Pacific Rim Mining Corp. (TSX:PMU)(OTCQX:PFRMF) ("Pacific Rim" or "the Company")
reports its financial and operating results for the three months ended July 31,
2012. Details of the Company's financial results are provided in its interim
consolidated financial statements and Management's Discussion and Analysis
("MD&A") that will be publicly filed and made available to shareholders shortly.
All monetary amounts are expressed in United States ("US") dollars unless
otherwise stated.
Nature of Operations
Pacific Rim is an environmentally and socially responsible exploration company
whose business plans and management talent focus on high grade, environmentally
clean gold deposits in the Americas. Pacific Rim's most advanced asset is the
vein-hosted El Dorado gold project in El Salvador, where the Company also owns
several grassroots gold projects. The Company holds a joint venture option on
the Hog Ranch epithermal gold project in Nevada and is actively pursuing
additional exploration opportunities elsewhere in the Americas.
All references to "Pacific Rim" or "the Company" encompass the Canadian
corporation, Pacific Rim Mining Corp, its U.S. subsidiaries (Pac Rim Cayman LLC
("PacRim"), Pacific Rim Exploration Inc., and Dayton Mining (U.S.) Inc.), and
Salvadoran subsidiaries (Pacific Rim El Salvador, S.A. de C.V. ("PRES") and
Dorado Exploraciones, S.A. de C.V. ("DOREX"), inclusive.
The Company's business activity is focused on three main priorities: resolution
of the El Dorado project permitting impasse, exploration of the Hog Ranch gold
project and generation of new project opportunities. The El Dorado project is
the subject of an arbitration claim (the "Arbitration") (more thoroughly
described in the Company's Q1 2013 MD&A and Fiscal 2012 MD&A) being heard at the
International Center for the Settlement of Investment Disputes ("ICSID") at the
World Bank. During Q1 2013 the Arbitration was given permission by ICSID to
proceed, under the Investment Law of El Salvador, to its final phase wherein the
merits of the claim will finally be addressed at ICSID headquarters in
Washington, DC. Notwithstanding the ongoing legal action, the Company continues
to seek a negotiated resolution to the El Dorado permitting impasse and to
resuming its advancement of the El Dorado project. The Company holds an option
to earn a 65% interest in the Hog Ranch gold property in Nevada. Based on the
results of a surface exploration program conducted over the past year, during Q1
2013 the Company selected targets for, and recently received a permit to
conduct, a Phase 1 drill program on the Hog Ranch property.
Pacific Rim's shares trade under the symbol PMU on the Toronto Stock Exchange
("TSX") and on the OTCQX market in the US under the symbol PFRMF.
Results of Operations
For the three month period ended July 31, 2012, Pacific Rim recorded a net loss
of $(0.6) million ($(0.00) per share), compared to net income of $0.2 million
($0.00 per share) for the same period a year earlier. The income recorded for Q1
2012 is primarily a result of a gain on derivative liability of $1.0 million,
related to changes in the fair value of common stock warrants issued by the
Company during recent private placement financings. This unrealized income more
than offset the expenses incurred during Q1 2012, which led to the comprehensive
income of $0.2 million recorded for the period. During Q1 2013, the gain on
derivative liability was $0.1 million, which was insufficient to offset the
expenses incurred during the period, the result being a comprehensive loss for
the period of $(0.6) million.
Expenses
Exploration expenses were $0.3 million for each of Q1 2013 and Q1 2012, and
relate primarily to the exploration activities undertaken at the Hog Ranch
property during both periods. General and administrative expenses were also
unchanged, totalling $0.1 million during each of Q1 2013 and Q1 2012. Expenses
related to the Arbitration action were slightly less in Q1 2013 ($0.05 million)
than in Q1 2012 ($0.13 million) reflecting a low level of activity pertaining to
the arbitration during both quarterly periods.
As described above, during Q1 2013 the Company recorded an unrealized gain on
derivative liability of $0.1 million (compared to $1.0 million during Q1 2012).
Unusual Items
There were no unusual items in either of Q1 2013 or Q1 2012.
Summary
Despite slightly lower exploration, general and administrative and Arbitration
costs during Q1 2013 compared to Q1 2012, the Company recorded a net loss and
comprehensive loss for Q1 2013 of $(0.6) million or $(0.00) per share compared
to net income of $0.2 million or $0.00 per share for Q1 2012, which difference
is primarily a result of substantially higher gains on derivative liability
recorded during Q1 2012 compared to Q1 2013.
