Quest International 1998 annual report
Quest International Resources Corp QIX
Shares issued 62,026,418 Apr 22 close $0.095
Thu 22 Apr 99 Company Review
Mr. Paul Saxton reviews the company
The 1998-year turned out to be extremely challenging for most junior mining
companies and Quest was no exception. The mining financing market collapsed
and companies experienced difficulties in raising exploration capital.
Therefore, the company's management team has changed slightly its
philosophy of "focus-on-the-future" to "focus-on-the-present for future
growth" as the foundation on which to direct its energies. This new
philosophy has become the theme upon which the company must concentrate if
we are to move into the next century. The company has just come through a
difficult year and it is expected that 1999 will bring much of the same.
Having said that, management believes that with the company's excellent
portfolio of properties and our ability to acquire new projects, the future
looks encouraging. As a start, the company acquired Standard Mining Inc.,
which has brought in a compliment of experienced mining personnel and some
financing.
During 1998, the whole junior mining community had trouble financing its
exploration programs. Few underwritings were completed and unfortunately
the company was not able to finance any of its planned exploration
programs. Where it could, management focused on advancing its projects with
limited finances. As a consequence no work was carried out on any project
except the Zopilote project in Honduras where some soil and stream sediment
sampling was performed. Management believes the Zopilote to be an excellent
project with the potential to be a mine. More drilling is required to
better define the resource which now stands at 446,000 ounces. In addition,
our partner on the Atlanta property in Idaho, Twin Gold of Toronto,
performed a small amount of work on the project while Damoti Lake, NWT, was
placed on a care and maintenance basis and no work was performed on site.
During the latter part of 1998, Quest management also focused on cleaning
up its balance sheet by starting to reduce its outstanding debts. This
project will be continuing. However, Quest recognizes its responsibilities
and will continue to work on reducing its liabilities, as finances become
available. Management is committed to reducing operating costs during this
difficult time. Post year-end the company moved out of its offices into
much smaller but functional office space in Reno. By the end of the year
the number of employees had been reduced from 10 to 3. As well, the
Cranbrook office was closed. In addition a couple of minor properties were
disposed of for cash. Management is studying additional ways to cut costs,
as is evident with this annual report which is much reduced in size and
texture. Management has elected to keep the report simple, to the point and
low cost as we have over 5,500 shareholders and it is expensive to print
and mail a glossy annual report. However, management plans on producing an
informational booklet in the next few months that will be used to raise
money and promote the company. The report will be available over the
company's Web page.
While management thought 1997 was going to be the worst of years for gold
and gold stocks, the year 1998 was even more negative for the company.
However, we will continue to pursue opportunities in the mining industry
and will consider other options such as joint venturing properties but only
as long as shareholder value is enhanced. With our new management team, the
company has the technical and managerial ability to succeed, however cash
is required and without the proper financing additional corporate
rationalization will be required. Some difficult decisions have had to be
made and we believe that restructuring the company will facilitate the
tough decisions that lie ahead.
Property Review
Zopilote - Gold
Quest maintained its 100 per cent interest in the Zopilote and Camalote
exploitation permit and the Las Colmenas and Jocatan exploration permits.
Stream sediment, road cut, and soil samples were taken to enhance
geochemical data base.
Drill and geological data in the computer model was reviewed and the gold
resource base recalculated to 446,000 ounces.
A proposed infill drill program for 1999 to increase close to surface oxide
resurces has been planned.
Quest continues to provide local community support to maintain its
excellent rapport with local villages.
Finances are being solicited to continue the exploration effort and advance
the project to prefeasibility.
Atlanta - Gold
The company maintained share of property payments to keep claims in good
standing on this advanced stage development project.
Joint venture partner, Twin Gold maintained regulatory requirements.
Joint venture partner continued to collect baseline data for future
permits.
Twin Gold renegotiated net smelter royalty burdens which impact on future
economics.
Twin Gold is actively seeking financing required to take the project to
feasibility study.
The company is negotiating to sell its 20 per cent position.
Damoti Lake - Gold
Site facilities are in care and maintenance.
The property is in total compliance for water licence and other permits.
Property data has been updated into computer files.
Comparison of the BIF deposit with the Horseshoe model shows a significant
increase in gold resource can be expected with further drilling.
A planned new government all weather road routed close to the property will
greatly enhance project economics.
A prefeasibility study is planned to be completed by the end of 1999.
Ice Property - Diamonds
The claims are maintained in good standing.
Several joint venture proposals are being examined.
Pinion - Gold
Fragmented claims are under option to Cameco; they are drilling the project
at this time.
The company will receive $500,000 (U.S.) by August 1999, if option to
purchase is exercised; plus a 2.75 per cent royalty on unpatented claims.
Results of Operations
The company, which is still in the exploration stage, does not have any
revenue producing properties. As such, it normally sustains losses from
operations. Losses of $11,133,080, $7,114,588, and $8,311,032 were realized
during the years ended Dec. 31, 1998, 1997 and the year ended June 30, 1996
respectively. The most significant components of these losses are from
mineral property costs written off, general and administrative expenses and
discontinued oil and gas operations.
