Naxos Resources Ltd.
Suite #409 - 808 Nelson Street
Vancouver, B.C. Canada - V6Z 2H2
Telephone: (604) 669-8078 - Fax: (604) 669-8068
August 5, 1998
Dear Shareholders:
As you may be aware, on the 12th of March, the Board of Directors appointed me to the position of President and Chief Executive Officer. I was named your President with the understanding that several critical issues would be addressed immediately. The Board and I feel it is appropriate to make a special report to you to detail the issues that have faced your Company and the action taken.
The Annual General Meeting of the Company took place in Vancouver on Friday, July 24, 1998. A ballot was taken on each item brought to the floor and highlights of the voting are attached as Appendix "A". The results clearly show that the Shareholders have confidence in the approach management is taking to maintain a viable Company. Following are the major issues confronting your Company and the action we feel appropriate:
Franklin Lake
The Company is committed to ascertaining the truth and the value of this property. It is important to appreciate and understand that the standard practice in the mining industry is to first establish an inferred resource through drilling and assaying. In order to establish an inferred resource by conventional means at Franklin Lake, the Company embarked on an aggressive drill program in April, 1998. This drill program was embarked upon only after it was represented to the Company and its Advisory Panel at a meeting in Las Vegas in March of 1998 by a representative of Ledoux & Company, that assays done under the conventional fire assay approach from Ledoux & Company indicated the presence of gold in economic numbers.
Although the initial drill results were encouraging, an investigation is currently being performed to determine why a discrepancy existed (see News Release number 98-20) between the analysis of Franklin Lake material at different laboratories. The grades reported by Ledoux & Company were consistently higher than the grades reported by Alfred H. Knight, Rocky Mountain Geochemical and Engelhard (a major precious metals and analytical company). Representatives from the various laboratories and Naxos technical personnel continue to scrutinize the analysis of the higher grade samples from Franklin Lake that Ledoux & Company reported.
In addition, we are currently conducting research on the Johnson Lett technology to quantify and verify the value added by this recovery process. To this end, we have retained the services of Brian Russell, one of the top scientists in the field of precious metal metallurgy research. Dr. Russell has been conducting detailed analytical analysis of the Johnson-Lett technology and will also be concentrating his research effort to truly understand the metallurgy of the Franklin Lake Playa. Dr. Russell provided the Company with two interim reports which, at present, although encouraging, remain inconclusive. The Company is continuing to work with Dr. Russell to ensure that all material, information and financing are available for him to continue his work on the property.
Annually, the Company must make a property payment to the United States government which is slightly under US$100,000. There has been some suggestion that the Company is not going to make this payment and I want to reassure shareholders that this payment will be made.
CPM Alliance
As we announced in News Release number 98-16 on June 3, 1998, CPM Group of New York and the Company have formed a partnership to assist the development of our Company. CPM group has extensive experience and contacts in the field of precious metals. As our financial advisory and investment banker, CPM have conducted a thorough due diligence of our Company so they can advise us of the best alternatives available to build the Company. In their opinion, one of Naxos' major assets is the operating experience that we possess. They recognize that perhaps our most important accomplishment during the past two months was the addition of several highly qualified technical professionals. CPM is particularly impressed with John Norton, our Director of Mining Operations, and Jeremy Ison, our Senior Process Engineer. With this in mind, CPM has developed a list of mining projects world-wide that they may help finance and Naxos could develop. All of the targeted projects are either in full production or pre-feasibility.
The advantages of Naxos having a producing property are numerous. It would allow us to generate revenue so that we are not solely dependent on raising capital. This would provide us the working capital to continue our research on Franklin Lake without being totally dependent upon it.
Investor Relations
In June and July, John Norton and I traveled to New York and met with major investment firms and financial institutions. Each meeting was very productive. Although there is no guarantee, several of the institutions indicated that they would follow our progress and two firms are conducting preliminary due diligence. We intend to pursue other similar efforts and plan to work hard to build these relationships.
Conclusion
We are still vigorously defending ourselves against several charges by the Alberta Securities Commission and are confident that once the facts are known, the Company, its Officers and Directors will be exonerated. I have attended the hearings and can assure that our counsel is doing an excellent job of bringing out the facts. It is important to note that the Alberta Securities Commission has no jurisdiction over our trading in the US and that we have an excellent record with NASDAQ.
This report has detailed the many issues, changes and opportunities your Company faces. It has been an exciting yet fruitful time. Financially, your Company is very sound for the foreseeable future. Due to a recently completed Private Placement, we now have $1.8 million on the balance sheet. I want to thank you for your support and I look forward to communicating with you on a regular basis.
Sincerely,
NAXOS RESOURCES LTD.
Per:
"Signed"
Sidney W. Kemp
President
Appendix "A"
Highlights of Ballot Voting at Annual General Meeting
Motion #2 To fix the number of Directors for the ensuing year to six (6) and to authorize the Board of Directors in its discretion to appoint up to two (2) additional Directors to hold office until the next annual general meeting of the Issuer or until a successor is appointed
Shares Percentage
for the motion 20,795,375 84.44%
against the motion 3,832,632 15.56%
total shares voted 24,628,007 100.00%
Motion #6 To authorize the Board of Directors to re-negotiate any existing stock options and to grant options to Employees, Officers and Directors of the Issuer or of any subsidiary of the Issuer, at the discretion of the Board of Directors, during the ensuing year at such price or prices and upon such terms as may be acceptable to the regulatory authorities having jurisdiction over the affairs of the Issuer, and to approve, confirm, adopt and ratify, with to without modification, the granting and exercising of any existing stock options granted to Insiders of the Issuer otherwise than pursuant to a prior shareholder authorization
Shares Percentage
for the motion 9,514,183 74.40%
against the motion 3,273,806 25.60%
total shares voted 12,787,989 100.00%
Motion #7 To approve, confirm, and adopt, with or without modification, a Directors' Stock Option Plan for 1998 pursuant to the terms and conditions set out in the Issuer's Management Proxy Circular dated June 3, 1998
Shares Percentage
for the motion 9,455,161 74.15%
against the motion 3,295,463 25.85%
total shares voted 12,750,624 100.00%
Motion #8 To approve, confirm, and adopt, with or without modification, an Employees' Stock Option Plan for 1998 pursuant to the terms and conditions set out in the Issuer's Management Proxy Circular dated June 3, 1998
Shares Percentage
for the motion 11,182,769 87.57%
against the motion 1,587,980 12.43%
total shares voted 12,770,749 100.00%
The Shareholders elected the following individuals to the Board of the Company by an overwhelming majority:
Sidney Kemp
Ian Gordon
Jimmy John
Paul Del Giudice
Mark Summers
Stanley Combs
The Scrutineers' Report on Election of Directors stated as follows:
Stanley R. Combs 23,374,433
Dr. Paul Del Giudice 23,174,183
Ian M. Gordon 16,476,650
Jimmy John 22,650,427
Sidney W. Kemp 17,749,180
Mark Summers 23,282,933
Fred Arkoosh 704,878
Greg John 855,928
In a Directors' Meeting held subsequent to the Annual General Meeting, the following Officers were elected:
Sidney Kemp - President
Ian Gordon - Secretary/Treasurer
Jimmy John - Chairman of the Board
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