Item 17.
Financial Statements.
Following is a list of financial statements filed as part of
this annual report on Form 20-F.
-
Auditor's Report for Royal Standard Minerals Inc. for the
years ended January 31, 2013 and 2012. Consolidated Statements of Financial
Position of Royal Standard Minerals Inc. as at January 31, 2013 and January 31,
2012.
-
Consolidated Statements of Operations of Royal Standard
Minerals Inc. for the years ended January 31, 2013 and 2012.
-
Consolidated Statements of Comprehensive Loss of Royal Standard Minerals
Inc. for the years ended January 31, 2013 and 2012.
-
Consolidated Statements of Changes in Shareholders Equity of
Royal Standard Minerals Inc. for the years ended January 31, 2013 and 2012.
-
Consolidated Statements of Cash Flows of Royal Standard
Minerals Inc. for the years ended January 31, 2013 and 2012.
-
Notes to the Consolidated Financial Statements of Royal Standard Minerals
Inc.
-
Management's Discussion and Analysis for the year ended
January 31, 2013.
-
Auditor's Report for Royal Standard Minerals Inc. for the
years ended January 31, 2012 and 2011. Consolidated Statements of Financial
Position of Royal Standard Minerals Inc. as at January 31, 2012, January 31,
2011 and February 1, 2010.
-
Consolidated Statements of Operations of Royal Standard
Minerals Inc. for the years ended January 31, 2012 and 2011.
-
Consolidated Statements of Comprehensive Loss of Royal Standard Minerals
Inc. for the years ended January 31, 2012 and 2011.
-
Consolidated Statements of Shareholders' Equity of Royal Standard Minerals
Inc. for the years ended January 31, 2012 and 2011.
-
Consolidated Statements of Cash Flows of Royal Standard
Minerals Inc. for the years ended January 31, 2012 and 2011.
-
Notes to the Consolidated Financial Statements of Royal
Standard Minerals Inc.
The consolidated financial statements of Royal Standard
Minerals Inc. were prepared in accordance with International Financial Reporting
Standards and are expressed in United States dollars.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Royal Standard Minerals Inc.
Report on the Consolidated Financial Statements
We
have audited the accompanying consolidated financial statements of Royal
Standard Minerals Inc., which comprise the consolidated statements of financial
position as at January 31, 2013 and 2012 and the consolidated statements of
operations, comprehensive loss, changes in shareholders equity, and cash flows
for the years then ended, and a summary of significant accounting policies and
other explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS), and for such internal
control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
61
Auditors' Responsibility
Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from
material misstatement.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
Royal Standard Minerals Inc. as at January 31, 2013, and 2012, and its financial
performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Emphasis of Matter
Without modifying our opinion, we
draw attention to Note 1 in the consolidated financial statements which
describes material uncertainty and raises substantial doubt about the Company's
ability to continue as a going concern.
Signed: MSCM LLP
Chartered Accountants
Licensed
Public Accountants
Toronto, Ontario
May 24, 2013
62
Royal Standard
Minerals Inc.
|
(Expressed in United States Dollars)
|
Consolidated Financial Statements
|
January 31,
2013 and 2012
|
63
Independent Auditor's Report
To the Shareholders of
Royal Standard Minerals Inc.
Report on the Consolidated Financial Statements
We
have audited the accompanying consolidated financial statements of Royal
Standard Minerals Inc., which comprise the consolidated statement of financial
position as at January 31, 2013 and 2012, and the consolidated statements of
operations, comprehensive loss, changes in shareholders' equity, and cash flows
for the years then ended, and a summary of significant accounting policies and
other explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS"), and for such internal
control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor's Responsibility
Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from
material misstatement.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
64
Opinion
In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
Royal Standard Minerals Inc. as at January 31, 2013 and 2012, and its financial
performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Emphasis of matter
Without modifying our opinion, we
draw attention to Note 1 in the consolidated financial statements which
describes material uncertainty and raises substantial doubt about the Company's
ability to continue as a going concern.
Signed:
"MSCM
LLP"
Chartered Accountants
Licensed
Public Accountants
Toronto, Ontario
May 24, 2013
65
Royal Standard Minerals Inc.
|
Consolidated Statements of Financial Position
|
(Expressed in
United States Dollars)
|
|
|
As at
|
|
|
As at
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
201,565
|
|
$
|
629,553
|
|
Marketable securities (Note 6)
|
|
30,000
|
|
|
150,000
|
|
Sundry receivables and prepaids
(Note 7)
|
|
2,712,004
|
|
|
156,275
|
|
|
|
2,943,569
|
|
|
935,828
|
|
Reclamation bonds (Note 8)
|
|
188,250
|
|
|
633,034
|
|
Equipment, net
(Note 10)
|
|
23,716
|
|
|
2,084,336
|
|
|
$
|
3,155,535
|
|
$
|
3,653,198
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities (Note 11)
|
$
|
2,595,672
|
|
$
|
3,033,763
|
|
Due to related parties (Note 18)
|
|
-
|
|
|
35,023
|
|
Other advances
(Note 13)
|
|
600,000
|
|
|
-
|
|
Long-term debt - current portion
(Note 13)
|
|
-
|
|
|
2,965,962
|
|
Embedded derivative on
long-term debt - current portion (Note 13)
|
|
-
|
|
|
85,361
|
|
|
|
3,195,672
|
|
|
6,120,109
|
|
|
|
|
|
|
|
|
Asset retirement obligations (Note 12)
|
|
107,647
|
|
|
292,315
|
|
Long-term debt (Note 13)
|
|
-
|
|
|
2,965,961
|
|
Embedded
derivative on long-term debt (Note 13)
|
|
-
|
|
|
85,360
|
|
|
|
3,303,319
|
|
|
9,463,745
|
|
Shareholders' Equity (Deficiency)
|
|
|
|
|
|
|
Share capital (Note 14(b))
|
|
28,104,264
|
|
|
28,098,264
|
|
Reserves
|
|
11,010,304
|
|
|
10,580,808
|
|
Accumulated deficit
|
|
(39,262,352
|
)
|
|
(44,553,494
|
)
|
Accumulated other
comprehensive (loss) income
|
|
-
|
|
|
63,875
|
|
|
|
(147,784
|
)
|
|
(5,810,547
|
)
|
|
$
|
3,155,535
|
|
$
|
3,653,198
|
|
|
|
|
|
|
|
|
Going Concern
(Note 1)
|
|
|
|
|
|
|
Contingencies
(Note 19)
|
|
|
|
|
|
|
Approved by the Board
:
Paul G. Smith
|
|
James
B. Clancy
|
|
Director
|
|
Director
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
66
Royal Standard Minerals Inc.
|
Consolidated Statements of Operations
|
(Expressed in
United States Dollars)
|
For the years
ended January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Exploration and evaluation expenditures (Note 9)
|
$
|
3,137,205
|
|
$
|
2,954,356
|
|
General and administrative (Note 20)
|
|
2,244,236
|
|
|
2,809,119
|
|
|
|
|
|
|
|
|
|
|
5,381,441
|
|
|
5,763,475
|
|
|
|
|
|
|
|
|
Loss before finance income (costs),
lawsuit settlement,
impairment of and gain on
disposal of marketable
securities, sales of property interests and related
assets
and sale of
royalty, and foreign currency translation
|
|
(5,381,441
|
)
|
|
(5,763,475
|
)
|
|
|
|
|
|
|
|
Finance income
|
|
7,274
|
|
|
4,291
|
|
Finance costs (Note 13)
|
|
(4,310,582
|
)
|
|
(712,822
|
)
|
Lawsuit settlement (Note 14(b))
|
|
(41,685
|
)
|
|
-
|
|
Impairment of marketable securities
|
|
(56,125
|
)
|
|
-
|
|
Gain on disposal of marketable securities
(Note 2(a))
|
|
30,071
|
|
|
-
|
|
Gain on sale of property interests and related assets (Note
2(a))
|
|
14,171,405
|
|
|
-
|
|
Gain on sale of royalty (Note 2(b))
|
|
866,505
|
|
|
-
|
|
Foreign currency
translation adjustment
|
|
5,720
|
|
|
20,308
|
|
|
|
|
|
|
|
|
Net income
(loss) for the year
|
$
|
5,291,142
|
|
$
|
(6,451,698
|
)
|
|
|
|
|
|
|
|
Basic income (loss) per share (Note 16)
|
$
|
0.06
|
|
$
|
(0.08
|
)
|
Diluted income (loss) per share (Note 16)
|
$
|
0.06
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income
(Loss)
|
|
|
|
|
|
|
(Expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) for the year
|
$
|
5,291,142
|
|
$
|
(6,451,698
|
)
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
Net unrealized (loss) income on available-for-sale
marketable securities
|
|
(63,875
|
)
|
|
97,999
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) for the year
|
$
|
5,227,267
|
|
$
|
(6,353,699
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
67
Royal Standard Minerals Inc.
|
Consolidated Statements of Changes in Shareholders'
Equity (Deficiency)
|
(Expressed in
United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Capital
|
|
|
Reserves
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31,
2011
|
$
|
28,098,264
|
|
$
|
10,076,866
|
|
$
|
(38,101,796
|
)
|
$
|
(34,124
|
)
|
$
|
39,210
|
|
Share-based payments
|
|
-
|
|
|
503,942
|
|
|
-
|
|
|
-
|
|
|
503,942
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
(6,451,698
|
)
|
|
-
|
|
|
(6,451,698
|
)
|
Net
increase in unrealized gain on available-for-sale
marketable securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
97,999
|
|
|
97,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2012
|
|
28,098,264
|
|
|
10,580,808
|
|
|
(44,553,494
|
)
|
|
63,875
|
|
|
(5,810,547
|
)
|
Shares issued for lawsuit
settlement (Note 14(b))
|
|
6,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,000
|
|
Share-based payments
|
|
-
|
|
|
429,496
|
|
|
-
|
|
|
-
|
|
|
429,496
|
|
Net income for the year
|
|
-
|
|
|
-
|
|
|
5,291,142
|
|
|
-
|
|
|
5,291,142
|
|
Impairment of available-for-sale marketable securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(63,875
|
)
|
|
(63,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2013
|
$
|
28,104,264
|
|
$
|
11,010,304
|
|
$
|
(39,262,352
|
)
|
$
|
-
|
|
$
|
(147,784
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
68
Royal Standard Minerals Inc.
