Pnina Feldman, our Chief Executive Officer, President and Chairman of the Board of Directors is a controlling shareholder of both the Company and AGI.
Employees
We have no direct employees. Our officers and five other persons performing services for us on a day-to-day basis, pursuant to the Management Services Agreement, are paid by AGM. The following Key Persons (or their replacements as approved by the Company) provide executive and corporate services to us, including geological and technical expertise, pursuant to the Management Services Agreement:
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Pnina Feldman – Executive Director of AGM;
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Sholom Feldman – Executive of AGM;
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Dr. Simon Pecover – Head Geoscientist of AGM; and
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Dr. Robert Coenraads – Geoscientist of AGM.
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Compliance with Government Regulations
Federal, state and local authorities regulate the bauxite mining industry with respect to matters such as prospecting for and mining minerals, inspection of mines to regulate the treatment of the products of such mines, employee health and safety, protection of the environment, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining and native title. Numerous governmental permits and approvals are required for mining operations.
Interests in tenements in Australia are governed by the respective State legislation and are evidenced by the granting of permits, licenses or leases. Each permit, license or lease is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, we could lose title to or our interest in tenements if such conditions are not met or if insufficient funds are available to meet expenditure commitments.
It is also possible that, in relation to tenements in which we have an interest or will in the future acquire such an interest, there may be areas over which legitimate common law native title rights of Aboriginal Australians exist. If native title rights do exist, our ability to gain access to tenements (through obtaining consent of any relevant landowner), or to progress from the exploration phase to the development and mining phases of operations may be adversely affected.
The possibility exists that new legislation and/or regulations and orders may be adopted that may materially adversely affect our mining operations, our cost structure and/or our customers’ ability to use bauxite. New legislation or administrative regulations (or judicial interpretations of existing laws and regulations), including proposals related to the protection of the environment that would further regulate the mining industry, may also require us to change operations significantly or incur increased costs.
Australian law requires us to post an environmental bond for the New South Wales tenements. As of June 30, 2010, we had AUD$ 140,000 on deposit. Some portion of this may be refundable depending on the state of the tenements at the end of the term.
New South Wales
Mining Act 1992 (New South Wales) (“NSW Mining Act”).
The NSW Mining Act regulates the mining industry and makes provision for exploration licenses, assessment leases and mining leases to be granted to applicants for the purposes of prospecting for and mining minerals, including bauxite.
In New South Wales, Australia, exploration licenses are granted by the New South Wales Department of Primary Industries (the “NSW Department”) under the provisions of the NSW Mining Act. The holder of an exploration license is authorized to explore for only those mineral groups specified in the exploration license within the tenement area.
In New South Wales, the NSW Mining Act provides for two types of exploration licenses:
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“standard” licenses; and
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low impact exploration licenses.
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A low-impact exploration license is excluded from the “right to negotiate” provisions of the Native Title Act (1993) but authorizes only a limited range of prospecting operation. For further information on native title including the “right to negotiate”, see “Aboriginal Heritage” below.
Prior to the granting of an exploration license, newspaper advertisements giving notice of the application must be placed by the applicant on the request of the NSW Department. Exploration licenses may be for a period not exceeding five years (but, consistent with current policy, are usually granted for a period of two years), after which time they can be renewed for a further term of up to five years (but, again, current policy is to renew for two year periods), with the opportunity for subsequent renewals. Normally, exploration licenses are required to be reduced by 50% on each renewal. This is to ensure that exploration ground is ‘turned over’ and made available for other explorers to apply their own concepts, skills or technologies to such areas. For an exploration license to be renewed the following criteria in relation to exploration activity should be satisfied:
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the expenditure and reporting conditions of the license have been satisfactorily complied with;
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the license area has been explored effectively; and
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a satisfactory proposed program for the renewal period has been submitted.
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Failure to comply with the expenditure requirements of a license may lead to forfeiture of that license. The expenditure requirement is set by the NSW Department based on the area covered by the license. Under all of our NSW department licenses we have a minimum expenditure requirement of $590,000. The expenditure requirement set by the Queensland Department based on the area covered by the license is a minimum expenditure requirement of $1,709,000.
In addition to expenditure requirements, an exploration license is subject to such other license conditions as the Minister may impose. These conditions generally include conditions relating to the exploration activities, the protection of the environment, the protection of public and private interests, rehabilitation of the land, reporting requirements and the posting of security to cover obligations under the license.
The holder of an exploration license is required to enter into an access agreement with the landholder before carrying out any exploration activities on private land within the tenement area. A landholder is entitled to be compensated for any loss suffered or likely to be suffered as a result of the exploration activities. If no agreement can be reached between the landholder and the tenement holder, the matter may be referred to arbitration and finally can be determined by the Minister. A separate access arrangement may be required with native title holders in certain circumstances. As of the date of this report, we have yet to enter into any access agreements with the landowners of our current and proposed tenement areas.
The holder of an exploration license may apply for an assessment lease, mining lease or mineral claim over the land the subject of the exploration license.
An assessment lease is designed to allow retention of rights over an area in which a significant deposit has been identified, if mining the deposit is not commercially viable in the short term but there is a reasonable prospect that it will be in the longer term. The holder is allowed to continue prospecting operations and to recover minerals in the course of assessing the viability of commercial mining. Assessment leases may be granted for up to five years and may be renewed for further periods of up to five years. We are not currently a party to any assessment leases.
A mining lease provides the holder with the right to mine for and recover particular mineral deposits on the tenement. Mining leases may be granted for a term of up to 21 years and may be renewed for further periods of 21 years or, with the consent of the Premier of New South Wales, a longer period. Royalties are payable to the Crown (New South Wales) for minerals extracted. The current rate for bauxite is AUD$0.35 per ton.
Aboriginal Heritage.
There may be sites of Aboriginal heritage or significance located on our tenement properties, although we have confirmed that no native title exists on any of our granted tenements.
In New South Wales, the National Parks and Wildlife Act of 1974 (“NPWA”) covers the major requirements for protection of Aboriginal objects, Aboriginal places and Aboriginal remains. It is an offence to knowingly destroy, deface or damage an Aboriginal object, place or remains without the consent of the Director-General of the Department of Environment and Conservation.