Liquidity and Capital Resources
Cash
During Q1 2013 the Company's cash and cash equivalents decreased by $0.2 million
from $0.8 million at April 30, 2012 to $0.6 million at July 31, 2012. Short-term
investments decreased from $0.5 million at April 30, 2012 to $nil at July 31,
2012. As a result of these increases in cash and cash equivalents and short-term
investments, current assets decreased by $0.7 million during Q1 2013, from $1.4
million at April 30, 2012 to $0.7 million at July 31, 2012. This decrease
reflects the redemption of short term investments and the subsequent
expenditures of cash on exploration expenses and project generation efforts,
general and administrative costs associated with maintaining a public company,
and expenditures related to the Arbitration action.
The Company's financial statements have been prepared on the basis that the
Company will continue as a going concern, which assumes that the Company will be
able to meet its commitments, continue operations, realize its assets and
discharge its liabilities in the normal course of business for the foreseeable
future. There are events and conditions that cast substantial doubt on the
validity of that assumption. The Company will require additional financing to
continue to conduct ongoing exploration programs and to meet future property
commitments, for administrative purposes and for legal expenses related to the
Arbitration. The costs for this legal action are substantial and are anticipated
to increase as the case proceeds to through the final, merits-based phase.
Factors that could affect the availability of financing include fluctuations in
the Company's share price, the state of international debt and equity markets,
investor perceptions and expectations, global financial and metals markets,
progress on any of the Company's exploration properties, and developments, if
any, on the El Dorado project permitting application. The Company believes it
will be able to obtain the necessary financing to meet its requirements on an
ongoing basis; however, there can be no assurance that the necessary financing
will be obtained, and such financing, if available, may be dilutive to the
Company's shares and shareholders. As it has in the past, the Company plans to
obtain additional financing through, but not limited to, the issuance of
additional equity.
(The foregoing two paragraphs contain forward-looking statements regarding the
requirement for financing and the use of funds that may be raised. See
Forward-Looking Information.)
Working Capital
At July 31, 2012, the value of the Company's current assets was $0.7 million,
compared to $1.4 million at April 30, 2012, a decrease of $0.7 million. This
decrease in current assets from the end of the last fiscal year to the end of
the first quarter of the current fiscal year is primarily a result of the
redemption of the Company's remaining short term investments coupled with
expenditures of cash on exploration, general and administrative responsibilities
and the Arbitration action. Resource property balances at July 31, 2012 were
negligibly higher than the April 30, 2012 balance ($5.51 million and $5.49
million respectively).
At July 31, 2012 the Company had current liabilities of $1.61 million,
marginally lower than the April 30, 2012 balance of $1.64 million due to a
slight decrease in accounts payable and accrued liabilities. Of the accounts
payable and accrued liability balances, $1.4 million at both July 31, 2012 and
April 30, 2012 is due to one vendor associated with the Arbitration action.
The $0.7 million decrease in current assets combined with the marginal decrease
in current liabilities, resulted in a $0.7 million decrease in working capital
from $(0.2) million at the end of fiscal 2012 to $(0.9) million at the end of Q1
2013.
Financial Condition
The Company does not intend to resume significant exploration programs in El
Salvador until such time as the El Dorado environmental permit and exploitation
concession are received. The Company cannot judge if or when the required
permits will be received and is not currently planning any exploration programs
for its El Dorado, Santa Rita and Zamora-Cerro Colorado properties for the
immediate future beyond what is necessary to keep all of its exploration
licences in good standing. Should the required permits be granted, the Company
will evaluate its options for resuming full scale exploration work designed to
advance its El Salvador projects.
During Q1 2013, following completion of a surface work program during fiscal
2012, the Company applied for and was granted a drill permit to conduct a
10-15-hole (approximately 12,000 meter) drill program at the Hog Ranch property,
which permit allows for expanding the drill program to 31 holes. The Hog Ranch
drill program is planned to commence in fiscal 2013 subject to financing and
sourcing of drill contractors. Acquisition of the Remance project is in doubt
and therefore, no exploration plans for Remance are being contemplated at this
time. However, if a final acquisition agreement on Remance is signed, as per the
terms of the Remance LOI the Company will be responsible for undertaking a $1
million exploration program in the first year of the option period. The Company
intends to continue its project generation initiatives with the aim of
evaluating and possibly acquiring new exploration properties of merit that fit
its exploration focus.