|
Consolidated Statements of Cash Flows
|
(Expressed in
United States Dollars)
|
For the years ended January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
Net income (loss) for the year
|
$
|
5,291,142
|
|
$
|
(6,451,698
|
)
|
Operating items not involving cash:
|
|
|
|
|
|
|
Depreciation
|
|
113,994
|
|
|
137,274
|
|
Accretion in
asset retirement obligations
|
|
29,226
|
|
|
60,305
|
|
Accretion expense
|
|
4,252,521
|
|
|
611,108
|
|
Share-based
payments
|
|
429,496
|
|
|
503,942
|
|
Shares issued for lawsuit
settlement
|
|
6,000
|
|
|
-
|
|
Embedded
derivative on long-term debt
|
|
51,370
|
|
|
-
|
|
Impairment of marketable
securities
|
|
56,125
|
|
|
-
|
|
Gain on sale of
property interests and related assets (Note 2(a))
|
|
(14,171,405
|
)
|
|
-
|
|
Gain on sale of royalty (Note
2(b))
|
|
(866,505
|
)
|
|
-
|
|
Gain on disposal
of marketable securities
|
|
(30,071
|
)
|
|
-
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Sundry
receivables and prepaids
|
|
62,539
|
|
|
(94,998
|
)
|
Accounts payable and accrued
liabilities
|
|
524,769
|
|
|
1,481,098
|
|
Due to related parties
|
|
(35,023
|
)
|
|
(322,038
|
)
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
(4,285,822
|
)
|
|
(4,075,007
|
)
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
Other advances
|
|
600,000
|
|
|
-
|
|
Increase in long-term debt
|
|
5,442,384
|
|
|
5,970,350
|
|
Finance costs paid on long-term debt
|
|
(280,000
|
)
|
|
(400,000
|
)
|
Proceeds from sale of property interests and related
assets, net of transaction costs (Note 2(a))
|
|
698,157
|
|
|
-
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
6,460,541
|
|
|
5,570,350
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
Increase in reclamation bonds
|
|
(8,711
|
)
|
|
(95,174
|
)
|
Purchase of equipment
|
|
(2,593,996
|
)
|
|
(872,654
|
)
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
(2,602,707
|
)
|
|
(967,828
|
)
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(427,988
|
)
|
|
527,515
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year
|
|
629,553
|
|
|
102,038
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
$
|
201,565
|
|
$
|
629,553
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
69
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
1.
|
The Company and Operations and Going
Concern
|
|
|
|
Royal Standard Minerals Inc. (the "Company") is a
publicly held company, engaged in the acquisition, exploration and
development of gold and precious metal properties in the United States of
America. The Company is continued under the Canada Business Corporations
Act and its common shares are traded in the United States of America on
the Over-the-Counter ("OTC") Bulletin Board. Inception has been deemed to
be June 26, 1996, the date on which the Company acquired all of the
outstanding common shares of Southeastern Resources Inc. ("SRI"), which
acquisition was accounted for as a reverse takeover of the Company by SRI.
The Company's head office is located at 36 Toronto Street, Suite 1000,
Toronto, Ontario, M5C 2C5.
|
|
|
|
The Consolidated Financial Statements (the "Statements")
were approved by the Board of Directors on May 24, 2013.
|
|
|
|
These Statements have been prepared on the basis of
accounting principles applicable to a going concern, which assume that the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities in the normal
course of operations as they come due. In assessing whether the going
concern assumption is appropriate, management takes into account all
available information about the future, which is at least, but is not
limited to, twelve months from the end of the reporting period. Management
is aware, in making its assessment, of material uncertainties related to
events or conditions that cast significant doubt upon the entity's ability
to continue as a going concern. The Company has incurred net income of
$5,291,142, as a result of the one-time gain on the sale of property
interests and related assets of $14,171,405 and the gain on sale of the
royalty of $866,505 during the year ended January 31, 2013 (2012 - loss of
$6,451,698), has an accumulated deficit of $39,262,352 (2012 -
$44,553,494). In addition, the Company has a working capital deficiency of
$252,103 at January 31, 2013 (2012 - $5,184,281).
|
|
|
|
The underlying value of the resource properties is
dependent upon the existence and profitable recovery of reserves,
confirmation of the Companys interest in the underlying mineral claims,
the ability to raise long- term financing to complete the development of
the properties and upon future profitable production or, alternatively,
upon the Companys ability to dispose of some or all of its interests on
an advantageous basis, all of which are uncertain. There is no assurance
that any such initiatives will be sufficient and, as a result, there is
significant doubt regarding the going concern assumption and, accordingly,
the ultimate appropriateness of the use of accounting principles
applicable to a going concern. The Companys ability to continue to meet
its obligations and carry out its planned exploration activities is
uncertain and dependent upon the continued financial support of its
shareholders, securing additional financing or disposing of some or all of
its interests on an advantageous basis. These consolidated financial
statements do not reflect the adjustments to the carrying values or
classifications of assets and liabilities or to the reported expenses that
would be necessary if the Company were unable to realize its assets and
settle its liabilities as a going concern in the normal course of
operations for the foreseeable future. These adjustments could be
material.
|
|
|
|
Management continues to raise funds through the sale of
some or all of its remaining property interests.
|
70
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
2.
|
Sale of Property Interests and Related
Assets
|
|
|
|
(a) Asset Purchase Agreement
|
|
|
|
On October 10, 2012, the Company entered into a
definitive asset purchase and sale agreement (the "Asset Purchase
Agreement") with Scorpio Gold Corporation ("Scorpio") and Scorpio's
wholly-owned subsidiary, Goldwedge LLC to sell its Goldwedge and Piñon
property interests and the assets related thereto. The Asset Purchase
Agreement replaced a non-binding letter of intent entered into by the
Company and Scorpio dated August 28, 2012.
|
|
|
|
On December 19, 2012, the Company announced the
completion of its transaction with Scorpio to sell its Goldwedge and Piñon
property interests and the assets related thereto to Scorpio (the
Transaction). The Transaction was completed pursuant to the Asset
Purchase Agreement.
|
|
|
|
The completion of the Transaction followed a special
meeting of Royal Standards shareholders held on November 28, 2012, at
which votes representing 50.08% of the total issued and outstanding shares
of the Company as at the record date were cast either by proxy or in
person, with 99.46% of such shares voting in favour of the special
resolution approving the Transaction.
|
|
|
|
Pursuant to the Transaction, the interests of the Company
and its wholly-owned subsidiary, Manhattan Mining Co., in the Goldwedge
and Piñon properties and the assets related thereto were sold to Scorpio
and its wholly-owned subsidiary Goldwedge LLC.
|
|
Consideration
|
|
|
|
|
Cash
|
$
|
1,252,953
|
|
|
Scorpio common shares (i)
|
|
1,623,827
|
|
|
Less: Transaction
costs
|
|
(461,361
|
)
|
|
Total consideration
|
|
2,415,419
|
|
|
|
|
|
|
|
Net liabilities sold
|
|
|
|
|
Reclamation bonds
|
|
453,495
|
|
|
Equipment
|
|
4,699,436
|
|
|
Asset retirement obligation
|
|
(211,940
|
)
|
|
Equipment payable
|
|
(15,867
|
)
|
|
Long-term debt
|
|
(16,681,110
|
)
|
|
Total net liabilities sold
|
|
(11,755,986
|
)
|
|
|
|
|
|
|
Total gain on sale
|
$
|
14,171,405
|
|
(i) On January 31, 2013, the Company
entered into a purchase and sale agreement with Waterton Global Value, L.P. to
sell all 3,000,000 Scorpio common shares obtained as a part of the consideration
of the Transaction, at a price of $0.55 per share resulting in a gain of
$30,071.
71
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
2.
|
Sale of Property Interests and Related Assets
(Continued)
|
|
|
|
(b)
Royalty Agreement
|
|
|
|
On January 31, 2013, the Company entered into a purchase
and sale agreement with XDM Royalty Corp. ("XDM") to sell the Pinon
Railroad Royalty, a royalty retained by the Company on the sale of the
Pinon Railroad Project in 2009, and all rights, title and interests to XDM
for $900,000 Canadian dollars ($902,126 USD). Related transaction costs
amounted to $35,537 Canadian dollars ($35,621 USD).
|
|
|
3.
|
Significant Accounting Policies
|
|
|
|
[a]
Statement of compliance with
International Financial Reporting Standards (IFRS)
|
|
|
|
The financial statements have been prepared in accordance
with IFRS issued by the International Accounting Standards Board (IASB)
and interpretations issued by the IFRS Interpretations Committee of the
IASB. The policies set out below have been consistently applied to all
periods presented.
|
|
|
|
[b]
Accounting policies
|
|
|
|
Principles of
consolidation
|
|
|
|
These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Kentucky
Standard Energy Company, Inc. and Manhattan Mining Co., both United States
companies. All intercompany transactions and balances have been eliminated
upon consolidation.
|
|
|
|
Equipment
|
|
|
|
Equipment is recorded at cost less accumulated
depreciation. Depreciation is provided using the declining balance method
using the following rates:
|
|
Exploration equipment
|
- 25% to 30%
|
|
Office equipment
|
- 20%
|
|
Construction in progress
|
- nil, as not yet in service
|
At the end of each reporting period,
the Company reviews the carrying amounts of its equipment to determine whether
there is any indication that the equipment has suffered an impairment loss.
Where such an indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss. The
recoverable amount is the higher of the equipment's fair value less cost to sell
or its value in use.