Native Title.
In June 1992, the High Court of Australia held in Mabo v. Queensland that the common law of Australia recognizes a form of native title. In order to maintain a native title claim the persons making such claim must show that they enjoyed certain customary rights and privileges in respect of a particular area of land and that they have maintained their traditional connection with that land. Such a claim will not be recognized if the native title has been extinguished, either by voluntary surrender to the Crown (Commonwealth of Australia), death of the last survivor of a community entitled to native title, abandonment of the land in question by that community or the granting of an “inconsistent interest” in the land by the Crown. An example of an inconsistent interest would be the granting of a freehold or certain leasehold interest in the land. The granting of a lesser form of interest will not extinguish native title unless it is wholly inconsistent with native title.
After the Mabo case, considerable uncertainty existed surrounding the validity of proprietary rights in Australia, including mining tenements and as a consequence the Native Title Act (1993) (the “NTA”) was enacted by the Commonwealth Parliament. In summary, the NTA:
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provides for the recognition and protection of native title;
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establishes a regime by which claims for native title and compensation can be determined by the Federal Court of Australia (the “Federal Court”);
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provides procedures by which any future act affecting native title (such as the granting of a mining tenement) may be validly undertaken and by which registered native title claimants and native title holders may be afforded certain procedural rights including the “right to negotiate”;
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makes valid certain “past acts” which would otherwise be invalidated because of native title;
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extinguishes native title by the grant of private freehold title and exclusive possession tenures such as freeholding leases;
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establishes the position of a Native Title Registrar with responsibility to consider whether claims filed pass the native title requirements, maintain registers of native title claims, native title determinations and indigenous land use agreements, and provide mediation services to parties to native title applications; and
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establishes the National Native Title Tribunal (the “Tribunal”), with responsibility to assist the Native Title Registrar and provide services and support to parties to native title claims.
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The Native Title (New South Wales) Act (1994) was subsequently enacted to complement the NTA and validate certain acts attributable to the State government.
The NTA provides for procedures whereby a claimant may file an application for a determination of native title with the Federal Court. Once a native title claim has been filed, the Federal Court will refer the claim to the Native Title Registrar who must determine whether the claim meets certain conditions concerning the merits of the claim, and certain procedural and other requirements established by the NTA (the “Registration Test”). If a native title claim is successfully proved, the then current holder of any mining tenement may be liable for compensation for any effect the grant of that tenement has on the native title proved to have existed.
The NTA provides registered native title claimants/native title holders with procedures for future grants of exploration licenses that are collectively known as the future act regime. After registration of their native title claim, claimants will be entitled to the “right to negotiate” with respect to certain proposed future acts (such as the grant of tenements) that may affect native title.
Grants of “standard” exploration licenses are subject to the applicant selecting either to follow the right to negotiate procedure under the NTA or the Minister imposing a license condition requiring the Minister’s consent prior to carrying out exploration activities on potential native title land.
Risk factors:
The possible existence of native title and/or native title claims in relation to some of the land on which our tenement properties are located may have an adverse impact on our activities and our abilities to fund these activities. It is impossible at this stage to quantify the impact that these matters may have on our operations but the main risks include:
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delays or difficulties in obtaining the grant of our applications, renewals or conversions of our tenement interests, or further applications as a result of the right to negotiate process, as this process can take as long as two years;
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we may be liable for the payment of compensation as a result of agreements made pursuant to the right to negotiate or alternative process or as a result of a compensation order made by the Federal Court in the event native title has been determined to exist. The amount of such compensation is not quantifiable at this stage;
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if native title is found to exist the nature of the native title may be such that consent to mining is required from the native title holders but is withheld or only granted on conditions unacceptable to us; and
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the risk that Aboriginal sites and objects exist on the land the subject of our applications and the existence of such sites and objects may preclude or limit mining activities in certain areas. Further, the disturbance of such sites and objects is likely to be an offence under the applicable legislation, potentially exposing us to fines and other penalties.
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Mine Safety.
The following statutes are applicable to mining and exploration activities in New South Wales: Occupational Health and Safety Act 2000, Mine Health and Safety Act 2004 and Explosives Act 2003. These statutes and their supporting regulations set out requirements for ensuring that New South Wales mines are safe and healthy. These requirements spell out the duties of different groups of people who play a role in workplace health and safety. Where a conflict arises, the Occupational Health and Safety Act 2000 prevails.
Environmental Laws.
We are subject to various federal and state environmental laws which regulate the particular environmental aspects of mining operations. In New South Wales, a tenement must be granted by the Minister under the NSW Mining Act before anyone can prospect, explore for or mine publicly owned minerals, whether on unalienated Crown (New South Wales) or private land. Before a tenement can be granted, development consent/project approval must be obtained under the Environmental Planning and Assessment Act 1979 (the “EP&A Act”).
The NSW Mining Act empowers the Minister for Mineral Resources to impose conditions on tenements. Environmental and rehabilitation performance is enforced and regulated through tenement conditions. Other government agencies may have additional requirements.
Exploration tenements’ standard conditions require companies to seek approval for activities which disturb the surface of the land and to submit a security deposit.
Mining tenements’ standard conditions require companies to submit a Mining Operations Plan (“MOP”) prior to commencing operations, subsequent Annual Environmental Management Reports (“AEMR”) and a security deposit.
All mining and petroleum projects and most exploration activities require environmental assessment under the EP&A Act before they can be carried out. Development that is wholly prohibited by an environmental planning instrument cannot be carried out in any circumstance. Mining, petroleum and exploration related activities declared to be exempt developments in the State Environmental Planning Policy (Mining Petroleum and Extractive Industries) of 2007 do not require any environmental assessment under the EP&A Act; however, they may still require approval under other legislation, including the Mining Act, before they can be carried out. Approval will not be given if the relevant approval agency considers that the environmental impacts of the project are unacceptable.
