FOR: NAXOS RESOURCES LTD.
FOR FURTHER INFORMATION CONTACT
INVESTOR RELATIONS: Jeff Sharp (913) 894 - 8509
Russell Smith (603) 891 - 5743
Letter from the President
April 9, 1999
Dear Shareholders;
On behalf of the board of directors, I felt it was an important time to brief each of you about the status of our company, including several recent events. First, I want to assure each of you as shareholders in Naxos Resources, Ltd. that the primary goal of the board of directors and management is to maximize the value of your shares. In order to do this our first objective must be to prove, beyond any doubt, to the mining industry and the investment community, that precious metals exist at the Franklin Lake property and that they can be recovered in a way that is profitable. Since assuming the position of president in November, and with the full support of the current directors, we have made significant progress on several fronts, which are essential to our ultimate success. In fact, we have made more progress in the past five months than in the prior eight years since Franklin Lake was acquired.
DEVELOPMENT OF A PLANT TO DEMONSTRATE THE RECOVERY FROM ORE
After years of pursuing a strategy of attempting to prove the value of the Franklin Lake property through assays, we redirected the vast majority of our energies and resources towards determining the feasibility of recovery of precious metals from the ore. In order to do this we established relationships with five carefully selected parties who conduct research and development in this field. In the true spirit of R&D, each group provided a slightly different recovery approach for consideration. After this initial work, it was clear that we would continue to work with three of the groups. They began a series of tests, and management determined that one of the approaches appeared, at this stage, to be superior.
The consultant who we are working with has been involved in this type of work for forty years and is responsible for the technology which brought 14 precious metal mines into operation. I thoroughly reviewed his background and credentials before proceeding and am satisfied with his expertise. We then immediately commissioned this group to configure a demonstration plant based upon a hybrid bromine leach technology, and, as we announced on March 18, it is operational and running 24 hours a day. The consultant and Naxos' staff are in the process of optimizing the plant and are confident that the stated 60 day time period for bringing the plant into optimum production will be met.
As we all anxiously await the initial results from this plant, it is important to remember two things. First of all, we will not discuss any results from this research ahead of an official news release. Be assured that when we publish a news release about technical information, it is done with absolute confidence that the information is correct and reliable. Also, please remember that this is a demonstration plant, designed to aid research and development and not to produce enough precious metal, in its current configuration, to provide significant revenues to the company. Once the efficacy of the recovery process has been established, plans are being developed to construct a larger facility.
ALBERTA SECURITIES COMMISSION HEARING RESULTS
Also of great significance is the recent news that the Alberta Securities Commission (ASC) cleared the company and all but one of its former directors and officers of all charges brought by the Commission. We felt strongly about the facts of the case and are very pleased to be vindicated. A huge burden has been lifted from us, but not without significant expense during this long and arduous process. We are pleased to be able to move ahead with the real business of this company and I personally pledge to you that we at Naxos Resources are committed to the highest standards of integrity in all of our business conduct.
DEVELOPMENT OF ASSAYING TECHNOLOGY
As a result of many years of experimentation and the fallout from the failed Ledoux & Company assay
technology, the market credibility of our reported assays is, at this time, nominal at best. Assays are a critical part of any successful mining operation. For this reason, although we remain committed to developing a profitable recovery process for Franklin Lake ore, we are continuing to work in our Franklin Lake laboratory on perfecting a simple, accurate and repeatable assay procedure. We have recently announced several assay results from Northwest and are encouraged not only by their consistency, but also by the similarity to the 25lb. bench recovery results (release 98-31) of .26/oz. Au per ton.
Martin Blake, our staff technical representative, who has a master's degree in geo-chemistry, is working closely with both the recovery and assaying research and development efforts to insure that they are progressing towards a successful conclusion. Consequently, we have determined that some of the techniques studied were not feasible.
FINANCES
Our financial condition remains an area of significant concern to both the board and staff. At this writing we have cash resources of US$250,000. We have drastically reduced our expenses and are actively searching for ways to make the most of our remaining assets. As an example, our monthly staff salaries and professional fees last year were approximately US $76,000. Since taking over in November we have reduced this by 60% to US $27,000. At this time we have adequate funds to finish the initial phase of the recovery research program.
VENEZUELA
I know that many of you have questions about the disposition of our assets in Venezuela. As I mentioned in my previous letter, the situation we inherited, unfortunately, is difficult. We own heavy equipment, such as road graders and bulldozers, that is in relatively poor condition. When it was determined by the Board of Directors that the project was going to be discontinued, we sent our former Director of Mining, John Norton, who has significant experience in the region, to sell the equipment. He arranged the sale of the equipment for a total price of US $ 270,000. To date, we have received a total of US$ 100,000 representing the value of the equipment moved to the buyers property. The balance of the equipment is still in our possession and will remain so until we receive the rest of the agreed upon payment.
