KWG Resources 1999 year-end review
KWG Resources Inc KWGR
Shares issued 82,200,128 Jun 26 close $0.13
Tue 27 Jun 2000 Company Review
Mr. Michael Newbury reviews the company
The year 1999 continued to be a transition year for the company. The final
step required to complete the reorganization plan sanctioned by the court
on May 8, 1998, is to obtain a receipt for a prospectus from the
appropriate regulatory authorities. The preliminary prospectus was filed in
November, 1999. Management is hopeful that the company will obtain the
necessary approval from the regulatory authorities within the next few
weeks.
The company has advanced the process of salvaging some value from the
assets relating to the Russian venture. Discussions and negotiations have
been held with Russian authorities to obtain required permits and settle
local claims. Many of the issues have been settled. In early 2000, some
equipment was sold to provide the finances to settle claims and arrange
transportation of the remaining equipment to North America for sale. We
anticipate that after all expenses the company will realize some residual
value.
The company has also received proposals of interest on some of its other
diamond holdings in Ontario where previous exploration work identified
diamondiferous bearing kimberlites. Discussions are in progress to finalize
joint venture agreements with other companies to undertake more detailed
exploration and development of these properties.
Warrants were exercised at the end of 1999 and beginning of 2000 bringing
in $791,410. On acceptance of the prospectus, the company expects to
proceed to arrange additional financing to enable it to continue the work
on its holdings.
Brazil diamonds
The company (46.5 per cent), Spider (23.5 per cent) and Dia Bras (30 per
cent) have interest in two large claim blocks in south-central Brazil known
as the Alto Paranaiba property. In August, 1998, a clear white diamond
weighting a remarkable 350.65 carats has been recovered by locals from a
stretch of a river, which traverses the property area. Its worth is
estimated to be in excess of $4-million (U.S.).
In 1998, the joint venture in Brazil acquired a diamond processing plant on
site at Contendas and processed material from an excavated pit. In early
1999, the company announced the recovery of 12 diamonds weighing a total of
6.58 carats ranging in size from 0.19 to 1.06 carats. The diamonds
recovered are, for the most part, of gem quality with high clarity and
pristine crystal shapes. Subsequent exploration focused on locating the
in-situ primary diamond source.
Since then, the company, by conducting auger drilling, ground magnetic
surveys and diamond drilling on interpreted photo-geological targets, has
successfully discovered 10 new kimberlite pipes. Samples from these same
kimberlites were sent to Lakefield Research for analysis and material from
MK-1 and MK-2 pipes was processed on site, but no diamonds were found.
Samples from the other kimberlites have been submitted to Lakefield
Research and results are pending.
The work is continuing, and if this rate of discovery of new kimberlite
persists, then the chances of locating a diamondiferous kimberlite pipe as
the source of the numerous alluvial diamonds found on this property are
certainly promising.
Canada
The company holds a 53-per-cent interest in the Spider No. 1 and No. 3
projects in the James Bay Lowlands area of the province of Ontario with
Spider, its joint venture partner, holding the remaining 47-per-cent
interest. The land holding of the Spider No. 1 project currently stands at
16,672 hectares. To date, seven kimberlites have been identified within the
Spider No. 1 project of which the Kyle No. 1 and Kyle No. 3 kimberlite
bodies are diamondiferous.
The Kyle No. 3 kimberlite is marked by a magnetic anomaly on the ground
that is 600 metres long by 225 metres wide. Five holes have been drilled
into the body, four by KWG/Spider joint venture and one by Ashton Mining of
Canada Inc., all of which intersected the kimberlite. The drilling has
defined the shape of the body to be a dike-like feature. The western part
of the body is a 10-metre-thick to 13-metre-thick dike, which dips steeply
to the south, and the eastern part is a 32-metre-thick dike. The central
part of the feature swells to 120 metres wide, but appears to contain a
large xenolith or protrtision of the wall rock into it. The Kyle No. 3 body
is estimated to be 480 metres long.
A total of 175 diamonds were recovered from 681.1 kilograms of core giving
an average grade of 0.18 cpt. The best grade was obtained in DR 95-42 where
several macrodiamonds were recovered. The preliminary results of the Ashton
drilling revealed a total of 19 diamonds from 101.8 kilograms of core
giving an average grade of 0.16 cpt.
There is a zone of diamond enrichment within the main kimberlite body where
grades are up to 2.53 cpt over a six-metre section. This zone can therefore
be followed along the length of the body and may vary in thickness along
the dike.
The company and project operator Spider are about to begin a diamond
drilling program to further the diamond potential of Kyle No. 3.
Haiti gold -- Grand Bois 70 per cent, Morne Bossa 30 per cent
The Grand Bois gold deposit in Haiti, in which the company owns a
70-per-cent interest, is one of the company's key assets, which could
generate revenues from production within a relatively short period of time.
Based on systematic drilling, the resource at Grand Bois is estimated at
4.6 million tonnes grading 1.9 grams of gold per tonne. The gold is
contained within the oxidized zone which lies at surface, is roughly
circular, and is thus amenable to sustain an open-pit heap leaching mining
operation given a positive feasibility study.
The company also owns a 30-per-cent interest (which can be increased to 70
per cent) in the Morne Bossa deposit which is very similar to Grand Bois
but smaller with an estimated resource of 2.24 million tons grading 1.84
grams of gold per tonne. A 22-hole due diligence drill program is necessary
prior to proceeding with metallurgical testing to be followed by a
feasibility study if warranted.