The following sets out the most common environmental assessment requirements for mining and exploration activities under the EP&A Act. The following comments generally apply to all new mining projects and most exploration activities. The environmental assessment requirements for modifications and expansions to existing mining projects may be different to those identified below due to transitional provisions associated with planning reforms. Independent expert advice should always be obtained regarding the environmental assessment requirements for approvals related to mining projects and large exploration projects.
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Exploration Proposals
. The Department is the determining and approval authority for all exploration proposals other than those identified in Schedule 1 of the State Environmental Planning Policy (Major Projects) 2005. In most cases a Review of Environmental Factors should accompany an exploration proposal. If the assessment process indicates that there is a likelihood of significant environmental impact then an Environmental Impact Statement must be prepared by the proponent.
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Mining Proposals
. New mining projects and any expansion of existing projects requiring the grant of a mining lease will require either development consent under Part 4 or project approval under Part 3A of the EP&A Act, depending on the scale and location of the project and, in some circumstances, the existing approvals applying to the project. The expansion of mining operations on some existing lease areas may not currently require approval under either Parts 3A or 4 due to transitional provisions associated with the introduction of Part 3A of the EP&A Act.
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All applications for approval of mining proposals under Parts 3A or 4 of the EP&A Act must be accompanied by an environmental impact assessment. In the case of Part 3A, this is called an “environmental assessment”. The environmental assessment must address the matters identified by the Minister for Planning. For mines requiring consent under Part 4, the environmental impact assessment may be either a Statement of Environmental Effects or an Environmental Impact Statement, depending on the scale and location of the activity. A Species Impact Statement may also be required in some circumstances. In all cases the environmental impact assessment and applications are publicly exhibited, and public submissions are sought, before the application is determined by the appropriate authority.
Queensland
Mineral Resources Act
1989 (
Queensland
) (
the
“
MRA
”). The MRA governs the mining industry and makes provision for mining tenements to be granted to applicants for the purposes of prospecting for and mining minerals, including bauxite.
The MRA provides the legislative framework for exploration, development and mining tenure in the State of Queensland. The MRA is administered by the Department of Mines and Energy (Queensland) (the “QSD Department”). The types of mining tenements that are granted and administered under the MRA include prospecting permits, exploration permits, mineral development licenses, mining claims and mining leases.
A prospecting permit entitles the holder to prospect for and/or hand-mine for minerals (excluding coal) and/or peg a mining lease or mining claim on the available land specified. There are two types of prospecting permits:
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a parcel prospecting permit which can be granted for a particular parcel for a term of three months; and
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a district prospecting permit which can be granted for all available land within a mining district for a term of 1-12 months and is subject to the holder obtaining the written consent of the land owner for access to occupied land.
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Different exploration permits are required for minerals and for coal. An exploration permit:
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is issued for the purpose of exploration;
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allows the holder to take action to determine the existence, quality and quantity of minerals on, in or under land by methods which include prospecting, geophysical surveys, drilling, and sampling and testing of materials to determine mineral bearing capacity or properties of mineralization;
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may eventually lead to an application for a mineral development license or mining lease;
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can be granted for a period of up to five years; and
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A mineral development license:
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allows the holder to undertake geoscientific programs (e.g. drilling, seismic surveys), mining feasibility studies, metallurgical testing and marketing, environmental, engineering and design studies to evaluate the development potential of the defined resource;
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can be granted to the holder of an exploration permit for a period of up to five years where there is a significant mineral occurrence of possible economic potential; and
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A person can hold or have an interest in a maximum of two mining claims at any one time. A mining claim:
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is granted to holders of prospecting permits to carry out small-scale operations with limited use of machinery;
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can be up to one hectare in area;
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entitles the holder to prospect and hand-mine for specified minerals;
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must have an initial term not exceeding ten years; and
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is granted for minerals other than coal.
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A mining lease:
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is granted for mining operations;
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entitles the holder to machine-mine specified minerals and carry out activities associated with mining or promoting the activity of mining;
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is not restricted to a maximum term - this is determined in accordance with the amount of reserves identified and the projected mine life; and
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can be granted for those minerals specified in either the prospecting permit, exploration permit or mineral development license held prior to the grant of the lease.
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The MRA does not specifically define the area or shape of land that can be granted under a lease although these must be justifiable.
Our Tenements.
We have 31 tenement interests, 26 of which have been granted exploration permits and five of which have applications filed awaiting QSD Department approval. For those awaiting approval, we have provided the QSD Department with all relevant information for the purpose of processing the applications.
Once the Department is satisfied that the applications meet the requirements of the MRA, a recommendation is expected to be made to the Queensland Mines and Energy Minister (“QSD Minister”) to grant the remaining exploration permits subject to any conditions imposed by the QSD Minister. We submitted the outstanding applications on February 19, 2010.
Once the exploration permits are granted, we will need to provide the QSD Minister with the following reports in respect of each permit:
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an annual report to the QSD Minister, within one month after each anniversary of the day the exploration permit takes effect;
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a report about the reduction in the area of the exploration permit, given within two months after the reduction takes effect; and
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a report summarizing the results of exploration for the whole term of the exploration permit given within two months after the exploration permit ends.
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The QSD Minister also has the discretion to request any further reports or request any materials to be obtained.
The exploration permits may be renewed by application. For an exploration permit to be renewed the following criteria should be satisfied:
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the expenditure and reporting conditions of the licence have been satisfactorily complied with;
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the licence area has been explored effectively; and
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the application for the renewal of an exploration permit must be accompanied by a statement describing the program of work proposed to be carried out under the authority of the exploration permit (if renewed) and detailing the estimated human, technical and financial resources to be used to carry out the exploration work during each year of the term of the exploration permit (if renewed) and detailing the applicant’s financial and technical resources for carrying out the work.
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The QSD Minister has the power to request further information for renewal where the QSD Minister is not satisfied with the information contained in the application for a renewal of an exploration permit.
The holder of an exploration permit must expend certain amounts on exploration activities during the term, with failure to do this leading to possible forfeiture of the permit.