The Company anticipates that the Hog Ranch drill program and associated
exploration will cost approximately $1.5 million, with a further $1 million
required in the event the Remance property is acquired. Minimal expenditures are
anticipated for generative exploration work. The Company will require additional
financing in order to carry out the planned Hog Ranch drill program, as well as
any other future exploration work of a substantive nature.
(The foregoing two paragraphs contain forward-looking statements regarding the
scope and anticipated costs of exploration and generative work programs
management intends to undertake during fiscal 2013. See Forward-Looking
Information.)
The Company's general and administrative costs are expected to remain stable
during fiscal 2013. Expenditures related to the Arbitration claim are expected
to increase substantially as the case proceeds through the final phase. The
Company has currently accumulated a liability of approximately $1.4 million
related to the Arbitration and is currently discussing vendor-specific
alternative financing opportunities aimed at reducing this accounts payable
position. Additional working capital (likely through equity financing) will be
required to fund ongoing general and administrative costs. The costs associated
with the final phase of the Arbitration action are expected to be high. The
Company is currently exploring various alternative financing opportunities to
fund the legal costs associated with the Arbitration while minimizing dilution
to its current share structure. In this regard the Company has received
encouraging feedback from potential sources of non-equity financing.
(The foregoing paragraph contains forward-looking statements regarding
anticipated general and administrative expenses for fiscal 2013, and the
requirement for additional financing to fund legal costs and future general
working capital expenses. See Forward-Looking Information.)
The business of mining and exploration involves a high degree of risk and there
can be no assurance that any of the Company's current exploration projects will
result in profitable mining operations. The Company has no source of revenue,
and will require additional cash to continue to fund legal, exploration and
administrative expenses. As at July 31, 2012, the Company has working capital
deficit of $(0.9) million, has incurred losses since inception and has an
accumulated deficit of $90.4 million. The Company's ability to continue
operations and exploration activities as a going concern is dependent upon its
ability to obtain future financing. The Company will need to raise additional
funds during fiscal 2013 to support exploration and administration expenses as
well as costs pertaining to the Arbitration action. While the Company has been
successful in obtaining financing in the past, there is no assurance that
sufficient funds will be available to the Company, or be available on favourable
terms in the future. Factors that could affect the availability of financing
include fluctuations in the Company's share price, the state of international
debt and equity markets, investor perceptions and expectations, global financial
and metals markets, progress on any of the Company's exploration properties, and
developments, if any, on the El Dorado project permitting application.
Additional financing will require, but may not be limited to, the issuance of
additional equity. Readers are encouraged to thoroughly review the Risks and
Uncertainties detailed in the Company's MD&A for fiscal 2012.
Outlook
Exploration
After completing a Phase 1 exploration program on the Hog Ranch property during
fiscal 2012, which included detailed geological and structural mapping, detailed
soil sampling, evaluating past drilling and geophysical results from previous
operators and formulating a geologic model, the Company applied for and was
granted during Q1 2013 a drill permit to conduct a 10-15 hole (approximately
12,000 meter) Phase 1 drill program program at Hog Ranch, which permit allows
for expansion of the drill program to 31 holes. This Phase 1 drill program is
expected to commence during fiscal 2013, subject to financing, and sourcing of
drill contractors.
The Company's acquisition of the Remance property is on hold and highly
uncertain at this time, pending the vendor's legal appeal of the Government of
Panama's recent decision to deny extension of the Remance concession term. While
the Company is keeping the Remance LOI in effect during Minera Clifton's appeal,
it does not intend to sign a final agreement to acquire the Remance project
unless the term of the concession is extended.
The Company will continue to curtail its exploration programs and expenditures
in El Salvador until such time as PRES receives the El Dorado environmental
permit and exploitation concession. The Company remains hopeful that it will
either receive the El Dorado permit and mining concession or that it will be
appropriately compensated. The Company will continue to seek opportunities for
dialogue with the GOES aimed at resolving its permitting issues in El Salvador
including receipt of the environmental and mining permits for the El Dorado
project as well as re-establishing the exploration licence for Santa Rita.
The Company continues to seek new project opportunities in North and Central
America.
