RYAN GOLD CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”) FOR THE THREE AND SIX MONTHS ENDING JUNE 30, 2011
The following discussion of the results of operations of Ryan Gold Corp. (the “Company”), dated August 11, 2011, for the three and six months ended June 30, 2011, and in comparison to the prior year, should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2010 and unaudited consolidated financial statements for the three and six months ended June 30, 2011 and June 30, 2010.
As of January 1, 2011, the Company adopted International Financial Reporting Standards (“IFRS”). The unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2011 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34"), and using accounting policies consistent with IFRS. Readers of this MD&A should refer to “Change in Accounting Policies” below for a discussion of IFRS and its effect on the Company’s financial presentation. All dollar amounts are presented in Canadian dollars. Additional information relating to the Company is available on SEDAR at www.sedar.com and at the Company’s website www.ryangold.com.
Description of Business
Ryan Gold Corp. (“Ryan Gold” or the “Company”), formerly Valdez Gold Inc., is an international natural resource company based in Toronto, Canada specializing in mineral exploration. The Company’s primary objective is to identify and successfully define and develop mineral deposits in Canada and the United States as well as other geologically attractive countries with stable political and investment climates. Ryan Gold Corp. was incorporated under the Business Corporations Act (Ontario) on September 4, 1990 under the name Valdez Gold Inc. (“Valdez”). Pursuant to articles of amendment filed on December 24, 2010, the name of the Company was changed from “Valdez Gold Inc.” to “Ryan Gold Corp.” and the Company consolidated its outstanding common shares on a one-for-3.5 basis. Unless otherwise indicated, all references to shares, stock options and warrants in this document have been adjusted to reflect this consolidation of shares.
On December 24, 2010, a wholly-owned subsidiary of the Company, Valdez Gold (Yukon) Inc., amalgamated with Ryan Gold Inc. to form Ryan Gold (Yukon) Inc. With former shareholders of Ryan Gold Inc. receiving post-consolidation common shares of the Company on a one-for-one basis.
The head and registered office of the Company is 1 Adelaide Street East, Suite 2800, Toronto, Ontario M5C 2V9.The Company is a reporting issuer in British Columbia, Alberta and Ontario. The Company’s fiscal year end is December 31 and it trades on the Toronto Venture Exchange under the symbol RYG.
Forward-Looking Statements
Except for statements of historical fact relating to the Company, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s properties; the future price of gold, silver and copper; success of exploration activities; cost and timing of future exploration and development; the estimation of mineral resources; conclusions of economic evaluations; requirements for additional capital and other statements relating to the financial and business prospects of the Company. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: unexpected events and delays during permitting; the possibility that future exploration results will not be consistent with the Company’s expectations; timing and availability of external financing on acceptable terms; uncertainty of mineral resources; future prices of precious and base metals; currency exchange rates; government regulation of mining operations; failure of equipment or processes to operate as anticipated; risks inherent in precious and base metal exploration and development including environmental hazards, industrial accidents, unusual or unexpected geological formations; and uncertain political and economic environments. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
Significant Events
On April 26, 2011 the Company announced that it had signed final purchase, royalty and employment agreements (the “Agreements”) with Shawn Ryan. Pursuant to the purchase agreement, Ryan Gold purchased 50 properties, comprising approximately 6,558 Quartz claims (the "Quartz Claims"), located throughout the Yukon Territory, through the acquisition of Mr. Ryan’s 70% interest in the Properties and the acquisition of all of the issued shares of 45127 Yukon Inc. (“Claimsco”), which owned the remaining 30% interest. Mr. Ryan owned all of the shares of Claimsco. The Quartz Claims, covering 132,697 hectares, are grouped in 50 major project areas covering various prospective geological terrains throughout the Yukon. The Properties represent all of Mr. Ryan's precious metal interests that have not been previously been acquired by Ryan Gold, or other third party companies.
On May 11, 2011 the Company received final approval from the TSX Venture Exchange for the transaction, and Mr. Ryan was appointed President of the Company. Under the Agreement, consideration payable to Mr. Ryan included:
. cash consideration of $7.5 million payable in three instalments, $2.5 million on closing, $2.5 million on the first anniversary of closing and $2.5 million on the second anniversary of closing;
. share consideration of 7.5 million common shares of Ryan Gold issued on closing;
. a 1% NSR on all the Yukon properties;
. potentially a series of bonus payments of $750,000 on any project area triggered at the following exploration expenditure levels: $7.5 million, $15 million and $25 million for a maximum amount per property of $2.25 million. Bonus payments can be made in cash or common shares of Ryan Gold at Ryan Gold’s discretion;
. as part of the Agreement, Ryan Gold entered into an exclusive employment agreement with Mr. Ryan having a term of five years.
Additionally, as part of his employment agreement, Ryan Gold granted Mr. Ryan options to purchase 500,000 common shares at $1.80, expiring May 10, 2016, with one third of the options vesting after the first year, one third after the second year and one third after the third year. David Schmidt has resigned as President, but continues as VP Corporate Development and remains a director of the Company.