In addition to expenditure requirements, an exploration permit is subject to such other license conditions as the QSD Minister may impose. These conditions generally include conditions relating to the exploration activities, the protection of the environment, the protection of public and private interests, rehabilitation of the land, reporting requirements and the lodgment of security to cover obligations under the permit.
The holder of an exploration permit is required to enter into an access agreement with the landholder before carrying out any exploration activities on the tenement area. A landholder is entitled to be compensated for any loss suffered or likely to be suffered as a result of the exploration activities. If no agreement can be reached between the landholder and the tenement holder, the matter may be referred to arbitration and finally can be determined by the Minister. An access arrangement may be required with native title holders in certain circumstances.
The holder of an exploration permit may apply for a mineral development license or mining lease over the land the subject of the exploration permit.
Aboriginal Heritage.
In Queensland, the Aboriginal Cultural Heritage Act 1974 (Queensland) (the “ACHA”) covers the major requirements for protection of Aboriginal objects, Aboriginal places and Aboriginal remains. The ACHA provides that there exists a cultural heritage duty of care and therefore, all reasonable and practical measures must be taken to ensure that an activity does not cause harm to Aboriginal cultural heritage. This is regardless of whether the Aboriginal cultural heritage site is recorded in a register, or on private land, or not yet discovered. The Cultural Heritage Duty of Care Guidelines, published by Gazette on April 16, 2004, outline how the cultural heritage duty of care requirement is met.
It is an offence to knowingly destroy, deface or damage an Aboriginal object, place or remains. Penalties apply for breach of this duty.
In addition to the ACHA which protects Aboriginal cultural heritage, the
Queensland Heritage Act
1992 (Queensland) allows authorized persons to inspect places or objects of cultural heritage significance.
Native Title Claims
. The Native Title (Queensland) Act 1993 was enacted to complement the NTA and validate certain acts attributable to the state government. Please see above for a discussion of the Mabo case and the NTA.
The right to negotiate procedure requires, in respect of our applications, the State of Queensland to give notice of its intention to grant an exploration permit to any registered native title claimants, prescribed bodies corporate and the public. Generally, in relation to applications for exploration licenses, the State will issue a notice including a statement that the tenement should be granted under the expedited procedure. This means the tenement will be granted without negotiations with any native title claimants/native title holders. Registered native title claimants/native title holders may lodge an objection to this and if there are no objections lodged within a four month period, the State may proceed to grant the tenement in accordance with the relevant mining legislation. If one or more objections are lodged the matter is referred to the Tribunal which will determine the matter if no agreement is reached.
Indigenous Land Use Agreements
. The QSD Department will grant mining tenements over land on which native title is conclusively extinguished under the NTA and the state legislation. An application for a mining tenement over land on which native title has not been conclusively extinguished must first undertake the right to negotiate process (as set out above) with the registered title claimants or be a party to an indigenous land use agreement (the “ILUA”).
An ILUA is a voluntary agreement between a native title claimant group and others about the use and management of land and waters which is binding once registered.
Mine Safety
. The following are the relevant mine safety legislation applicable to mines in Queensland:
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Mining and Quarrying Safety and Health Act 1999
. This law relates to safety and health in metalliferous mining and quarrying operations, and to mineral exploration other than exploration for coal, oil and gas;
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Coal Mining Safety and Health Act 1999
. The law relates to safety and health in the coal mining industry, including exploration for coal; and
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Workplace Health and Safety Act 1995
. This law covers all occupational health and safety matters in Queensland except where the two laws set out above apply.
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These acts and their supporting regulations apply to everyone who may affect the safety or health of persons at a mine, everyone who may affect the safety or health of persons as a result of operations or coal mining activities and any person whose safety and health may be affected while at a mine or as a result of operations or coal mining activities.
The objectives of the acts are to protect the safety and health of persons at mines and persons who may be affected by mining operations or activities and require that the risk of injury or illness to any person resulting from mining operations or activities is at an acceptable level.
Environmental Laws.
We are subject to various federal and state environmental laws which regulate the particular environmental aspects of mining operations.
In Queensland, a tenement must be granted by the Minister under the MRA before anyone can prospect, explore for or mine publicly owned minerals, whether on Crown (Commonwealth of Australia) or private land. Before a tenement can be granted, the requisite consents and approvals must be obtained under the Environmental Protection Act 1994 (the “EPA”). The EPA provides for the issue of environmental authorities for mining activities.
Under the Environmental Protection and Other Legislation Amendment Act 2000, provisions in the MRA relating to environmental management of mines were transferred, with amendments, to the EPA. Chapter 5 of the EPA was further amended in 2004 to simplify approval procedures for low impact mining projects.
The EPA is responsible for:
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setting environmental conditions;
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setting levels of environmental assessment for amendment applications;
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monitoring performance;
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conducting inspections and audits;
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ensuring adequate rehabilitation; and
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enforcing compliance with environmental controls.
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The MRA facilitates the operation of the EPA in the mining and resources sector. The Department is responsible for:
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accepting and processing all mining tenure applications and referring the relevant sections to the EPA for environmental impact assessment;
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issuing tenures under the MRA;
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issuing environmental authorities for prospecting permits and mining claims;
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promoting and facilitating industry commitment to environmental best practice; and
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monitoring and managing the rehabilitation of abandoned mine sites.
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The MRA empowers the QSD Mines Minister to impose conditions on tenements. Environmental and rehabilitation performance is enforced and regulated through tenement conditions. Other government agencies may have additional requirements.
Exploration tenements’ standard conditions require companies to seek approval for activities which disturb the surface of the land and to submit a security deposit.
Risks Related to Our Business
Since we lack a meaningful operating history, it is difficult for potential investors to evaluate our business.
We were incorporated in June 2008. Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. Since our formation, we have not generated any revenue from operating our projects, and we do not expect to generate revenue for the foreseeable future. As a startup company, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a new business. Investors should evaluate an investment in us in light of the uncertainties encountered by start-up companies in a competitive environment. Our efforts may not be successful and we may not be able to attain profitability.
We need additional financing to continue operations, which additional financing may not be available on reasonable terms or at all.