The Phase 1 Hog Ranch drill program described above is expected to cost
approximately $1.5 million and will constitute the Company's primary exploration
initiative planned for fiscal 2013. Commencement of this drill program is
dependent on securing adequate future financing, and procurement of drill
contractors. If the Remance project is acquired, the Company will require
financing to undertake an exploration program, as per the terms of its Remance
letter of intent that is anticipated to cost approximately $1.0 million.
Additional exploration work required to keep all of its El Salvador projects in
good standing, and exploration expenses related to the Company's generative
programs, will continue through fiscal 2013 and for the foreseeable future.
(The foregoing paragraph contains forward-looking statements regarding the
Company's exploration plans and anticipated costs during fiscal 2013 and beyond,
its efforts to settle the El Dorado permit impasse, and its requirements for
additional funding. See Forward-Looking Information.)
General and Administrative and Legal
The Company's general and administrative costs are expected to remain stable
during fiscal 2013. Expenditures related to the Arbitration claim are expected
to increase substantially as the case proceeds through the final phase. The
Company is currently exploring various alternative financing opportunities to
fund the legal costs associated with the Arbitration while minimizing dilution
to its current share structure.
The Company will continue to seek opportunities for dialogue with the GOES aimed
at resolving the El Dorado permitting situation. The Company and its
subsidiaries have a well-documented history of supporting local inhabitants and
building relationships with all stakeholders. This is a key component of the
Company's approach to exploration and development, and will continue in all
jurisdictions in which it and its subsidiaries operate.
Unless these diplomatic efforts are successful, the Arbitration action is
expected to proceed during fiscal 2013 and beyond. The Company and its legal
team are currently preparing for the final phase of the Arbitration in which the
merits of the claim will finally be heard by the ICSID Tribunal overseeing the
case. During this final phase, the Tribunal will determine whether El Salvador
has breached Salvadoran and international law by refusing to issue the necessary
mining licenses for the El Dorado Mine. They will also determine El Salvador's
monetary liability for breaching the investment protections owed to a foreign
investor as per in its own laws. The Company is seeking alternative financing
arrangements specifically ear-marked for legal expenses related to the
Arbitration.
(The foregoing paragraph contains forward-looking statements regarding
anticipated general and administrative expenses during fiscal 2013, and the
requirement for additional financing pertaining to the Arbitration action. See
Forward-Looking Information.)
Key Issues
Important corporate and technical issues facing the Company in the coming fiscal
months (and beyond) include: the Company's ability to secure adequate financing
for exploration expenses including the planned Hog Ranch drill program,
maintenance of the El Salvador and Nevada properties and general working capital
purposes; the Company's ability to secure financing for the continuation of the
Arbitration action; developments related to the Arbitration action; the
execution and outcome of the Company's Phase 1 drill program at the Hog Ranch
property; developments related to the potential signing of a formal option
agreement to acquire the Remance project and the subsequent undertaking of an
exploration and drilling program at Remance if, as, and when it is formally
acquired; and, the continued search for additional exploration project
opportunities. The Company has been successful in raising funds through equity
financing in the past but there can be no assurance that such financing will be
available in the future, or if so, available under favourable terms, or that
alternatively, financing through means other than the issuance of equity can be
achieved. Readers are strongly encouraged to review the Risks and Uncertainties
thoroughly detailed in the Company's fiscal 2012 MD&A.
(The foregoing paragraph contains forward-looking statements regarding
management's assessment of the key issues facing the Company during fiscal 2013
and the requirement for additional financing. See Forward-Looking Information.)
On behalf of the board of directors,
Thomas C. Shrake, President and CEO
Forward-Looking Information
The information contained herein contains "forward-looking statements" within
the meaning of Section 21E of the United States Securities Exchange Act of 1934
(as amended) and applicable Canadian securities legislation. Forward-looking
statements relate to analyses and other information that are based on forecasts
of future results, estimates of amounts not yet determinable and assumptions of
management. Any statements that express predictions, expectations, beliefs,
plans, projections, objectives, assumptions or future events or performance are
not statements of historical fact and may be "forward-looking statements".
Statements concerning reserves and mineral resource estimates may also be deemed
to constitute forward-looking statements to the extent that they involve
estimates of the mineralization that will be encountered if the property is
developed, and in the case of mineral reserves, such statements reflect the
conclusion based on certain assumptions that the mineral deposit can be
economically exploited.