The properties being acquired range from grass roots exploration targets, where ridge and spur soil geochemical sampling has identified prospective targets for more detailed follow-up exploration, to more advanced exploration targets where grid soil geochemical sampling, mapping, geophysical surveys and very limited drilling campaigns have been conducted. The more advanced projects include the Nug and Mahtin projects located in the Ross River and Mayo areas respectively.
On May 12, 2011 the Company announced that it had closed the previously announced bought deal private placement (the “Offering”) whereby a syndicate of underwriters co-led by GMP Securities L.P. and Dundee Securities Ltd. and including PowerOne Capital Markets Limited and Clarus Securities Inc. (collectively, the “Underwriters”) purchased or arranged for substitute purchasers to purchase 15,000,000 units (the “Units”) at a price of $2.00 per Unit (which included the exercise in full of the Underwriters’ option for up to an additional 5,000,000 Units) and 9,900,000 flow-through shares (the “Flow-Through Shares”, together with the Units, the “Offered Securities”) at a price of $2.25 per Flow-Through Share. The aggregate gross proceeds to the Company from the Offering were $52,275,000.
Each Unit consists of one common share in the capital of the Company (each a “Common Share”) and one-half of one common share purchase warrant (each whole common share purchase warrant, a “Warrant”). Each Warrant entitles the holder thereof to purchase one Common Share (a “Warrant Share”) at a price of $3.00 per Warrant Share (the “Exercise Price”) for a period of 24 months following the closing of the offering. However, if for a period of 20 consecutive trading days between the date that is four months following the Closing Date and the expiry of the Warrant, the closing price of the Common Shares on the TSX Venture Exchange or such other stock exchange where the majority of the
trading volume occurs, exceeds a 25% premium to the Exercise Price, the Company may, within 30 days of such an occurrence, give written notice to the holders of the Warrants that the Warrants will expire at 5:00 p.m. (Eastern Standard Time) on the 30th day following giving of such notice unless exercised by the holders prior to such date.
In connection with the Offering, the Underwriters received a cash commission equal to 6% of the gross proceeds raised from the Offering and also received broker warrants exercisable to acquire that number of Common Shares that is equal to 6% of the number of Offered Securities sold pursuant to the Offering at an exercise price of $2.00 per Common Share at any time on or before the date which is 24 months following the closing of the Offering.
The net proceeds received from the sale of the Units will be used to advance the Company’s projects and for general working capital purposes. The gross proceeds received from the sale of the Flow-Through Shares will be used to advance the Company’s projects located in the Yukon Territories.
All securities issued pursuant to the Offering, together with any underlying securities, are subject to a four month hold period expiring September 13, 2011.
The closing of the acquisition by the Company of properties from Shawn Ryan (“the “Acquisition”) was a condition to the completion of the Private Placement. Osisko Mining Corporation purchased 800,000 Common Shares at a price of $2.00 per Common Share in a non-brokered private placement which did not constitute part of the Private Placement at the time of closing of the Acquisition in order to maintain its pro rata ownership in the Company following the Acquisition.
Q2, 2011 Exploration Program
Yukon Territory
During the first quarter of 2011 the Company set up a technical office in Vancouver, BC and hired senior technical staff to manage its exploration activities both in the Yukon Territory, Canada and Alaska, USA. A central secure server was set up in Vancouver where all the Company’s data will be processed and secured. The Company also secured a house in Dawson City, Yukon Territory that will serve as a regional office and accommodation for its exploration staff during the summer of 2011.
The major focus of this year’s program is preparation of the Ida Oro project for drilling, as well as grid and ridge and spur soil sampling, initial regional mapping and airborne geophysical surveys on the Fifty Mile, Kluane, Nug, and PDM projects. Additional staking is also being completed to augment the Company’s land position in and around key existing project areas and on new projects.
Exploration began June 13th and the Company currently has 23 field staff members based out of its Dawson exploration office. Ground Truth Exploration, the Company’s staking and soil sampling contractor, has 50 people divided into ten helicopter supported crews. In 2011, Ground Truth will spend approximately 50% of its time working on the Company’s programs and this percentage is expected to increase to approximately 80% in 2012, as the Company’s field programs expand. Ryan Gold is fortunate to be able to rely
on Ground Truth Exploration's infrastructure and experience in working efficiently in the Yukon. The Company continues to endeavour to build its technical teams. Attracting experienced and knowledgeable geologists capable of managing our work programs remains a key success factor and a major challenge in the current labour market. Training of existing technical teams and recruiting of additional geological staff remain a key focus of Ryan Gold.