We have very limited funds and have not yet raised the funds that we require to adequately develop our projects, although we have raised capital through our joint venture with PBL and AGI to develop our projects. The proceeds from the private placements that we have conducted to date have been exhausted and if we cannot generate sufficient revenues from our current partners, we may need to raise further capital to maintain and further develop the Company and continue our operations. Additional funds, however, may not be available or, if available, may not be available on terms that are acceptable to us.
We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.
Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the mineral exploration and development industry, and the fact that we are not profitable and do not generate ongoing revenue, which could impact the availability or cost of future financings. If we are not able to raise capital in the near future and do not generate any revenue, we may be required to cease operations.
We are dependent upon key personnel whose loss may adversely impact our business.
We rely heavily on the expertise, experience and continued services of the two geological specialists as well as other individuals on the management team we engage through our Management Services Agreement with AGM. The loss of either of the geological specialists engaged by AGM on our account, or an inability to attract or retain other key individuals, either directly or through our management services provider, could materially adversely affect us. Through our Management Services Agreement, we seek to compensate and motivate our executives, as well as other individuals providing services to us, but these arrangements may not allow us to obtain or retain the services of key individuals. As a result, if either of the geological specialists or other key individuals on the management team engaged on our account were to cease providing their services to us through AGM, we could face substantial difficulty in securing a qualified successor and could experience a loss in productivity while a successor obtains the necessary training and experience.
We retain the services of our key personnel through a Management Services Agreement, but our key personnel are not precluded from terminating their services to us at any time, and for any, or no reason.
Our key personnel provide executive and corporate services to us, including geological and technical expertise, pursuant to a Management Services Agreement between us and AGM, dated July 1, 2008. No provision of the Management Services Agreement precludes any of our key personnel from terminating their services to us at any time and for any or for no reason by terminating their employment with AGM. Furthermore, if any of our key personnel do terminate their employment with AGM, the Management Services Agreement does not grant us the authority to require AGM to hire a qualified successor. As a result, if any of our key personnel were to cease providing their services for us through AGM, we could experience a negative effect on our productivity until a qualified successor is obtained.
Risks Relating to Our Industry
Because we engage in exploration activities, we have no mining operations and our future operations are subject to substantial risks, including not being able to conduct future mining operations.
We are not a mining company, but rather an exploration company at the beginning stage of our exploration operations. Our business is exploring for bauxite and other minerals. We may be unable to generate revenues or make profits unless we actually mine deposits. We would need to either mine the bauxite or other minerals ourselves, find some other entity to mine the property on our behalf or sell our rights in our properties.
Because the amount of mineable bauxite found in our current and proposed tenement areas is uncertain, any funds that we spend on exploration may be lost.
The amount of deposits of bauxite in our current and proposed tenement areas that may be mined at a profit is uncertain. Whether we or our surrogates or successors will be able to mine these properties or claims at a profit, will depend upon many factors, including:
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the size and grade of the deposits;
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whether we can obtain sufficient financing on acceptable terms to conduct our exploration activities;
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volatile and cyclical price activity of bauxite; and
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the cost, personnel, and time burdens of domestic and foreign governmental regulation, including taxes, royalties, land use, importing and exporting of minerals, and environmental protection.
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If our current and proposed tenement areas are unable to be mined at a profit because the deposits may not be of sufficient quality or size or because it may not be economically feasible to extract bauxite from the deposits, any funds spent on exploration activities may be lost.
In the event that we obtain estimates of reserves, those estimates may be subject to uncertainty.
We have no estimates of reserves pertaining to any of our current and proposed tenement areas, and we may never obtain any such reserve estimates. If we obtain a reserve estimate, it could be subject to uncertainty. Estimates are arrived at by using standard acceptable geological techniques, and are based on interpretive geological data obtained from drill holes, sampling techniques, assaying, surveying, and mapping.
Feasibility studies are used to derive estimates of cash operating costs based on anticipated tonnage and grades of ore to be mined and processed, predicted configuration of ore bodies, expected recovery rates of metal from ore, operating costs, and other factors. Actual cash operating costs and economic returns may differ significantly from original estimates due to:
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fluctuations in current prices of metal commodities extracted from the deposits;
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changes in fuel prices and equipment;
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changes in permit requirements.
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Any one or a combination of these factors may negatively affect the relative certainty or uncertainty of geological reports or reserve estimates.
Bauxite mining operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on us.
Australian federal, state and local authorities regulate the bauxite mining industry with respect to matters such as prospecting for and mining minerals, inspection of mines to regulate the treatment of the products of such mines, employee health and safety, protection of the environment, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining and native title. Numerous governmental permits and approvals are required for mining operations. Our failure to acquire all required permits and approvals, or successfully comply with the pertinent federal and state regulations will negatively impact our operations. The costs, liabilities and requirements associated with these regulations may be costly and time-consuming and may delay commencement or continuation of exploration, development or production operations.
Interests in tenements in Australia are governed by the respective State legislation and are evidenced by the granting of licenses or leases. Each license or lease is for a specific term and carries with it annual expenditure and reporting commitments, as well as other conditions requiring compliance. Consequently, we could lose title to or our interest in tenements if license conditions are not met or if insufficient funds are available to meet expenditure commitments.
Bauxite mineral exploration and development and mining activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.
Bauxite mineral exploration and development and future potential bauxite mining operations are or will be subject to stringent Australian federal, state, provincial, and local laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested of many years ago.
Future potential bauxite development and mining operations and current exploration activities are or will be subject to extensive Australian laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters. Bauxite mining is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products occurring as a result of mineral exploration, development and production. Compliance with these Australian laws and regulations will impose substantial costs on us and will subject us to significant potential liabilities.
Costs associated with environmental liabilities and compliance are expected to increase with the increasing scale and scope of operations and we expect these costs may increase in the future. We believe that our operations comply, in all material respects, with all applicable Australian environmental regulations. However, we are not insured at the current date against possible environmental risks.
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.