72
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Exploration and evaluation
expenditures
|
|
|
|
The Company expenses exploration and evaluation
expenditures as incurred. Exploration and evaluation expenditures include
acquisition costs of mineral properties, property option payments and
evaluation activity.
|
|
|
|
Once a project has been established as commercially
viable and technically feasible, related development expenditure is
capitalized. This includes costs incurred in preparing the site for mining
operations. Capitalization ceases when the mine is capable of commercial
production, with the exception of development costs that give rise to a
future benefit.
|
|
|
|
Restoration, rehabilitation and
environmental obligations
|
|
|
|
A legal or constructive obligation to incur restoration,
rehabilitation and environmental costs may arise when environmental
disturbance is caused by the exploration, development or ongoing
production of a mineral property interest. Such costs arising from the
decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and recorded in the exploration
and evaluation expenditures, as soon as the obligation to incur such costs
arises. Discount rates using a pretax rate that reflects the time value of
money are used to calculate the net present value. These costs are charged
against profit or loss over the economic life of the related asset,
through amortization using either a unit-of- production or the
straight-line method as appropriate. The related liability is adjusted for
each period for the unwinding of the discount rate and for changes to the
current market-based discount rate, amount or timing of the underlying
cash flows needed to settle the obligation.
|
|
|
|
Share-based
payments
|
|
|
|
The fair value of the stock options granted to directors,
officers and employees is determined using the Black-Scholes option
pricing model and management's assumptions as disclosed in Note 15 and
recorded as share-based payments expense over the vesting period of the
stock options, with the offsetting credit recorded as an increase in
reserves. The fair value of stock options issued to other than employees
are measured at the fair value of the goods or services received unless
this cannot be reliably estimated, and are recognized over the period of
service.
|
|
|
|
If the stock options are exercised, the proceeds are
credited to share capital and the fair value at the date of grant is
reclassified from reserves to share capital.
|
|
|
|
Income taxes
|
|
|
|
Tax expense comprises current and deferred tax. Current
tax and deferred tax are recognized in profit or loss except to the extent
that it relates to a business combination, or items recognized directly in
equity or in other comprehensive income.
|
|
|
|
Current tax is the expected tax payable or receivable on
the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
|
73
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Income taxes
(continued)
|
|
|
|
Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences:
the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable
profit or loss, and differences relating to investments in subsidiaries
and jointly controlled entities to the extent that it is probable that
they will not reverse in the foreseeable future. In addition, deferred tax
is not recognized for taxable temporary differences arising on the initial
recognition of goodwill. Deferred tax is measured at the tax rates that
are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset if there is
a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the
same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously.
|
|
|
|
A deferred tax asset is recognized for unused tax losses,
tax credits and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which they
can be utilized. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.
|
|
|
|
Income (loss) per common
share
|
|
|
|
Basic income (loss) per share is computed by dividing the
income (loss) for the year by the weighted average number of common shares
outstanding during the year, including contingently issuable shares which
are included when the conditions necessary for issuance have been met.
Diluted income (loss) per share is calculated in a similar manner, except
that the weighted average number of common shares outstanding is increased
to include potentially issuable common shares from the assumed exercise of
common share purchase options and warrants, if dilutive. The number of
additional shares included in the calculation is based on the treasury
stock method for options and warrants.
|
|
|
|
Foreign currency
translation
|
|
|
|
The United States dollar is the functional and
presentation currency of the Company. Functional currency is also
determined for each of the Companys subsidiaries, and items included in
the financial statements of the subsidiary are measured using that
functional currency.
|
|
|
|
Transactions in currencies other than the functional
currency are translated into the functional currency using the exchange
rates prevailing at the dates of the transaction. Monetary assets and
liabilities not denominated in the functional currency are translated at
the year end rates of exchange. Foreign exchange gains and losses are
recognized in the statements of operations. Intercompany amounts with
foreign operations for which settlement is neither planned nor likely to
occur in the foreseeable future are part of the Companys net investment
in the foreign operation. Foreign exchange gains and losses related to
these intercompany amounts are included in accumulated other comprehensive
income.
|
74
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Financial instrument
s
|
|
|
|
The Company recognizes financial assets and financial
liabilities when the Company becomes a party to a contract. Financial
assets and financial liabilities, with the exception of financial assets
classified as at fair value through profit or loss, are measured at fair
value plus transaction costs on initial recognition. Financial assets at
fair value through profit or loss are measured at fair value on initial
recognition and transaction costs are expensed when incurred. Securities
are accounted for at the trade date.
|
|
|
|
Measurement in subsequent periods depends on the
classification of the financial instrument.
|
|
|
|
i) Financial assets at fair value through profit or loss
(FVTPL)
|
|
|
|
Financial assets are classified as FVTPL when acquired
principally for the purpose of trading, if so designated by management
(fair value option), or if they are derivative assets that are not part of
an effective and designated hedging relationship. Financial assets
classified as FVTPL are measured at fair value, with changes recognized in
the consolidated statements of operations.
|
|
|
|
The Companys financial assets classified as FVTPL
include cash and cash equivalents. The Company does not currently hold any
derivative instruments or apply hedge accounting.
|
|
|
|
ii) Available-for-sale financial assets
|
|
|
|
Financial assets are classified as available-for-sale
when so designated by management. Financial assets classified as
available-for-sale are measured at fair value, with changes recognized in
the other comprehensive income.
|
|
|
|
The Companys financial assets classified as
available-for-sale include marketable securities.
|
|
|
|
iii) Loans and receivables
|
|
|
|
Loans and receivables are non-derivative financial assets
that have fixed or determinable payments and are not quoted in an active
market. Subsequent to initial recognition, loans and receivables are
carried at amortized cost using the effective interest method.
|
|
|
|
Sundry receivables are classified as loans and
receivables.
|
|
|
|
iv) Financial liabilities at fair value through profit or
loss ("FVTPL")
|
|
|
|
This category comprises derivatives, or liabilities
acquired or incurred principally for the purpose of being sold or
repurchased in the near term. They are carried in the consolidated
statements of financial position at fair value with changes in fair value
recognized in the consolidated statements of operations.
|
|
|
|
Embedded derivative on long-term debt is classified as
FVTPL.
|
75
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Financial instruments
(continued)
|
|
|
|
iv) Financial liabilities at fair value through profit or
loss ("FVTPL") (continued)
|
|
|
|
The Company may enter into certain financial derivative
contracts in order to manage the exposure to market risks from
fluctuations in commodity prices. The Companys policy is not to utilize
derivative financial instruments for speculative purposes.
|
|
|
|
Embedded derivatives are separated from the host contract
and accounted for separately if the economic characteristics and risks of
the host contract and the embedded derivative are not closely related, a
separate instrument with the same terms as the embedded derivative would
meet the definition of a derivative, and the combined instrument is not
measured at fair value through the profit or loss. Changes in the fair
value of separable embedded derivatives are recognized immediately in
profit or loss.
|
|
|
|
v) Other financial liabilities
|
|
|
|
Other financial liabilities are financial liabilities
that are not classified as FVTPL. Subsequent to initial recognition, other
financial liabilities that are not subject to hedge accounting, are
measured at amortized cost using the effective interest method.
|
|
|
|
Accounts payable and accrued liabilities, due to related
parties, other advances and long-term debt are classified as other
financial liabilities. The Company does not currently apply hedge
accounting.
|
|
|
|
The effective interest method is a method of calculating
the amortized cost of an instrument and of allocating interest income over
the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees on points
paid or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) through the
expected life of the debt instrument to the net carrying amount on initial
recognition.
|
|
|
|
vi) Financial instruments recorded at fair
value:
|
|
|
|
Financial instruments recorded at fair value on the
consolidated statements of financial position are classified using a fair
value hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the following
levels: Level 1 - valuation based on quoted prices (unadjusted) in active
markets for identical assets or liabilities; Level 2 - valuation
techniques based on inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and Level 3 - valuation
techniques using inputs for the asset or liability that are not based on
observable market data (unobservable inputs). As of January 31, 2013 and
2012, the only financial assets or liabilities measured at fair value are
the Company's cash and cash equivalents, investment in Sharpe Resources
Corporation ("Sharpe") and embedded derivative on long-term debt. As at
January 31, 2013, Sharpe's fair market value was determined to be $30,000
(2012 - $150,000), and the embedded derivative on long-term debt's fair
market value was determined to be $nil (2012 -
$170,721).
|
76
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Financial instruments
(continued)
|
|
|
|
vi) Financial instruments recorded at fair value:
(continued)
|
|
|
|
Cash and cash equivalents and marketable securities are
considered Level 1 and embedded derivative on long-term debt is considered
Level 2 for purposes of the fair value hierarchy.
|
|
|
|
Significant accounting judgments and
estimate
s
|
|
|
|
The preparation of these consolidated financial
statements requires management to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of expenses
during the reporting period. Actual outcomes could differ from these
estimates. These consolidated financial statements include estimates that,
by their nature, are uncertain. The impacts of such estimates are
pervasive throughout the consolidated financial statements, and may
require accounting adjustments based on future occurrences. Revisions to
accounting estimates are recognized in the period in which the estimate is
revised and future periods if the revision affects both current and future
periods. These estimates are based on historical experience, current and
future economic conditions and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
|
|
|
|
Critical accounting estimates
|
|
|
|
Significant assumptions about the future that management
has made that could result in a material adjustment to the carrying
amounts of assets and liabilities, in the event that actual results differ
from assumptions made, relate to, but are not limited to, the
following:
|
|
|
the recoverability of sundry receivables that are
included in the consolidated statements of financial position;
|
|
|
the inputs used in accounting for share based payment
transactions in the consolidated statements of operations.
|
|
|
Contingencies - See note 19
|
Critical accounting judgments
|
|
the categorization of financial assets and liabilities is
an accounting policy that requires management to make judgments or
assessments;
|
|
|
management's assumption of material restoration,
rehabilitation and environmental obligations, based on the facts and
circumstances that existed during the period;
|
|
|
the measurement of income taxes payable and deferred
income tax assets and liabilities requires management to make judgments in
the interpretation and application of the relevant tax laws. Deferred tax
assets require management to assess the likelihood that the Company will
generate taxable income in future periods in order to utilize recognized
deferred tax assets;
|
77
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Significant accounting judgments and estimates
(continued)
Critical accounting judgments
(continued)
|
|
|
going concern presentation of the consolidated financial
statements which assumes that the Company will continue in operation for
the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of operations as they come
due; and
|
|
|
Management's determination that
the functional currency of the Company and each of its subsidiaries is
|
[c] New standards
Certain new standards, interpretations
and amendments to existing standards have been issued by the IASB or IFRIC that
are mandatory for accounting periods beginning after December 31, 2012, or later
periods. The following have not yet been adopted and are being evaluated to
determine their impact on the Company.