Disposition of the rest of our assets in Venezuela is less certain. Former management believed that they had ownership of a gold ore processing mill and valid claims on mining concessions in two remote areas of the country. We now, however, find that the mill is part of the government concession and cannot be moved. The mill, therefore, has no value unless there is gold to be processed in the immediate area. We have hired the Caracas office of McLeod Dixon, the law firm which successfully represented several former Naxos directors before the ASC, to help us sort out the sale of the heavy equipment and provide counsel regarding the disposition of the mill. We will continue to keep you informed of any progress in this frustrating situation.
DEKKA
Another subject, which has brought many questions, is the compensation of Naxos by a group of former employees who left Naxos to form another mining venture. The new company, whose proposed name is
Dekka is to our knowledge, not yet financed. Naxos is to receive US $230,000 from Dekka if they are able to finance their company as compensation for the resources that were expended by Naxos on determining the feasibility of the Dekka projects when these employees were part of Naxos and were being considered for the benefit of Naxos. At this point Naxos has not received any compensation and we have no assurance that Dekka will be financed, or that we will receive this compensation. In the case that either situation is resolved and funds are received, it will extend our ability to fund operations.
STOCK OPTIONS AND COMPENSATION
Because of the speculative nature of the company, and the desire on the part of management to conserve our cash resources, Naxos employees work for little pay, virtually no regular employee benefits and no assurance of continued employment. In addition, the directors are exposed to the same liability risks that all corporate directors face. As a result, Naxos has relied in large part on stock options as the main source of compensation to attract and keep quality people in the organization.
Some would argue that options should only be granted as a reward for successful results, and at some point this may become the criterion for grants of Naxos stock options. At this point in our development, granting options to our employees and directors is not only fair, but, is the best way to assure that they are motivated to achieve the success for the company that we all desire. As I have stated previously, and I know I speak for others in the organization, we are here because we believe strongly in the potential of Franklin Lake and we each approach our jobs enthusiastically.
SETTLEMENT WITH JOHNSON, LETT AND COMPANY
We have settled all issues pertaining to our relationship with Johnson, Lett and Company (JLC). As you may remember, in the Fall of 1998, we entered into an agreement with JLC to pay them US $20,000 each month to continue developing their technology for our benefit. As a part of the arrangement, they agreed to reimburse any payment if they subsequently sold to another party any of the technology developed during the term of our agreement. We paid them a total of US $40,000 during the two months that the agreement was in effect.
Additionally, Jimmy John, former Naxos Chairman and President, during his tenure in those positions, on behalf of Naxos made an agreement with JLC to sell to them two small and one large attritor machines, which originally cost about US $95,000, for US $10,000. These pieces of equipment were purchased by Naxos exclusively for use in developing the Johnson, Lett Technology. JLC also agreed to purchase several other pieces of office equipment, owned by Naxos, but located at their facility, for an amount equal to its current value of US $4000. As a result of recent discussions between JLC and Naxos, all original agreements were honored. On March 30, JLC paid Naxos US $54,000.
CURRENT LITIGATION
The Company is actively involved in litigation which needs to be explained. In 1998, the former Board of Directors agreed to loan Jimmy John, the former Chairman and President of Naxos CDN $733,000 so that he could exercise warrants that had been granted to him. The board required that the newly acquired shares be held by Naxos as security for the loan. The loan, to date, has not been retired and the Company has sued Mr. John for payment. In the meantime, the shares in question remain in escrow. I will update you on this situation as it is warranted.
FINAL THOUGHTS
For all Naxos shareholders, the road to this point has been extremely trying and frustrating. We understand and share your feelings. But, we cannot stand still and we certainly cannot take a step backwards. This Board of Directors and the management of Naxos Resources, all of whom are shareholders, are executing a plan which we believe gives all of us the best chance available to finally determine the real potential of Franklin Lake. It is easy for others to say that they have a better plan, but in fact, it is tough to prove. We are within a very few weeks of having some concrete answers about whether a proven technology is efficacious on Franklin Lake ore.
We ask that you bear with us, see this process through and then, based on results of recovery from the demonstration plant, we can determine what the best course of action will be. If significant recovery is achieved, we will move quickly to scale up production to an even greater level. If it is not achieved, we will be open to all other available technologies that could help Naxos be successful. I look forward to seeing all of you at our annual meeting on April 30 in Vancouver and I promise that we will provide you with as much information as we possibly can, as soon as it is both available and completely reliable.
Sincerely,
“Signed”
Robert Gardner
President
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