This report contains forward-looking statements regarding:
-- the Company's requirement for financing and the use of funds that may be
raised. These assumptions are based on management's estimate of working
capital requirements and past expenditures. There are no guarantees that
future financing will be available to the Company under acceptable terms
and conditions. Readers are cautioned that without additional financing
the Company's ongoing exploration plans may not be carried out as
anticipated and its ability to continue its business may be at risk.
-- the scope of exploration and generative work programs management plans
to undertake during fiscal 2013 and in the foreseeable future. These
expectations are based on various assumptions including but not limited
to: the Company's ability to secure financing, procure contractors and
obtain permits necessary to commence the proposed Hog Ranch drill
program; the Company and/or its subsidiary's signing of a Formal
Agreement to acquire the Remance project; the Company and/or its
subsidiaries' continued title and access to the El Dorado, Santa Rita
and Zamora-Cerro Colorado properties; the availability and accessibility
of projects the Company may be interested in acquiring; the availability
of sufficient working capital and access to financing; the ability to
procure adequate experienced staff; the availability of contractors; and
other risks and uncertainties. Should any of these assumptions prove
incorrect or requirements not be met, the Company's project generation
and exploration for fiscal 2013 and beyond may not occur as planned.
-- the Company's intent to forego significant exploration work at the El
Salvador projects until certain permits are granted, the implication
being that if and when these permits are granted increased investments
in exploration will be made in El Salvador. Readers are cautioned that
this statement conveys management's intent but that resumption of a
large-scale exploration program at the El Salvador projects is dependent
on not only the PRES's receipt of the El Dorado permit but also the
availability of adequate financing, the ability to procure adequate
experienced staff, the availability of contractors, and other risks and
uncertainties. Should any of these assumptions prove incorrect or
requirements not be met, the Company's project generation and
exploration plans for the remainder of fiscal 2012 may not occur as
planned.
-- the Company's exploration plans and anticipated costs for fiscal 2013
and beyond. The anticipated exploration expenditures reflect estimations
made by management based on current levels of expenditure and
anticipated work programs as described previously. Should unexpected
costs arise, exploration expenditures may differ from those currently
anticipated.
-- anticipated general and administrative, and legal expenses and the
requirement for additional financing to fund these legal costs and
general working capital expenses. These statements are based on
management's assumption the Arbitration action will continue through
fiscal 2013 and the expected costs of pursuing this action, plus the
Company's anticipated burn rate for general and administrative costs.
Should PRES receive the El Dorado permits at any time, the necessity to
continue the CAFTA action may be averted and the anticipated impact on
general and administrative costs may not materialize.
Forward-looking statements are subject to a variety of risks and uncertainties,
which could cause actual events or results to differ from those reflected in the
forward-looking statements, including the risks and uncertainties outlined above
and other risks and uncertainties related to the Company's prospects, properties
and business detailed in its fiscal 2012 MD&A, in the Company's Annual
Information Form for the year ended April 30, 2012 and in the Company's most
recent Annual Report on Form 20F filed with the US Securities and Exchange
Commission. Should one or more of these risks and uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described in forward-looking statements. Investors are
cautioned against attributing undue certainty to forward-looking statements. The
Company does not undertake to update any forward-looking statements that are
incorporated by reference herein, except in accordance with applicable
securities laws.
National Instrument 43-101 Disclosure
Mr. William Gehlen, Vice President Exploration, supervises Pacific Rim's
exploration work on the El Dorado project. Mr. Gehlen is a Certified
Professional Geologist with the AIPG (No. 10626), an employee of the Company and
a Qualified Person as defined in NI 43-101.
Mr. David Ernst, Chief Geologist, supervises the Company's project generation
initiatives and conducted due diligence geological investigations and
confirmatory sampling at the Remance Project . Mr. Ernst is geologist licensed
by the State of Washington, an employee of Pacific Rim and a Qualified Person as
defined in NI 43-101.
Pacific Rim's sampling procedures follow the Exploration Best Practices
Guidelines outlined by the Mining Standards Task Force and adopted by The
Toronto Stock Exchange. Samples are assayed using fire assay with a gravimetric
finish on a 30-gram split. Quality control measures, including check- and sample
standard-assaying, are being implemented. Samples are assayed by Inspectorate
America Corporation in Reno, Nevada USA, an ISO 9002 certified laboratory,
independent of Pacific Rim Mining Corp.
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