(i) IFRS 9 Financial instruments
(IFRS 9) was issued by the IASB in October 2010 and will replace IAS 39 -
Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 uses a
single approach to determine whether a financial asset is measured at amortized
cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS
9 is based on how an entity manages its financial instruments in the context of
its business model and the contractual cash flow characteristics of the
financial assets. Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged to IFRS 9.
The new standard also requires a single impairment method to be used, replacing
the multiple impairment methods in IAS 39. IFRS 9 is effective for annual
periods beginning on or after January 1, 2015. Earlier adoption is permitted.
(ii) IFRS 10 Consolidated financial
statements (IFRS 10) was issued by the IASB in May 2011. IFRS 10 is a new
standard which identifies the concept of control as the determining factor in
assessing whether an entity should be included in the consolidated financial
statements of the parent company. Control is comprised of three elements: power
over an investee; exposure to variable returns from an investee; and the ability
to use power to affect the reporting entitys returns. IFRS 10 is effective for
annual periods beginning on or after January 1, 2013.
(iii) IFRS 11 Joint arrangements
(IFRS 11) was issued by the IASB in May 2011. IFRS 11 is a new standard which
focuses on classifying joint arrangements by their rights and obligations rather
than their legal form. Entities are classified into two groups: parties having
rights to the assets and obligations for the liabilities of an arrangement, and
rights to the net assets of an arrangement. Entities in the former case account
for assets, liabilities, revenues and expenses in accordance with the
arrangement, whereas entities in the latter case account for the arrangement
using the equity method. IFRS 11 is effective for annual periods beginning on or
after January 1, 2013.
78
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[c]
New standards
(continued)
|
|
|
|
(iv) IFRS 12 Disclosure of interests in other entities
(IFRS 12) was issued by the IASB in May 2011. IFRS 12 is a new standard
which provides disclosure requirements for entities reporting interests in
other entities, including joint arrangements, special purpose vehicles,
and off balance sheet vehicles. IFRS 12 is effective for annual periods
beginning on or after January 1, 2013.
|
|
|
|
(v) IFRS 13 Fair value measurement (IFRS 13)
was issued by the IASB in May 2011. IFRS 13 is a new
|
|
|
|
standard which provides a precise definition of fair
value and a single source of fair value measurement considerations for use
across IFRSs. The key points of IFRS 13 are as
follows:
|
|
|
fair value is measured using the price in a principal
market for the asset or liability, or in the absence of a principal
market, the most advantageous market;
|
|
|
financial assets and liabilities with offsetting
positions in market risks or counterparty credit risks can be measured on
the basis of an entitys net risk exposure;
|
|
|
disclosures regarding the fair value hierarchy have been
moved from IFRS 7 to IFRS 13, and further guidance has been added to the
determination of classes of assets and liabilities;
|
|
|
a quantitative sensitivity analysis must be provided for
financial instruments measured at fair value;
|
|
|
a narrative must be provided discussing the sensitivity
of fair value measurements categorized under Level 3 of the fair value
hierarchy to significant unobservable inputs; and
|
|
|
information must be provided on an entitys valuation
processes for fair value measurements categorized under Level 3 of the
fair value hierarchy.
|
IFRS 13 is effective for annual periods
beginning on or after January 1, 2013.
(vi) IAS 1 Presentation of financial
statements (IAS 1) was amended by the IASB in June 2011 in order to align the
presentation of items in other comprehensive income with US GAAP standards.
Items in other comprehensive income will be required to be presented in two
categories: items that will be reclassified into profit or loss and those that
will not be reclassified. The flexibility to present a statement of
comprehensive income as one statement or two separate statements of profit and
loss and other comprehensive income remains unchanged. The amendments to IAS 1
are effective for annual periods beginning on or after July 1, 2012.
(vii) IAS 28 - Investments in
Associates and Joint Ventures (IAS 28) was issued by the IASB in May 2011 and
supersedes IAS 28 - Investments in Associates and prescribes the accounting for
investments in associates and sets out the requirements for the application of
the equity method when accounting for investments in associates and joint
ventures. IAS 28 defines significant influence as the power to participate in
the financial and operating policy decisions of the investee but is not control
or joint control of those policies. IAS 28 also provides guidance on how the
equity method of accounting is to be applied and also prescribes how investments
in associates and joint ventures should be tested for impairment. The amendments
to IAS 28 are effective for annual periods beginning on or after January 1,
2013.
79
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
3.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[c] New standards (continued)
|
|
|
|
(viii) IAS 32 Financial Instruments: Presentation (IAS
32) was amended by the IASB in December 2011 to clarify certain aspects
of the requirements on offsetting. The amendments focus on the criterion
that an entity currently has a legally enforceable right to set off the
recognized amounts and the criterion that an entity intends either to
settle on a net basis, or to realize the asset and settle the liability
simultaneously. The amendments to IAS 32 are effective for annual periods
beginning on or after January 1, 2014. Earlier adoption is
permitted.
|
|
|
4.
|
Capital Management
|
|
|
|
The Company manages its capital with the following
objectives:
|
|
|
to ensure sufficient financial flexibility to achieve the
ongoing business objectives including funding of future growth
opportunities, and pursuit of accretive acquisitions; and
|
|
|
to maximize shareholder return through enhancing the
share value.
|
The Company monitors its capital
structure and makes adjustments according to market conditions in an effort to
meet its objectives given the current outlook of the business and industry in
general. The Company may manage its capital structure by issuing new shares,
repurchasing outstanding shares, adjusting capital spending, or disposing of
assets. The capital structure is reviewed by Management and the Board of
Directors on an ongoing basis.
The Company's equity comprises of share
capital, reserves, accumulated deficit and accumulated other comprehensive
income, which at January 31, 2013 was a deficiency of $147,784 (2012 -
deficiency of $5,810,547). Note that included in the statements of financial
position presented is a deficit of $39,262,352 as at January 31, 2013 (2012 -
$44,553,494).
The Company manages capital through its
financial and operational forecasting processes. The Company reviews its working
capital and forecasts its future cash flows based on operating expenditures, and
other investing and financing activities. The forecast is regularly updated
based on activities related to its mineral properties. Selected information is
provided to the Board of Directors of the Company. The Companys capital
management objectives, policies and processes have remained unchanged during the
years ended January 31, 2013 and 2012. The Company is not subject to external
capital requirements.
80
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
5.
|
Property and Financial Risk Factors
|
|
|
|
(a)
Property risk
|
|
Unless the Company acquires or develops additional
significant resource properties, the Company will be solely dependent upon
its current projects. If no additional mineral properties are acquired by
the Company, any adverse development affecting its current projects would
have a material adverse effect on the Company's financial condition and
results of operations.
|
|
|
|
(b)
Financial risk factors
|
|
The Companys activities expose it to a variety of
financial risks: credit risk, liquidity risk and market risk (including
interest rate, foreign exchange rate, and commodity price risk).
|
|
|
|
Risk management is carried out by the Company's
management team with guidance from the Audit Committee under policies
approved by the Board of Directors. The Board of Directors also provides
regular guidance for overall risk management.
|
(i) Credit risk
Credit risk is the risk of loss
associated with a counterpartys inability to fulfill its payment obligations.
The Company's credit risk is primarily attributable to cash, sundry receivables
and reclamation bonds. The Company has no significant concentration of credit
risk arising from operations. Cash and reclamation bonds are held with reputable
financial institutions, from which management believes the risk of loss to be
minimal. Sundry receivables relate to the disposal of marketable securities and
the sale of royalty and these balances are in good standing.
(ii) Liquidity risk
The Company's approach to managing
liquidity risk is to ensure that it will have sufficient liquidity to meet
liabilities when due (see note 1). As at January 31, 2013, the Company had a
cash balance of $201,565 (2012 - $629,553) to settle current liabilities of
$3,195,672 (2012 - $6,120,109). All of the Company's financial liabilities have
contractual maturities of less than 60 days and are subject to normal trade
terms.
(iii) Market risk
Market risk is the risk of loss that
may arise from changes in market factors such as interest rates, foreign
exchange rates, and commodity and equity prices.
Interest rate risk
The
Company has cash balances and no interest-bearing debt. The Company's current
policy is to invest excess cash in guaranteed investment certificates, bankers
acceptance and money market deposits, with reputable financial institutions. The
interest rate risk is remote.
81
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
5.
|
Property and Financial Risk Factors
(Continued)
|
(b) Financial risk factors
(continued)
(iii) Market risk (continued)
Foreign currency risk
The
Company's functional and reporting currency is the United States dollar and
major purchases are transacted in United States dollars. An operating account is
maintained in Canadian dollars primarily for settlement of general and corporate
expenditures.
Commodity price risk
The
Company is exposed to price risk with respect to commodity and equity prices.
Equity price risk is defined as the potential adverse impact on the Company's
earnings due to movements in individual equity prices or general movements in
the level of the stock market. Commodity price risk is defined as the potential
adverse impact on earnings and economic value due to commodity price movements
and volatilities. The Company closely monitors commodity prices, as they relate
to gold and precious metals in the United States, individual equity movements,
and the stock market to determine the appropriate course of action to be taken
by the Company.
(c) Sensitivity analysis
As
of January 31, 2013, the carrying and fair value amounts of the Company's
financial instruments are approximately equivalent.
