remain volatile and credit conditions remain tight. The Company’s management actively monitors its cash-flows and is making decisions and plans for 2009 accordingly. The Company expects to spend all of the flow-through funds raised in 2008 and in May 2009 on its Canadian exploration properties in 2009. The Company’s material mineral properties are all in good standing and the Company has sufficient financial resources to keep those properties in good standing into 2010, even with reduced exploration budgets for 2009. The Company regularly reviews its landholdings with a view to reducing or consolidating those landholdings to focus on specific areas of interest and exploration potential.
The Company has no long-term debt as a result of the early redemption of the convertible debentures in July 2008 and, as of the report date, the Company has positive working capital which will be used to continue to advance its material exploration properties over the next year. The Company’s management is considering various alternatives to reduce its overhead expenditures for the same period. The Company has minimum commitments under its operating leases of about $405,000 per year until June 2010 when this amount decreases to about $300,000 per year. A portion of these payments may be recovered through sub-leases. The Company will need to consider some form 20 of additional financing to continue operations into 2010 and the Company’s management will continue to consider various alternatives, within the context of existing market conditions. There can be no guarantee that the Company’s management will be successful in these endeavours. Please see Note 1 of the audited consolidated financial statements for the year ended April 30, 2009 for more information.