The airborne magnetic and radiometric survey, totalling approximately 24,500 line kilometres, was due to start in mid-June. The survey has been delayed by several weeks due to inclement weather and abnormal solar magnetic storms that have been encountered this year. The survey commenced in late July. The detailed airborne magnetic and radiometric geophysical programs on the Company’s regional projects are the first stage of follow-up exploration to ridge and spur soil sampling previously completed by Shawn Ryan. Targets identified in these programs are expected to be followed-up by more detailed soil sampling, reconnaissance mapping and, where possible, surface sampling and trenching in late 2011 and 2012.
Ida Oro
The Ida Oro project covers 23,976 hectares and is located 90km to the east of Dawson City. Ida Oro is 35km from the nearest road access and work at Ida Oro is helicopter supported from Dawson City.
In 2010, the Company completed a grid soil sampling program and aeromagnetic and radiometric surveys which identified a coincident magnetic and gold-in-soil anomaly. The gold-in-soil anomaly, >100ppb Au, covers an area of 4,100m by 1,200m. Topographically the target is located in rugged terrain covering a major north-south trending ridge. The size of the gold-in-soil anomaly together with the rugged nature of the terrain, means that ground truthing, mapping and, where possible, identification of the structural control on mineralization is essential prior to commencement of the diamond drilling program.
Detailed geological mapping of outcrop within the Ida Oro gold-in-soil anomaly has been completed. Currently, a trenching programme is underway in prospective and accessible areas. To date a total of six trenches with a cumulative length of 191m have been opened with 100 samples collected. As well, 6,194 soil samples have been taken from the larger Ida Oro area. Results are pending. Drill pads are in the process of being built for the planned 12,000m drilling program, still on schedule to start in early August.
Ryan Gold added to its land position within the Ida Oro project area by staking two additional claims blocks, RS and MLM, totalling 144 claims and 275 claims respectively. The company now holds a total of 3,613 claims within the Ida Oro project area.
Fifty Mile and Kluane Regional Projects
The Fifty Mile and Kluane projects areas are located approximately 75km and 350km west and south-south east of Dawson City. Historical work on the projects by Shawn Ryan included reconnaissance grid and ridge and spur soil geochemical sampling programs. The Fifty Mile project area is helicopter supported from Dawson City while the Kluane projects are supported out of Burwash and/or Haines Junction, located on the Trans Alaskan Highway. Regional reconnaissance mapping and limited trenching has
started on both the Fifty Mile and Kluane project areas. Three trenches totalling 380m and 172 samples have been completed on the Fifty Mile project. Grid and ridge and spur sampling are progressing well in both project areas. 5,849 and 7,445 samples have been collected from the Fifty Mile and the Kluane projects respectively. Results are pending.
Bluff, Alaska, USA
During the second quarter, the Company and its joint venture partner on Bluff, Millrock Resources Inc. (“Millrock”) completed a two phased detailed mapping program of the Bluff Property including:
. detailed structural mapping of the Bluff sea cliffs;
. detailed structural mapping of the remainder of the property;
The Company is evaluating the results of these mapping programs and also plans:
. to evaluate/re-log diamond drill core and reverse circulation drill chips;
. a detailed airborne magnetic and radiometric survey;
Los Jarros and Jarros Norte, Mexico
The Company has entered into an option agreement with AuRico Gold Inc. (“AuRico”) (formerly Gammon Gold Inc.) whereby AuRico will have the right to acquire the Company’s Los Jarros and Jarros Norte Properties. The Company is maintaining a minimal presence in Mexico as AuRico explores on these properties.
The Company’s primary focus is now on its properties in Yukon Territory, Canada and Alaska, USA.
Outlook for 2011
With the completion of its amalgamation with Ryan Gold Inc., the acquisition of the remainder of Shawn Ryan’s precious metal Quartz Claims, and the aggressive staking of additional claims, Ryan Gold has positioned itself as one of the largest landholders in the most prospective gold geological terrains within the Yukon Territory. In addition, having contracted access to Ground Truth Exploration soil sampling and trenching teams (the most cost-effective and one of the most experienced companies of this sort in the Yukon), along with the geological team being assembled, the Company will be able to quickly and effectively explore these highly prospective regional targets. As well, with the completion of the financing detailed previously, the Company has the funds to aggressively explore these targets.
Management has a policy whereby the budget, although formulated for each project in the beginning of every year, is results driven. In other words, should exploration results on a particular project prove more positive than initially thought, funds will be allocated from another project in order to fast track the project returning favourable exploration results. With the completion of the financing and the acquisition of Shawn Ryan’s properties, the preliminary Company budget for 2011 is now approximately $15.3 million, including approximately $4.1 million budgeted for Ida Oro, $1.5 million for Fifty Mile, $3.7 million for Mahtin, $1.4 million for Nug, $300,000 for Flume, $300,000 for Bluff, $2.2 million for other projects, and $1.8 million for corporate overhead. The Company had working capital of approximately $59.6 million as at June 30, 2011. As detailed earlier, the Company has just completed a $52.3 million financing. As such, the Company is sufficiently capitalized to support this 2011 budget. There are no present plans for any material capital expenditures in 2011. |