Based on management's knowledge and
experience of the financial markets, the Company believes the following
movements are "reasonably possible" over a twelve month period:
|
|
The Company's marketable securities are subject to fair
value fluctuations. As at January 31, 2013, if the fair value of the
marketable securities had decreased/increased by 10% with all other
variables held constant, net income (loss) and comprehensive income (loss)
for the year ended January 31, 2013 would have been approximately $3,000
higher/lower. Similarly, as at January 31, 2013, reported shareholders'
equity would have been approximately $3,000 lower/higher as a result of a
10% decrease/increase in the fair value of marketable securities.
|
|
|
|
|
|
Cash, sundry receivables, and accounts payable and
accrued liabilities denominated in Canadian dollars are subject to foreign
currency risk. As at January 31, 2013, had the US dollar
weakened/strengthened by 5% against the Canadian dollar with all other
variables held constant, it would affect net income (loss) and
comprehensive income (loss) by approximately $104,000.
|
82
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
5.
|
Property and Financial Risk Factors (Continued) (c)
Sensitivity analysis (continued)
|
|
|
Commodity price risk could adversely affect the Company.
In particular, the Companys future profitability and viability of
development depends upon the world market price of gold and precious
metals. Gold and precious metals have fluctuated widely in recent years.
There is no assurance that, even if commercial quantities of gold and
precious metals may be produced in the future, a profitable market will
exist for them. A decline in the market price of gold and precious metals
may also require the Company to reduce its mineral properties, which could
have a material and adverse effect on the Companys value. As of January
31, 2013, the Company is not a gold or precious metals producer. As a
result, commodity price risk may affect the completion of future equity
transactions such as equity offerings and the exercise of stock options
and warrants. This may also affect the Company's liquidity and its ability
to meet its ongoing obligations.
|
6.
|
Marketable Securities
|
|
|
|
Marketable securities consist of 2,000,000 common shares
of Sharpe. Sharpe is a publicly held Canadian company engaged in the
exploration and development of coal properties in the United States.
Sharpe was considered to be related to the Company because of common
management prior to the termination of the former CEO's employment in
December 2011. The market value of the shares at January 31, 2013 was
$30,000 (2012 - $150,000). On January 31, 2013, it was determined that the
common shares of Sharpe were impaired based on a continued and significant
decline in market value. As a result an impairment of marketable
securities of $56,125 was recorded during the year.
|
|
|
7.
|
Sundry Receivables and
Prepaids
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Sales tax receivables
|
$
|
53,589
|
|
$
|
71,415
|
|
|
Other receivables
|
|
2,618,794
|
|
|
60,094
|
|
|
Prepaid expenses
|
|
39,621
|
|
|
24,766
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,712,004
|
|
$
|
156,275
|
|
Included in other receivables is
$1,651,320 due on the sale of the Scorpio common shares (see note 2(a)),
$900,720 due on the sale of the Royalty (see note 2(b)) and $57,481 due from the
Bureau of Land Management in the State of Nevada and a banking institution, in
connection with certain reclamation bonds sold to Scorpio.
83
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
8.
|
Reclamation Bonds
|
|
|
|
The Company has posted reclamation bonds for its mining
projects, as required by the States of Nevada and Kentucky, to secure
clean-up costs if the projects are abandoned or closed. As part of the
sale of its Goldwedge and Piñon property interests and related assets (see
note 2(a)), $453,495 of reclamation bonds were sold to Scorpio. As at
January 31, 2013, the balance consists of $9,550 of the reclamation bonds
pertaining to the Fondaway Canyon and Dixie-Comstock Projects, and
$178,700 (see note 19(c)) to the Kentucky Project.
|
|
|
9.
|
Exploration and Evaluation Expenditures on Mineral
Properties
|
|
|
|
(a)
Goldwedge Project
|
|
The Goldwedge Project, a property previously owned by the
Company, represented the Company's most advanced project and was located
in the Manhattan District in Nye County, Nevada, approximately eight miles
south of the Round Mountain mine and had been issued a mine and mill
permit by the Nevada Division of Environmental Protection. The Company was
completing refurbishment of the on-site processing plant which was used
for the test mining and processing that took place in 2007 and 2008. The
process included primary crushing and grinding facilities that fed a
gravity recovery system. In addition, dry stack tailings containment as
well as silt and fresh water ponds were in place. Testing of the various
mineral processing functions extracted stockpiles of low grade gold feed
material, as well as concurrently newly mined material. The feed material
was processed into gold dore on site. All mineralized material was sampled
daily and analyzed for gold content at the Company's onsite assay
laboratory. In addition, the Company sent samples for analysis to an
independent laboratory located offsite.
|
|
|
|
Based on the existing level of terrestrial disturbance
and water treatment and monitoring requirements, the discounted ARO's for
all projects, where applicable, has been estimated by management. The
assumptions for the future payments are based on future expenses being
incurred between 2017 and 2019 and a discount rate of 10%. Under the
guidance of IAS 37, the Company had recorded an asset retirement
obligation ("ARO") of $183,445 on this project, representing the estimated
costs, on a discounted basis, of the Company's obligation to restore the
site to its original condition.
|
|
|
|
During the year ended January 31, 2013, a total of
$2,803,375 of exploration and evaluation expenditures were spent on the
Goldwedge Project prior to the sale of the Goldwedge Project and related
assets, including the ARO, to Scorpio (note 2(a)).
|
|
|
|
(b)
Dixie-Comstock Project
|
|
Also held under the same option agreement as was the
Goldwedge Property is the Dixie-Comstock Mining Company option and other
unpatented mining claims located in Churchill County, Nevada. In 2010, the
Company exercised its option to purchase these unpatented and patented
mining claim groups. Under the guidance of IAS 37, the Company has
recorded an ARO of $2,774 on the Dixie-Comstock and Fondaway Canyon
Projects, representing the estimated costs, on a discounted basis, of the
Company's obligation to restore the sites to their original condition.
During the year ended January 31, 2013, the Company did not perform any
exploration on this project.
|
84
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
9.
|
Exploration and Evaluation Expenditures on Mineral
Properties (Continued)
|
|
|
|
(c)
Piñon Project
|
|
The Piñon Project was a property made up of a number of
property leases located in Elko Country, Nevada. Under the guidance of IAS
37, the Company had recorded an ARO of $28,495 on this project,
representing the estimated costs, on a discounted basis, of the Company's
obligation to restore the site to its original condition. During the year
ended January 31, 2013, the Company performed minimal exploration and
evaluation expenditures on this project, a total of $104,696, prior to the
sale of the Piñon Project and related assets, including the ARO, to
Scorpio (note 2(a)).
|
|
|
|
(d)
Fondaway Canyon Project
|
|
The Fondaway Canyon Project is located in Churchill
County, Nevada. During the year ended January 31, 2013, the Company
performed minimal exploration on this project.
|
|
|
|
(e)
Kentucky Project
|
|
On December 7, 2011, the Company exercised its option to
acquire a 50% interest in certain coal projects in Eastern Kentucky. The
option was originally acquired by the Company pursuant to an option and
joint venture agreement entered into with Sharpe on November 21, 2008 and
amended on September 11, 2009, to jointly pursue the exploration and
development of approximately 1,000 acres in Wolfe County,
Kentucky.
|
|
|
|
During the year ended January 31, 2011, the Company wrote
off a promissory note receivable from the optionor in the amount of
$133,134. Further, the Company paid for a reclamation bond of $178,700,
included in the consolidated statements of financial position under
reclamation bonds.
|
|
|
|
Under the guidance of IAS 37, the Company has recorded an
ARO on its Kentucky Project in the amount of $104,873, representing the
estimated costs, on a discounted basis, of the Company's obligation to
restore the property to its original condition.
|
|
|
|
During the year ended January 31, 2013, the Company
incurred exploration and evaluation expenditures of $161,317 on this
project.
|
|
|
|
In August 2009, the Company retained a 1% net smelter
royalty on the sale of the Piñon Railroad Project, which it sold during
the year ended January 31, 2013 (note 2(b)).
|
85
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
9.