The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in Australia or any other applicable jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on business. New legislation and/or regulations and orders may be adopted that may materially adversely affect our mining operations, our cost structure and/or our customers’ ability to use bauxite. New legislation or administrative regulations (or judicial interpretations of existing laws and regulations), including proposals related to the protection of the environment that would further regulate the mining industry in Australia, may also require us to change operations significantly or incur increased costs. The actions, policies or regulations, or changes to the actions, policies or regulations, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.
The existence of native title and/or native title claims in relation to our proposed tenement holdings may have an adverse impact on our activities and our abilities to fund these activities.
If native title is determined to exist on our proposed tenement holdings, the grant of our application to explore such tenement holdings may be delayed and we may be liable for certain payments. In addition, if it is determined that Aboriginal sites and objects exist on our proposed tenement holdings, we may be precluded or limited from conducting any future mining activities. Further, the disturbance of such sites and objects could potentially expose us to fines and other penalties. To date, we are not aware of any native title and/or native title claims in relation to our proposed tenement holdings.
We do not carry any property or casualty insurance and do not intend to carry such insurance in the near future, and liabilities for such hazards may negatively affect our financial condition.
The search for valuable minerals exposes us to numerous hazards. As a result, we may become subject to liability for such hazards, including environmental pollution, cave-ins, unusual or unexpected geological conditions, ground or slope failures, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods and earthquakes or other hazards that we cannot insure against or against which we may elect not to insure. Such occurrences could result in loss of or damage to our properties, personal injury or death, environmental damage, delays, monetary losses and possible legal liability. You could lose all or part of your investment if any such catastrophic event occurs. We do not carry any insurance at this time, nor do we intend to carry property or casualty insurance in the future, except that we will carry all insurance that we are required to by law. Even if we do obtain insurance, it may not cover all of the risks associated with our operations and may have limits that are substantially less than our actual liabilities. We do not carry title insurance. Should any events against which we are not insured actually occur, we may become subject to substantial losses, costs and liabilities that will adversely affect our financial condition.
Risks Relating to Our Organization and Our Common Stock
If we fail to maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
It may be time consuming, difficult and costly for us to implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed.
Public company compliance may make it more difficult for us to attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently implemented by the Securities and Exchange Commission (the “SEC”) have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.
Because VAC became public by means of a reverse acquisition with Holdings, we may not be able to attract the attention of major brokerage firms.
There may be risks associated with VAC becoming public through a “reverse acquisition.” Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on our behalf.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
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changes in our industry;
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competitive pricing pressures;
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our ability to obtain working capital financing;
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additions or departures of key personnel;
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
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sales of our common stock;
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our ability to execute our business plan;
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operating results that fall below expectations;
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loss of any strategic relationship;
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regulatory developments;
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economic and other external factors; and
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period-to-period fluctuations in our financial results.
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In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid dividends in the past and may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our Board of Directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
There is currently no liquid trading market for our common stock and we cannot ensure that one will ever develop or be sustained.
To date there has been no liquid trading market for our common stock. We cannot predict how liquid the market for our common stock might become. As soon as is practicable, we anticipate applying for listing of our common stock on either the NYSE Amex Equities, The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains quoted on the OTC Bulletin Board, is suspended from the OTC Bulletin Board, or trades on the Pink Sheets, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility. As a result of delinquent filings, we are currently listed on the Pink Sheets. We intend to perform the actions necessary to again be quoted on the OTC Bulletin Board.
Furthermore, for companies whose securities are quoted on the OTC Bulletin Board or the Pink Sheets, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.
Our common stock may be deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.
Our common stock may be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including shares issued in a private placement upon the effectiveness of a registration statement with respect to such shares, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Because our executive officers and two of our directors are affiliated with our majority stockholder, they may have actual or potential interests that may depart from those of our stockholders.
Our executive officers and two of our directors are affiliated with our majority stockholder. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the following actions:
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to elect or defeat the election of our directors;
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to amend or prevent amendment of our Certificate of Incorporation or By-laws;
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to effect or prevent a merger, sale of assets or other corporate transaction; and
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to control the outcome of any other matter submitted to our stockholders for vote.
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Such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
We currently own the exploration licenses and titles to the mineral rights over the tenements listed on the table above under the heading “Prospect Description, Location and Access,” which are located through volcanic provinces in the States of NSW and Queensland Australia, which we consider to be prospective for bauxite.
The Management Services Agreement requires that AGM provide us with suitable fully serviced offices, which are located at Level 34, 50 Bridge Street, Sydney, Australia 2000. We have obtained rights to shared office space for an amount of $14,500 per month. AGM has agreed to accept only 50% of this amount per month until further funds are raised.
Item
3. Legal Proceedings.
There is no currently pending legal proceeding and, as far as we are aware, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject.
Item
4. (Removed and Reserved).
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock was quoted on the OTC Bulletin Board beginning on October 19, 2007. From October 19, 2007 through September 26, 2008, our trading symbol was DUNM.OB and since September 29, 2008 until recently, our trading symbol has been VOHO.OB. Recently, our common stock has been quoted on the Pink Sheets; however, we intend to perform the actions necessary to again be quoted on the OTC Bulletin Board. To date, there has not been an active market for our common stock. The following table sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
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Common Stock
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$ HIGH
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$ LOW
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Fiscal Year Ending June 30, 2010
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Fourth Quarter
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$50.00
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$0.10
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Third Quarter
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$9.09
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$0.20
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Second Quarter
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$18.79
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$0.57
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First Quarter
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$7.90
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$0.05
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Fiscal Year Ending June 30, 2009
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Fourth Quarter
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$7.90
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$7.20
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Third Quarter
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$7.85
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$5.20
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Second Quarter
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$7.25
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$0.25
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First Quarter
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$0.00
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$0.00
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As of November 12, 2010, there were 106,595,765 shares of common stock issued and held of record by approximately 18 holders (inclusive of those brokerage firms, clearing houses, banks and other nominee holders, holding common stock for clients, with each such nominee being considered as one holder).
We have not paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance operations and expand our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future.
On September 12, 2008, our Board of Directors adopted, and our stockholders approved, the Volcan Holdings, Inc. 2008 Equity Incentive Plan, pursuant to which 40,000,000 shares of our common stock are reserved for issuance as awards to employees, directors, consultants, and other service providers.