The writeoff of mineral property costs cannot be predicted as such
writeoffs depend on the results of acquisition negotiations or exploration
programs, neither of which can be predicted. The company's policy is to
defer acquisition and exploration costs and to write them off when it
determines that further exploration activities cannot be expected to add
value to the property through the delineation of economic mineralization or
if acquisition of adequate title to the minerals at the property is
unlikely or uneconomic. The company limits the carrying value of mineral
properties with known, or reasonably known, resources and without
significant additional exploration potential, to the estimated net
recoverable amount of those resources.
Mineral property writeoffs during 1998 totalled $8,968,905. The Ice, Damoti
and Atlanta properties were written down to their estimated net recoverable
amount, while the company took a more conservative approach with the other
properties that were written down to nil. These writedowns were $2,618,962
for the Vine property, $519,263 for the Legion property, $112,401 for the
Horn property, $273,657 for the Yukon group of properties, $1,460,771 for
the Ice property, $1,668,181 for Damoti Lake property, $5,780 for the
Wheeler Lake property, and $178,111 for some of the less significant
Canadian properties. The Atlanta property was written down by $1,998,570,
while other less significant United States properties were written down by
$181,215. Africa and Latin America properties were written down by
$115,019.
General and administrative expenses were reduced during 1998 as compared
with 1997. This is due primarily to a reduction in office costs,
professional fees, and salaries. Office expenses and salaries were reduced
as a result of the company's downsizing activities during the year.
Professional fees were lower in 1998 as 1997 professional fees included
$316,629 in legal fees relating to a number of litigious disputes that were
resolved to the company's benefit during the prior year.
The company continues to pare its administrative overhead and expects to
realize significant savings in administrative salaries and related office
costs during 1999. However, the company ended the year with a cash position
of $36,983. To meet its cash requirements through the first half of 1999,
the company is actively taking steps to reduce or defer costs. The company
must also raise additional finances, over and above the $511,000 the
company received through an issue of convertible debentures arranged by
Standard early in 1999, or complete a business combination to meet its cash
flow requirements for its current development and exploration plans and is
actively pursuing these alternatives.
CONSOLIDATED STATEMENT OF OPERATIONS
(Canadian dollars)
Year ended Dec. 31
1998 1997
Oil and gas activities
Revenue
Operating expenses -- --
Depletion and property
costs written off -- --
Gain on sale of
operations -- --
Loss (income) on
oil and gas
activities -- --
-------- ---------
Mineral exploration
activities
Gain on sale
of property (19,998) --
Property costs
written off 8,968,905 3,504,020
--------- ---------
Loss (income)
on mineral
exploration 8,948,907 3,504,020
--------- ---------
General and
administrative
activities
Expenses
Administrative
and office 716,484 489,514
Corporate
promotion 46,530 326,373
Depreciation 111,188 124,714
Financing costs -- --
Interest on
debentures -- --
Interest on other
debt 5,650 3,010
Office rent 178,105 167,082
Professional fees 212,383 503,044
Salaries 672,824 1,437,903
Travel (11,389) 202,615
--------- ---------
Total general and
administrative
expenses 1,931,775 3,254,255
Loss (gain) on
investments 261,516 390,187
Investment income (9,118) (33,874)
--------- ---------
Total general and
administrative
activities 2,184,173 3,610,568
--------- ---------
Net loss
(income)
for the period 11,133,080 7,114,588
========== =========
Net loss (income)
per share 24 cents 17 cents
CONSOLIDATED STATEMENT OF OPERATIONS
(Canadian dollars)
Six months Year ended
ended Dec. 31 June 30
1996 1996
Oil and gas activities
Revenue -- (447,779)
Operating expenses -- 324,929
Depletion and property
costs written off -- 3,063,421
Gain on sale of
operations -- (3,475,760)
-------- ---------
Loss (income) on
oil and gas
activities -- (535,189)
-------- ---------
Mineral exploration
activities
Gain on sale
of property (8,069,852) --
Property costs
written off 4,465,848 4,101,568
--------- ---------
Loss (income)
on mineral
exploration (3,604,004) 4,101,568
--------- ---------
General and
administrative
activities
Expenses
Administrative
and office 713,467 447,582
Corporate
promotion 295,353 305,409
Depreciation 22,955 13,368
Financing costs 475,254 586,909
Interest on
debentures 23,514 767,780
Interest on other
debt 3,745 127,359
Office rent 117,589 109,301
Professional fees 314,364 343,641
Salaries 759,657 1,116,482
Travel 181,186) 232,767
--------- ---------
Total general and
administrative
expenses 2,907,084 4,050,598
Loss (gain) on
investments (55,267) 972,215
Investment income (98,120) (278,160)
--------- ---------
Total general and
administrative
activities 2,753,697 4,744,653
--------- ---------
Net loss
(income)
for the period (850,307) 8,311,032
========== =========
Net loss (income)
per share (2 cents) 26 cents
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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