|
Exploration and Evaluation Expenditures on Mineral
Properties (Continued)
|
|
|
|
During the years ended January 31, 2013 and 2012, the
Company's exploration and evaluation expenditures were as
follows:
|
|
Years ended
January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Goldwedge Project
|
|
|
|
|
|
|
|
Travel
|
$
|
27,709
|
|
$
|
71,292
|
|
|
Mine development costs
|
|
1,878,956
|
|
|
397,626
|
|
|
Drilling
|
|
71,884
|
|
|
40,206
|
|
|
Professional fees
|
|
-
|
|
|
113,442
|
|
|
Consulting, wages and salaries (Note
18)
|
|
736,060
|
|
|
1,238,299
|
|
|
Office and general
|
|
130,011
|
|
|
324,686
|
|
|
Analysis and assays
|
|
-
|
|
|
7,392
|
|
|
Supplies, equipment and transportation
|
|
48,240
|
|
|
353,312
|
|
|
Claim staking and maintenance fees
|
|
11,743
|
|
|
11,743
|
|
|
Milling costs
|
|
161,474
|
|
|
-
|
|
|
Depreciation
|
|
104,819
|
|
|
124,231
|
|
|
Net proceeds
from sale of exploration and development ore
|
|
(367,521
|
)
|
|
-
|
|
|
|
$
|
2,803,375
|
|
$
|
2,682,229
|
|
|
|
|
|
|
|
|
|
|
Piñon Project
|
|
|
|
|
|
|
|
Property acquisition costs
|
$
|
46,158
|
|
$
|
79,571
|
|
|
Consulting, wages and salaries
|
|
20,859
|
|
|
1,617
|
|
|
Office and general
|
|
11,479
|
|
|
-
|
|
|
Claim staking and maintenance fees
|
|
26,200
|
|
|
26,200
|
|
|
|
$
|
104,696
|
|
$
|
107,388
|
|
|
|
|
|
|
|
|
|
|
Fondaway Canyon and Dixie-Comstock Projects
|
|
|
|
|
|
|
|
Property acquisition costs
|
$
|
35,000
|
|
$
|
35,000
|
|
|
Claim
staking and maintenance fees
|
|
32,817
|
|
|
32,817
|
|
|
|
$
|
67,817
|
|
$
|
67,817
|
|
|
|
|
|
|
|
|
|
|
Kentucky Project
|
|
|
|
|
|
|
|
Travel
|
$
|
-
|
|
$
|
12,764
|
|
|
Consulting, wages and salaries
|
|
-
|
|
|
46,300
|
|
|
Office and general
|
|
7,521
|
|
|
12,794
|
|
|
Penalty (Note 19 (c))
|
|
145,000
|
|
|
-
|
|
|
Professional fees
|
|
-
|
|
|
2,400
|
|
|
Supplies, equipment and
transportation
|
|
-
|
|
|
10,552
|
|
|
Depreciation
|
|
8,796
|
|
|
12,112
|
|
|
|
$
|
161,317
|
|
$
|
96,922
|
|
|
|
|
|
|
|
|
|
|
Total exploration activities
|
$
|
3,137,205
|
|
$
|
2,954,356
|
|
86
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
|
|
|
Construction
|
|
|
Exploration
|
|
|
Office
|
|
|
|
|
|
COST
|
|
in progress
|
|
|
equipment
|
|
|
equipment
|
|
|
Total
|
|
|
Balance, January 31, 2011
|
$
|
-
|
|
$
|
2,977,464
|
|
$
|
21,806
|
|
$
|
2,999,270
|
|
|
Additions
|
|
1,619,341
|
|
|
148,536
|
|
|
-
|
|
|
1,767,877
|
|
|
Balance, January 31, 2012
|
|
1,619,341
|
|
|
3,126,000
|
|
|
21,806
|
|
|
4,767,147
|
|
|
Additions
|
|
2,704,338
|
|
|
48,472
|
|
|
-
|
|
|
2,752,810
|
|
|
Sale of equipment (Note 2(a))
|
|
(4,323,679
|
)
|
|
(3,085,472
|
)
|
|
(21,806
|
)
|
|
(7,430,957
|
)
|
|
Balance, January 31, 2013
|
$
|
-
|
|
$
|
89,000
|
|
$
|
-
|
|
$
|
89,000
|
|
|
|
|
Construction
|
|
|
Exploration
|
|
|
Office
|
|
|
|
|
|
ACCUMULATED DEPRECIATION
|
|
in progress
|
|
|
equipment
|
|
|
equipment
|
|
|
Total
|
|
|
Balance, January 31, 2011
|
$
|
-
|
|
$
|
2,525,415
|
|
$
|
20,122
|
|
$
|
2,545,537
|
|
|
Depreciation for the year
|
|
-
|
|
|
136,343
|
|
|
931
|
|
|
137,274
|
|
|
Balance, January 31, 2012
|
|
-
|
|
|
2,661,758
|
|
|
21,053
|
|
|
2,682,811
|
|
|
Depreciation for the year
|
|
-
|
|
|
113,615
|
|
|
379
|
|
|
113,994
|
|
|
Sale of equipment (Note 2(a))
|
|
-
|
|
|
(2,710,089
|
)
|
|
(21,432
|
)
|
|
(2,731,521
|
)
|
|
Balance, January 31, 2013
|
$
|
-
|
|
$
|
65,284
|
|
$
|
-
|
|
$
|
65,284
|
|
|
|
|
Construction
|
|
|
Exploration
|
|
|
Office
|
|
|
|
|
|
CARRYING AMOUNT
|
|
in progress
|
|
|
equipment
|
|
|
equipment
|
|
|
Total
|
|
|
Balance, January 31, 2012
|
$
|
1,619,341
|
|
$
|
464,242
|
|
$
|
753
|
|
$
|
2,084,336
|
|
|
Balance, January 31, 2013
|
$
|
-
|
|
$
|
23,716
|
|
$
|
-
|
|
$
|
23,716
|
|
|
Construction in progress relates to the refurbishment of
the mill at the Company's Goldwedge Project. Included in the construction
in progress are capitalized interest costs of $895,055 (January 31, 2012 -
$54,216). During the year ended January 31, 2013, the construction in
progress was sold to Scorpio (note 2(a)).
|
|
|
|
Depreciation of exploration equipment is expensed to
exploration and evaluation expenditures and depreciation of office
equipment is expensed to general and administrative on the consolidated
statements of operations.
|
|
|
11.
|
Accounts Payable and Accrued
Liabilities
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
$
|
2,145,407
|
|
$
|
579,664
|
|
|
Accrued
liabilities
|
|
450,265
|
|
|
2,454,099
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,595,672
|
|
$
|
3,033,763
|
|
Included in accrued liabilities are
accrued finance costs of $nil (2012 - $78,814) and accrued costs in connection
with the construction in progress, totaling $nil (2012 - $895,223).
87
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
12.
|
Asset Retirement Obligations
|
|
|
|
The Company is required to recognize a liability for a
legal and constructive obligation to perform asset retirement activities,
including decommissioning, reclamation and environmental monitoring
activities once any of its projects are permanently closed. Although these
activities are conditional upon future events, the Company is required to
make a reasonable estimate of the fair value of the liability. Based on
the existing level of terrestrial disturbance and water treatment and
monitoring requirements, the discounted asset retirement obligations
("AROs") were estimated to be $107,647 as at January 31, 2013, assuming
future payments of $188,250 being made over a ten year period from the
date of initial assessment of the AROs and a discount rate of
10%.
|
|
|
|
Determination of the undiscounted AROs and the timing of
these obligations were based on internal estimates using information
currently available, existing regulations, and estimates of closure costs.
During the year ended January 31, 2012, the Company determined an
additional $52,165 increase in AROs related to the Company's Goldwedge
Project. The following is the reconciliation of the
AROs:
|
|
Year ended January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
$
|
292,315
|
|
$
|
232,010
|
|
|
Increase in asset retirement obligations
|
|
-
|
|
|
52,165
|
|
|
Accretion cost
|
|
29,226
|
|
|
8,140
|
|
|
Foreign exchange
|
|
(1,954
|
)
|
|
-
|
|
|
Sale of AROs (Note 2(a))
|
|
(211,940
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
$
|
107,647
|
|
$
|
292,315
|
|
13.
|
Long-Term Debt
|
|
|
|
On August 26, 2011, Manhattan amended its existing Bridge
Loan with Waterton Global Value, L.P. ("Waterton") such that the Bridge
Loan was transitioned into a more permanent senior secured gold stream
debt facility (the Gold Stream Facility) amongst the parties. Under the
Gold Stream Facility, Waterton agreed to make $8,000,000 (the Principal
Amount) available to Manhattan. The Principal Amount was repayable by
Manhattan to Waterton in monthly payments commencing in August 2012 and
ending in July 2013 (see note 2). Under the Gold Stream Facility, each
monthly repayment of the Principal Amount was to be made by the delivery
by Manhattan to Waterton of gold bullion ounces where the number of ounces
to be delivered was to be based on the spot price of gold on the business
day immediately preceding the repayment date less an applicable discount
or by the payment of the cash equivalent of such number of ounces. In
addition, there was a profit participation formula which was triggered
when the spot price of gold was in excess of $1,600 an ounce on the
business day immediately preceding the repayment ("Profit Participation").
The Principal Amount accrued interest at 9.0% per annum. The Gold Stream
Facility was secured by, amongst other items, Manhattan's real property
assets in Nevada.
|
88
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
13.
|
Long-Term Debt (Continued)
|
|
|
|
The Company considered Profit Participation as an
embedded derivative. Prior to the sale to Scorpio, the gross proceeds
received under the Gold Stream Facility of $11,432,734 was allocated to
the embedded derivative based on the initial fair values of the embedded
derivative determined when proceeds were received ($223,630), and then the
residual value was allocated to the liability portion. As noted in note 2,
the Company's obligation with Waterton under the Gold Stream Facility was
assumed by Scorpio when the Sale Transaction was completed, and as such,
the value of the embedded derivative was determined using the gold spot
price as at October 30, 2012.
|
|
|
|
As consideration for entering into the Gold Stream
Facility, a structuring fee equal to 2% of the aggregate amount of the
Gold Stream Facility and an establishment fee of $80,000 was payable by
Manhattan to Waterton and Manhattan also granted Waterton certain royalty
interests over its exploration stage projects. In addition, Manhattan and
Waterton agreed that Waterton shall have the right to purchase all of the
gold produced by Manhattan from its Nevada projects at a price per ounce
that would be equal to an agreed discount to the existing spot price of
gold at the time of any such purchase. Bayfront Capital Partners Ltd.
acted as placement agent in connection with the Gold Stream Facility in
consideration for a placement fee equal to 4% of the Principal Amounts
actually drawn by Manhattan on the Gold Stream Facility.
|
|
|
|
The Gold Stream Facility contained covenants for
Manhattan such as, among other things, providing Waterton with updates on
its operations, carrying on its business in accordance with prudent mining
industry practices, and providing Waterton with certain rights of
inspection. Until all amounts outstanding under the Gold Stream Facility
have been repaid in full or otherwise satisfied in accordance with the
terms of such facility, certain standard restrictive covenants shall apply
to Manhattan limiting its ability to (without limitation): incur
additional indebtedness, create liens on its assets or dispose of its
assets. These negative covenants were subject to certain carve-outs that
facilitate Manhattan's ability to operate its business efficiently. The
Gold Stream Facility also included certain event of default provisions
pursuant to which, immediately and automatically upon the occurrence of an
event of default, all amounts outstanding under the Gold Stream Facility
would be automatically accelerated and immediately due and payable to
Waterton.
|
|
|
|
At any time, without penalty, the Gold Stream Facility
provided Manhattan the option to prepay in whole or in part, on 5 business
days prior notice. Prepayments were permitted to be made in physical gold
ounces or cash. The amount of any prepayment was to be calculated using
the spot price of gold on the business day immediately preceding the
prepayment.
|
|
|
|
During the year ended January 31, 2013, the Company
secured two additional $2,000,000 loan extensions from Waterton, bringing
the total facility to $12,000,000. In consideration for the loan
extensions, the Company provided Waterton with additional net smelter
return royalties on several of its properties, including Piñon and
Fondaway Canyon, and a 2% structuring fee.
|
|
|
|
On the completion of the Transaction, Scorpio assumed the
Company's total long-term debt balance of $16,681,110 which included
interest payable of $973,376 (note 2(a)).
|
89
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
13. Long-Term Debt
(Continued)
The following table shows the
reconciliation between the gross proceeds received and the carrying value of
long-term debt balance assumed by Scorpio.
|
Gross
proceeds
|
$
|
11,432,734
|
|
|
Less: Initial fair value of the embedded derivative
|
|
(170,721
|
)
|
|
Less: Debt issuance cost
|
|
(640,000
|
)
|
|
Add: Accretion
costs
|
|
6,059,097
|
|
|
Long-term debt
|
$
|
16,681,110
|
|
In addition to the loan, Waterton
provided the Company with other advances (non-interest bearing) totalling
$600,000, presented as other advances under current liabilities. These advances
were secured by certain of Manhattan's real property assets in Nevada and were
due May 1, 2013. Subsequent to year end, the Company repaid these advances.