The following table sets forth information as of June 30, 2010, with respect to compensation plans under which shares of our common stock may be issued.
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Number of
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Number of
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Weighted-
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Securities
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Securities to be
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Average Exercise
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Remaining
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Issued Upon
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Price of
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Available for
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Exercise of
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Outstanding
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Future Issuance
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Outstanding
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Options,
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Under Equity
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Options, Warrants
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Warrants and
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Compensation
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Plan
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and Rights
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Rights
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Plans
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Equity Compensation Plans Approved by
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Security Holders
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20,000,000
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$
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1.00
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20,000,000
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Equity Compensation Plans Not
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Approved by Security Holders
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-
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-
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-
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Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements regarding management’s plans and objectives for future operations including plans and objectives relating to our marketing efforts and future economic performance. Any statement in this Annual Report and in the documents incorporated by reference into this Annual Report that is not a statement of an historical fact constitutes a “forward-looking statement.” Further, when we use the words “may,” “expect,” “anticipate,” “plan,” “believe,” “seek,” “estimate,” “intend,” and similar words, we intend to identify statements and expressions that may be forward-looking statements. We believe it is important to communicate certain of our expectations to our investors. The forward-looking statements and associated risks set forth in this Annual Report include or relate to, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our ability to obtain and retain sufficient capital for future operations, (e) our anticipated needs for working capital, and (f) the outcome of any litigation against us. These statements may be found under Item 6, “
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
” and Item 1, “
DESCRIPTION OF BUSINESS
,” as well as in this Annual Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under Item 1A, “
RISK FACTORS
” and matters described in this Annual Report generally.
Reverse Merger
On September 12, 2008, we completed a share exchange, pursuant to which we acquired all of the capital stock of VAC and VAC became our wholly owned subsidiary. In connection with this share exchange, we discontinued our former business and succeeded to the business of VAC as our sole line of business. The share exchange is being accounted for as a reverse acquisition and recapitalization. VAC is the acquiror for accounting purposes and we were the acquired company. Accordingly, VAC’s historical financial statements for periods prior to the acquisition became our financial statements retroactively restated for, and giving effect to, the number of shares received in the Share Exchange. The accumulated deficit of VAC is carried forward after the acquisition. Operations reported for periods prior to the Share Exchange are those of VAC.
Overview
We are a mineral exploration company that intends to explore prospective bauxite deposits in New South Wales, Australia and Queensland, Australia. We are in the exploration stage, have not generated any revenue to date and do not anticipate doing so in the near future. We have raised capital through our joint venture with PBL and we anticipate raising additional capital through similar joint venture arrangements and/or through the sale of equity interests held by us in the projects. Our inception for accounting purposes was June 11, 2008.
Critical Accounting Policies
Exploration stage company.
The Company is an exploration stage company as defined by Topic 915-10-20 of the FASB Accounting Standards Codification (“ASC”). The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company’s exploration stage activities.
Use of Estimates.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fiscal Year End.
We elected June 30 as our fiscal year ending date.
Cash Equivalents.
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Mineral Property and Related Mineral Rights - Bauxite Claims.
The Company follows Topic 930 and subtopic 720-15 of the ASC for its mineral property and related mineral rights - bauxite claims as well as “Securities Act Guide 7,” “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations”. Mineral property and related rights acquisition costs are expensed pending determination of whether the exploration processes have found proved reserves. Exploration costs, including rights of access to lands for geophysical work and salaries, equipment, and supplies for geologists and geophysical crews are expensed as incurred. Once a mineral ore body is discovered in sufficient proved reserve quantity, as determined by the Australian Minister for Mineral Resources, as called for in the Australian Mining Act of 1992, and the Company is granted a mining permit, such cost may be capitalized. Certain costs to remove overburden and prepare the production area for exploitation will be capitalized. Capitalized costs will be amortized on a unit-of-production basis following the commencement of production.
When it is determined that a mining deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration costs and development costs as well as interest costs relating to exploration and development projects that require greater than six (6) months to be readied for their intended use incurred after such determination will be capitalized. The establishment of proven and probable reserves is based on results of final feasibility studies which indicate whether a property is economically feasible. Upon commencement of commercial production, capitalized costs will be transferred to the appropriate asset categories and amortized on a unit-of-production basis. Capitalized costs, net of salvage values, relating to a deposit which is abandoned or considered uneconomic for the foreseeable future will be written off. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss will be recognized for all other sales of proved properties and will be classified in other operating revenues. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts.
The provision for depreciation, depletion and amortization (“DD&A”) of mineral properties will be calculated on a property-by-property basis using the unit-of-production method. Taken into consideration in the calculation of DD&A are estimated future dismantlement, restoration and abandonment costs, which are net of estimated salvage values.
Impairment of Long-Lived Assets.
The Company has adopted Topic 360-10-35-17 for its long-lived assets. The Company’s long-lived assets, which include mineral property and related mineral rights, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company periodically reviews its proved mineral properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future cash flows of its mineral properties and compares such undiscounted future cash flows to the carrying amount of the mineral properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the mineral properties to fair value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected.
Unevaluated properties are assessed periodically on a property-by-property basis and any impairment in value is charged to expense. If the unevaluated properties are subsequently determined to be productive, the related costs are transferred to proved mineral properties. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered.
The Company determined that there were no impairments of long-lived assets since inception.
Fair Value of Financial Instruments.
The Company follows Topic 825-10-50-10 for disclosures about fair value of its financial instruments and Topic 820-10-35-37 to measure the fair value of its financial instruments. Topic 820-10-35-37 establishes a framework for measuring fair value in accounting principles in accordance with U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Topic 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Topic 820-10-35-37 are described below:
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Level 1
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Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level 2
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Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
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Level 3
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Pricing inputs that are generally unobservable inputs and not corroborated by market data.