Haiti copper belt -- permit no. 1
In June, 1998, the company concluded an agreement with St. Genevieve
Resources Ltd. (SGV) whereby the latter has the option to earn up to
70-per-cent interest in an Haitian company incorporated to hold the mineral
property titles. Currently the company owns a 70-per-cent equity interest
in the Haitian company with SGV holding the remaining 30 per cent. SGV will
become the operator.
Permit No. 1 covers a portion of a 15-kilometre long copper belt outlined
in the past by the United Nations with the known copper occurrences,
Douvray, Blondin, Nicole and Mathelier. Copper resource estimates of 50.0
million tonnes at 0.56 per cent copper were calculated by the United
Nations for Blondin and of 92 million tonnes grading 0.44 per cent copper
by a German governmental organization, the BRG, for Blondin.
At Douvray, past drilling revealed the presence of higher-grade copper
zones within the broad low-grade intervals outlined by past operators. For
example, one hole intersected 2.33 per cent copper over 59.2 metres while
another returned 1.21 per cent copper over 78 metres. In 1997, the company
completed an exploration program on Douvray, which included drilling 24
holes. Values such as 1.22 per cent copper over 63 metres were intersected.
There are three copper-bearing horizons which coincide with three discreet
induced polarization anomalies. To date only one-third of the geophysical
anomalies have been tested.
At Blondin, the United Nations also encountered some higher copper grade
intervals. By pursuing the exploration efforts over the entire 15-kilometre
long copper belt, SOV intends to define a copper resource at grades of 1
per cent copper or better.
Faille B is a high-grade gold deposit within the limits of permit No. 1.
Subsequent to extensive trenching and drilling, the United Nations
calculated an underground resource of 522,000 tonnes grading 14.1 grams of
gold per tonne down to a depth of 150 metres, or an open-pit resource of
1.07 million tonnes at 2.36 grams of gold per tonne to a depth of 50
metres.
The company still holds the right to prospect and explore for precious
metals in areas in Cuba. The development of those projects are dependent
upon the company completing a financing.
Operations
On Nov. 27, 1997, the company filed a motion requesting the convocation of
a meeting of its creditors pursuant to the Companies' Creditors Arrangement
Act. The plan of arrangement of the company, as approved by the creditors
in April, 1998, provided for the payment in cash of certain debts and the
conversion into equity of the major part of the company's debts on the
basis of one common share for each 40 cents of debt. The cash payments were
made in the fall of 1999 with the proceeds of a loan from Emerging Africa
Gold (EAG) Inc., a related company. The shares were issued in 1998 but
their distribution was subject to the issuance by the Quebec Securities
Commission of a receipt for a prospectus qualifying same. The company
expects the receipt to be issued in the coming weeks.
In 1999, the company incurred a net consolidated loss of $579,708 (one cent
per share) compared with $51-million (96 cents per share) in 1998. This
decrease in the net consolidated loss is mainly attributable to the
write-off, in 1998, of the Ametistovoe project in Russia in the amount of
$43.6-million following the expiry of the operating license.
Interest and other income amounted to $44,541 in 1999, at relatively the
same level as 1998, $58,258.
The company's total expenses for the financial year ended Dec. 31, 1999,
decreased by 98.8 per cent, from $51-million in 1998 to $0.6-million in
1999.
Management costs for the 1999 financial year decreased significantly, from
$1.2-million in 1998 to $0.4-million in 1999. This decrease is attributable
to the important reduction in fixed costs following the reduction of
activities of the company as part of its restructuring plan.
In 1999, no loss of disposal of mining assets ($0.9-million in 1998) nor
any write-off ($48.3-million in 1998) was recorded.
In 1999, the company issued 3,969,443 common shares ($875,892) including:
810,982 common shares ($324,392) pursuant to the plan of arrangement; 1.1
million common shares ($150,000) in a private placement of units; and
2,058,461 ($401,410) upon the exercise of warrants. Moreover, warrants to
purchase two million common shares ($390,000) were exercised at the end of
1999 and the payment received at the beginning of 2000. In 1998, the
company issued 36,994,615 common shares in settlement of $14.8-million of
debts and 3.2 million common shares for a consideration of $480,000 in
private placements.
In October, 1999, the company entered into a $800,000 loan with Emerging
Africa Gold (EAG) Inc. The loan is not guaranteed and it bears interest at
8 per cent per year. The proceeds were applied, in conformity with the loan
agreement, to make the cash payments to certain creditors pursuant to the
plan of arrangement, to pay different other debts, and for working capital
purposes.
As at Dec. 31, 1999, the company had a negative working capital of
$3.1-million compared with $4.9-million in 1998. Both deficits in the
working capital, at Dec. 31, 1999 and 1998, is mostly attributable to the
debts of a foreign subsidiary not included in the plan of arrangement and
which are without recourse against the company.
With the issuance of the visa, the company will complete its plan of
arrangement and convert an additional amount of $1,289,811 of debts into
8,598,740 common shares. The company is confident that its assets have an
interesting development potential. As of now, exploration work is
continuing on the diamondiferous properties in the James Bay Lowlands.
The company intends to launch a rights offering to finance work programs to
come on its properties in order to maintain its current interest thereto
and purchase, if any, new promising properties.
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended Dec. 31
1999 1998
Income
Interest and
other income $ 44,541 $ 58,258
Expenses
Administrative
expenses 369,867 1,261,240
Financial
expenses 106,864 402,523
Depreciation 16,779 45,946
Net loss on
disposal of
mining assets - 858,793
Writedown of
write-off of
mining assets - 48,293,997
Net (gain) loss
on foreign
exchange (21,546) 217,020
Other 152,285 -
------- ----------
624,249 51,079,519
Net (loss)
for the year (579,708) (51,020,991)
Share issue
expenses (37,000) -
Loss per
share -- basic $(0.01) $(0.86)
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