14. Share
Capital
(a) Authorized
The authorized capital of the Company
consists of an unlimited number of common shares without par
value.
(b) Issued
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Balance, January
31,
2011 and 2012
|
|
83,853,825
|
|
$
|
28,098,264
|
|
|
|
|
|
|
|
|
|
|
Shares issued for lawsuit settlement (i)
|
|
100,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
Balance, January
31,
2013
|
|
83,953,825
|
|
$
|
28,104,264
|
|
During the year, the Company settled a
claim filed in the District Court, Nye County, Nevada through the issuance of
100,000 shares of the Company and a monetary settlement of $35,000. The monetary
settlement was paid by year-end.
15. Stock
Options
Under the Company's stock option plan
(the "Option Plan"), the directors of the Company can grant options to acquire
common shares of the Company to directors, employees and others who provide
ongoing services to the Company. Exercise prices cannot be less than the closing
price of the Company's shares on the trading day preceding the grant date and
the maximum term of any option cannot exceed ten years.
The number of common shares under
option at any time under the Option Plan or otherwise cannot exceed 5% of the
then outstanding common shares of the Company for any optionee. In addition,
options granted to insiders of the Company cannot exceed more than 10% of the
then outstanding common shares of the Company. A portion of the stock options
vest immediately on the grant date and the balance vest over a period of two
years from the grant date.
90
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
15. Stock Options
(Continued)
Option pricing models require the input
of highly subjective assumptions including the expected price volatility.
Changes in the subjective input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily provide a
reliable measure of the fair value of the Company's share purchase options.
The following table reflects the
continuity of stock options for the years ended January 31, 2013 and 2012:
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Balance, January
31,
2011
|
|
7,904,691
|
|
$
|
0.10
|
|
|
Cancelled
|
|
(544,500
|
)
|
$
|
0.10
|
|
|
Granted
|
|
4,700,000
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Balance, January
31,
2012
|
|
12,060,191
|
|
$
|
0.17
|
|
|
Forfeited
|
|
(8,260,191
|
)
|
$
|
0.14
|
|
|
Balance, January
31,
2013
|
|
3,800,000
|
|
$
|
0.27
|
|
The following table reflects the stock
options outstanding and exercisable as at January 31, 2013:
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Options
|
|
|
Fair
|
|
|
Weighted average
|
|
|
Expiry Date
|
|
($)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Value
|
|
|
remaining years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2014
|
|
0.10
|
|
|
650,000
|
|
|
650,000
|
|
$
|
353,480
|
|
|
1.40
|
|
|
January 20, 2017
|
|
0.30
|
|
|
3,150,000
|
|
|
2,400,000
|
|
|
894,600
|
|
|
3.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
3,050,000
|
|
$
|
1,248,080
|
|
|
3.53
|
|
91
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
16.
|
Basic and Diluted Income (Loss) Per
Share
|
|
|
|
The following table sets forth the computation of basic
and diluted income (loss) per share:
|
|
For the years
ended January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Income (loss) for
the year
|
$
|
5,291,142
|
|
$
|
(6,451,698
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding for basic income (loss) per share
|
|
83,885,036
|
|
|
83,853,825
|
|
|
Weighted average
number of common shares outstanding for diluted income (loss) per share
|
|
83,986,566
|
|
|
83,853,825
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
$
|
0.06
|
|
$
|
(0.08
|
)
|
|
Diluted income (loss) per share
|
$
|
0.06
|
|
$
|
(0.08
|
)
|
|
The stock options were not included in the computation of
diluted loss per share on January 31, 2012 as their inclusion would be
anti-dilutive.
|
|
|
17.
|
Income Taxes
|
|
|
|
The following table reconciles the expected income tax
expense (recovery) at the Canadian statutory income tax rate at 26.50%
(2012 - 28.08%) to the amounts recognized in the consolidated statements
of operations:
|
|
|
|
2013
|
|
|
2012
|
|
|
Net income (loss) before income taxes
|
$
|
5,291,142
|
|
$
|
(6,451,698
|
)
|
|
Expected tax expense (recovery) at statutory rate
|
$
|
1,402,153
|
|
$
|
(1,811,637
|
)
|
|
Permanent differences
|
|
113,816
|
|
|
141,507
|
|
|
Difference between Canadian and foreign tax rates
|
|
598,950
|
|
|
(270,193
|
)
|
|
Utilization of tax benefits not previously
recognized
|
|
(2,466,265
|
)
|
|
-
|
|
|
Tax benefits not
recognized
|
|
351,346
|
|
|
1,940,323
|
|
|
Tax provision
|
$
|
-
|
|
$
|
-
|
|
The Canadian statutory tax rate changed
from 28.08% for the year ended January 31, 2012 to 26.50% for the year ended
January 31, 2013 as a result of the enacted reduction of Canadian corporate tax
rates.
92
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
17. Income Taxes
(Continued)
Deferred Tax Assets and
Liabilities
(a) Unrecognized deferred tax
assets
Deferred tax assets are recognized for
the carry-forward or unused tax losses and unused tax credits to the extent that
it is probably that taxable profits will be available against which the unused
tax losses/credits can be utilized. The following represents the deductible
temporary differences by jurisdiction which have not been recognized in the
financial statements.
|
|
|
2013
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
|
Canada
|
|
|
US
|
|
|
Canada
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unclaimed non-capital losses
|
$
|
8,746,064
|
|
$
|
30,140,498
|
|
$
|
7,476,735
|
|
$
|
37,465,416
|
|
|
Excess of
unclaimed resources pools over carrying value of exploration properties
|
|
1,590,124
|
|
|
-
|
|
|
1,475,829
|
|
|
-
|
|
|
|
$
|
10,336,188
|
|
$
|
30,140,498
|
|
$
|
8,952,564
|
|
$
|
37,465,416
|
|
The excess of unclaimed resources pools
over carrying value of exploration properties can be carried forward
indefinitely. The unclaimed non-capital losses carried forward by expiry
date:
|
|
|
|
Canada
|
|
|
Expires
|
2015
|
$
|
634,757
|
|
|
|
2026
|
|
859,708
|
|
|
|
2027
|
|
839,699
|
|
|
|
2028
|
|
1,035,352
|
|
|
|
2029
|
|
647,277
|
|
|
|
2030
|
|
1,147,781
|
|
|
|
2031
|
|
492,214
|
|
|
|
2032
|
|
1,819,945
|
|
|
|
2033
|
|
1,269,331
|
|
|
|
|
$
|
8,746,064
|
|
|
The Company also has US tax losses of $30,140,498 that
will expire between 2027 and 2032.
|
|
|
18.
|
Related Party Transactions and Balances
|
|
|
|
Remuneration of Directors and key management personnel of
the Company was as follows:
|
|
For the years
ended January 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits paid to directors and
officers
(1)
|
$
|
505,259
|
|
$
|
471,380
|
|
|
Share-based
payments
|
$
|
403,231
|
|
$
|
501,799
|
|
93
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
18. Related Party
Transactions and Balances (Continued)
(1)
Salaries and
benefits include director fees. The Board of Directors do not have employment or
service contracts with the Company, except for Ken Strobbe, who provided mine
consulting services at the Goldwedge Project totaling $73,607 for the year ended
January 31, 2013 (2012 - $nil), included under consulting, wages and salaries
for the Goldwedge Project. Directors are entitled to director fees and stock
options for their services. In addition, James B. Clancy received an honorarium
of $10,000, included above, for providing consulting services in connection with
the Kentucky Project for the year ended January 31, 2013 (2012 - $nil) and John
Fitzgerald, a past director, received $9,900 for services in connection with the
due diligence process for the Scorpio transaction. The payment is included in
transactions costs (see note 2(a)).
Paul G. Smith, a director and Chairman
of the Board, is the President and Chief Executive Officer of Equity Financial
Holdings Inc. ("Equity"), a company providing financial services to the Company.
Services provided by Equity totaled $13,223 for the year ended January 31, 2013
(2012 - $8,387).
Due to related parties balance at
January 31, 2013 consists of $nil (2012 - $22,607) owing to the former CEO and
$nil owing to Sharpe (2012 - $12,416). In addition, included in accounts payable
and accrued liabilities is $nil (2012 - $18,677) owing to the former CEO.
19.
Contingencies
(a) The Company received documents
filed in the District Court, Nye County, Nevada, whereby an optionor of mining
claims in Nye County, Nevada acquired by the Company, is contending the surface
rights acquired by the Company for a patented mining claim. In the opinion of
management, the legal proceedings are without merit and the Company intends to
vigorously defend itself against this claim.