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The carrying amounts of the Company’s financial assets and liabilities, such as cash, other receivables, other assets, primarily deposits and accounts payable and accrued expenses, loans and payables from shareholder approximate their fair values because of the short maturity of these instruments. The Company’s other receivables and loans payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at June 30, 2010.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at June 30, 2010 or 2009, nor gains or losses reported in the consolidated statement of operations and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal years ended June 30, 2010 or 2009.
Revenue Recognition.
The Company applies Topic 605-10-S99-1for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
The Company will derive its revenue from sales contracts with customers with revenues being generated upon the shipment of mineral ores upon the Company commencing mining operations. Persuasive evidence of an arrangement is demonstrated via invoice, product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the trucking company or third party carrier and title transfers upon shipment, based on free on board warehouse; the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.
Stock-based Compensation for Obtaining Employee Services and Equity Instruments Issued to Parties Other than Employees for Acquiring Goods or Services.
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of Topic 718-10-30 and accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Topic 505-50-30. Pursuant to Topic 718-10-30-6, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
Income Taxes.
The Company accounts for income taxes under Topic 740-10-30. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company adopted Topic 740-10-25. Topic 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Topic 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Topic 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Topic 740-10-25.
Net Loss per Common Share.
Net loss per common share is computed pursuant to Topic 260-10-45. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were 20,000,000 options and 10,845,767 warrants outstanding as of June 30, 2010, which were excluded from the calculation because their effect would be anti-dilutive.
Financial Statement Impact of these Critical Accounting Policies and Estimates.
We are in the exploration stage and have had nominal operations to date. These critical policies and estimates have not materially impacted our financial statements given our limited operations.
Results of Operations
Fiscal Year Ended June 30, 2010 Compared to the Period from June 11, 2009
Revenues.
For the fiscal year ended June 30, 2010 and for the fiscal year ended June 30, 2009, we did not recognize any revenues.
Expenses
. For the fiscal year ended June 30, 2010, we incurred $3,708,653 in expenses, which consisted of exploration geological expense of $1,601,055 including stock compensation of $1,014,000, professional fees of $1,360,334 and general and administrative expenses of $286,766. For the fiscal year ended June 30, 2009, we incurred $1,736,963 in expenses, which consisted of stock compensation of $420,000, exploration and geological expense of $516,526, professional fees of $211,345 and general and administrative expenses of $272,742.
Option Fee.
For the fiscal year ended June 30, 2010, we recognized $440,990 in option fees resulting from the PBL joint venture. For the fiscal year ended June 30, 2009, we did not recognize any option fee.
Income Tax Benefit
. We recognized $202,855 of income tax benefit for the fiscal year ended June 30, 2010 and $198,522 for the year ended June 30, 2009 from an Australian research and development tax credit.
Accounts Payable and Accrued Expenses
. For the fiscal year ended June 30, 2010, we had accounts payable and other accrued expenses of $264,716. For the fiscal year ended June 30, 2009, we had accounts payable and other accrued expenses of approximately $114,854.
Loan from Stockholder and Related Parties Payables.
For the fiscal year ended June 30, 2010, we had a loan from stockholder and related parties payables of $2,190,848, which consisted of $2,009,
305 due
to AGM. For the fiscal year ended June 30, 2009, we had a loan from stockholder and related parties payables of
$1,281,249, which consisted of $1,189,033 due to a related party, AGM, for the purchase of exploration and prospecting information and administration services. These amounts largely related to work done by the geological team in making this current discovery and in identifying this opportunity for VAC. The reimbursement of these amounts are important to retain the geological expertise that is currently available to VAC for VAC’s future development of these projects, which require specialist expert knowledge of this particular area and geology. The geological team is mindful of the current cash position of VAC and therefore have agreed to a staggered payment plan that the directors believe will not materially affect the ability of VAC to carry out its initial objectives in securing an independent verification of inferred JORC resources on VAC’s tenement. It is the view of the directors, that such a resource statement should in normal market conditions make VAC eligible for larger institutional funding.
Fiscal Year Ended June 30, 2009 Compared to the Period from June 11, 2008 (inception) to June 30, 2008
Revenues.
For the fiscal year ended June 30, 2009 and for the period from June 11, 2008 (inception) to June 30, 2008, we did not recognize any revenues.
Expenses
. For the fiscal year ended June 30, 2009, we incurred $1,736,963 in expenses, which consisted of stock compensation of $420,000, exploration and geological expenses of $516,526, professional fees of $211,345 and general and administrative expenses of $272,742. For the period from June 11, 2008 (inception) to June 30, 2008, we incurred $1,252,578 in expenses, which consisted of exploration and geological expenses of $1,037,669 and one-time expenses relating to the initial setup of VAC of $214,909.
Income Tax Benefit
. We recognized $198,522 of income tax benefit for the fiscal year ended June 30, 2009 from an Australian research and development tax credit. We did not recognize any income tax expense for the period from June 11, 2008 (inception) to June 30, 2008.
Accounts Payable and Accrued Expenses
. For the fiscal year ended June 30, 2009, we had accounts payable and accrued expenses of approximately $114,854. For the period from June 11 (inception) to June 30, 2008, we had no accounts payable and accrued expenses.
Loan from Stockholder and Related Parties Payables.
For the fiscal year ended June 30, 2009, we had a loan from stockholder and related parties payables of $1,281,249, which consisted of $1,189,033 due to a related party, AGM, for the purchase of exploration and prospecting information and administration services. These amounts largely related to work done by the geological team in making this current discovery and in identifying this opportunity for VAC. The reimbursement of these amounts are important to retain the geological expertise that is currently available to VAC for VAC’s future development of these projects, which require specialist expert knowledge of this particular area and geology. The geological team is mindful of the current cash position of VAC and therefore have agreed to a staggered payment plan that the directors believe will not materially affect the ability of VAC to carry out its initial objectives in securing an independent verification of inferred JORC resources on VAC’s tenement. It is the view of the directors, that such a resource statement should in normal market conditions make VAC eligible for larger institutional funding.
For the period from June 11 (inception) to June 30, 2008, we had a loan from stockholder and related parties payables
of $1,268,489 consisting of amounts due to AGM for the purchase of exploration and prospecting information and administration services.
Liquidity and Capital Resources