(b) The Company's wholly-owned
subsidiary, Manhattan Mining Co., received documents filed in the District
Court, Nye County, Nevada, from a former vendor contending damages for breach of
contract. The vendor is also seeking damages for unjust enrichment and related
attorneys' fees and costs of the suit. The damages sought for breach of contract
and unjust enrichment total $37,500. On April 24, 2013, a court appointed
arbitrator found in favour of the plaintiff in the amount of $20,612. This
amount has been included in accounts payable and accrued liabilities.
(c) The Company received an action
against it whereby the Company was requested by a prior lease holder to take any
and all steps necessary to ensure that the prior lease holders bear no
responsibilities or liability for the Companys failure to comply with the rules
and regulations of the Kentucky Energy and Environment Cabinet, Division of Mine
Enforcement and Reclamation (the DMER). Management has responded to the DMER
and is working on resolving the issue. In the meantime, the DMER has issued
penalties of approximately $145,000 and is seeking forfeiture of the Company's
reclamation bond in the amount of $178,700. These penalties have been included
in accounts payable and accrued liabilities.
94
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2013 and 2012
|
19.
|
Contingencies (Continued)
|
|
|
|
(d) On September 27, 2011 Hale Capital Management, LP and
Hale Capital Partners, LP (together, Hale Capital) commenced an action
in the New York Supreme Court alleging breach of contract in relation to a
term sheet entered into between the Company and Hale Capital on December
11, 2010 (the Term Sheet), which set out preliminary terms for Hale to
provide financing of up to $15 million for the Companys Goldwedge Project
(the Hale Transaction). Hale Capital is seeking the right to
participate in financing the Company on no less favourable terms and
conditions as was agreed upon between the Company and Waterton on June 29,
2011 or, in the alternative, damages for breach of the exclusivity
provision contained in the Term Sheet. Hale is also seeking expense
reimbursement for legal, travel and due diligence fees incurred by Hale
Capital, which allegedly totaled $376,170 as of November 21, 2011. On
November 23, 2011, Hale Capital amended their complaint to include the
Companys subsidiary Manhattan Mining Co. Management had estimated the
expenses at $330,000 and had accrued this amount in the accounts during
the year ended January 31, 2012. Subsequently, an additional amount of
$171,000 relating to additional legal expenses (including interest)
incurred by Hale Capital had been accrued. At January 31, 2013, $171,000
remains outstanding.
|
|
|
|
(e) During the year ended January 31, 2013, the Secretary
of Labour, Mine Safety and Health Administration (MSHA), as the
petitioner, filed a complaint made by a former employee of Manhattan,
charging discrimination pursuant to Section 105 (c) 1 of the Federal Mine
Safety and Health Act of 1977. The Office of Assessments has assessed a
civil penalty of $20,875 which has been included in accounts payable and
accrued liabilities for the year ended January 31, 2013. The amount was
paid subsequent to year end.
|
|
|
20.
|
General and
Administrative
|
|
For the years ended January 31,
|
|
2013
|
|
|
2012
|
|
|
Corporate development
|
$
|
180,146
|
|
$
|
263,251
|
|
|
Insurance
|
|
28,533
|
|
|
22,841
|
|
|
Office and general
|
|
30,643
|
|
|
1,719
|
|
|
Professional fees
|
|
1,024,556
|
|
|
1,489,989
|
|
|
Consulting, wages and salaries (Note 18)
|
|
511,545
|
|
|
526,446
|
|
|
Share-based payments (Note 18)
|
|
429,496
|
|
|
503,942
|
|
|
Travel
|
|
38,938
|
|
|
-
|
|
|
Depreciation
|
|
379
|
|
|
931
|
|
|
|
$
|
2,244,236
|
|
$
|
2,809,119
|
|
21.
|
Segmented Information
|
|
|
|
The Company has one reportable business segment
consisting of the exploration and development of mining properties.
Substantially all of the Companys assets are located in the United States
except for cash and cash equivalents totaling $193,135 at January 31, 2013
(January 31, 2012 - $426,596) held in Canadian banks. The Companys
operations in Canada consist of general and administrative expenses,
totaling $1,556,606 for the year ended January 31, 2013 (2012 -
$2,459,866), including expenses necessary to maintain the Companys public
company status.
|
|
|
22.
|
Comparative Figures
|
|
|
|
Certain comparative figures have been reclassified to
conform with the current year's presentation.
|
95
ROYAL STANDARD MINERALS INC.
MANAGEMENTS DISCUSSION
AND ANALYSIS
YEAR ENDED JANUARY 31, 2013
96
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
This Management Discussion and Analysis (MD&A) is dated
May 24, 2013 and unless otherwise noted, should be read in conjunction with the
Companys consolidated financial statements (Financial Statements) for the
year January 31, 2013 and the comparable year ended January 31, 2012 and the
notes thereto. The Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRS). This MD&A was written
to comply with the requirements of National Instrument 51-102-Continuous
Disclosure Obligations. Unless otherwise noted, all amounts reported herein are
in United States dollars. In the opinion of management, all adjustments (which
consist only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results presented for the year ended
January 31, 2013 are not necessarily indicative of the results that may be
expected for any future period.
The Financial Statements include the Companys wholly owned
subsidiaries, Kentucky Standard Energy Company, Inc. and Manhattan Mining Co.,
both United States companies.
For the purposes of preparing this MD&A, management, in
conjunction with the Board of Directors, considers the materiality of
information. Information is considered material if (1) such information is a
change or a fact that has or would reasonably be expected to have, a significant
effect on the market price or value of the Companys common shares; or (2) there
is a substantial likelihood that a reasonable investor would consider it
important in making an investment decision; or (3) if it would significantly
alter the total mix of information available to investors. Management, in
conjunction with the Board of Directors, evaluates materiality with reference to
all relevant circumstances, including potential market sensitivity.
Additional information relating to the Company can be found on
SEDAR at www.sedar.com.
The Companys common shares are listed in the United States of
America on the Over the Counter Bulletin Board OTC:BB, under the symbol
RYSMF.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements, including in
respect of the timing of project development. These forward-looking statements
entail various risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Such
statements are based on current expectations, are subject to a number of
uncertainties and risks, and actual results may differ materially from those
contained in such statements. These uncertainties and risks include, but are not
limited to, the strength of the Canadian and US economies; the price of gold;
operational, funding and liquidity risks; the degree to which mineral resource
estimates are reflective of actual mineral resources; the degree to which
factors which would make a mineral deposit commercially viable are present; the
risks and hazards associated with underground operations. Risks and
uncertainties about the Companys business are more fully discussed under Risk
Factors contained elsewhere in this MD&A. The Company assumes no obligation to update any forward-looking
statement or to update the reasons why actual results could differ from such
statements unless required by law.
97
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
HIGHLIGHTS
On December 19, 2012, the Company announced the completion of
its transaction (the
Transaction
) with Scorpio Gold Corporation (TSX
V:SGN) (
Scorpio
) to sell its Goldwedge and Piñon property interests and
the assets related thereto to Scorpio. Subsequent to the announcement of the
non-binding letter of intent with Scorpio on August 29, 2012, the Company slowed
down daily activity at Goldwedge, its flagship operation, while the Transaction
was ultimately concluded. During the interim, the Company focused on a
maintenance and upkeep program.
The Transaction was completed pursuant to the previously
announced asset purchase and sale agreement entered into with Scorpio on October
10, 2012. Pursuant to the Transaction, the interests of the Company and its
wholly-owned subsidiary, Manhattan Mining Co. (Manhattan), in the Goldwedge
and Piñon properties and the assets related thereto were sold to Scorpio and its
wholly-owned subsidiary Goldwedge LLC for $1.25 million in cash, Canadian
dollars, 3 million common shares of Scorpio and the assumption by Scorpio of
approximately $12 million in principal and all interest, fees and other amounts
due on such principal (such amounts having an approximate current aggregate
value of $16.681 million) which were owed by the Company to Waterton Global
Value, L.P., (Waterton) the Companys principal creditor.
The completion of the Transaction followed a special meeting of
the Companys shareholders held on November 28, 2012, at which votes
representing 50.08% of the total issued and outstanding shares of the Company as
at the record date were cast either by proxy or in person, with 99.46% of such
shares voting in favour of the special resolution approving the Transaction.
Subsequent to the closing of the Transaction and the sale of
its material mineral properties, the Company has used the net proceeds from the
Transaction to fund ongoing operations and to repay existing creditors including
through the sale of the Companys remaining properties and assets.
On January 31, 2013, the Company sold its royalty on the Piñon
Railroad Property to XDM Royalty Corp. (XDM), for $900,000 Canadian dollars
($902,126 US dollars).
On January 31, 2013, the Company sold the 3 million common
shares it received from Scorpio on the sale of its Goldwedge and Piñon property
interests and the related assets thereto to Waterton for $1,650,000 Canadian
dollars ($1,651,320 US dollars).
98
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
OVERVIEW
The Company is a mineral exploration and mine development
company engaged in locating, acquiring, exploring and developing gold and
precious metal deposits in Nevada. The Company's flagship Goldwedge Project was
located southeast of the Round Mountain gold mine in central Nevada. The
Goldwedge Project was the property of primary focus and with the sale of that
property together with the Piñon property pursuant to the Transaction, the
Companys principal focus is to fund ongoing operations and to pay existing
creditors including through the sale of its remaining properties and assets. The
Goldwedge Project was considered to be an advanced exploration development
project that was fully permitted by the Nevada Division of Environmental
Protection (NDEP) for a mine and mill. The Companys current portfolio of gold
exploration projects consists of the Fondaway Canyon and Dixie-Comstock
properties. The Company also has a venture in a coal exploration project, namely
the Kentucky Project. See Mineral Properties Remaining Properties and Assets
below.
GOING CONCERN
The Companys Financial Statements have been prepared on the
basis of accounting principles applicable to a going concern, which assume that
the Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities in the normal course of
operations as they come due. In assessing whether the going concern assumption
is appropriate, management takes into account all available information about
the future, which is at least, but is not limited to, twelve months from the end
of the reporting period. Management is aware, in making its assessment, of
material uncertainties related to events or conditions that cast significant
doubt upon the entity's ability to continue as a going concern. The Company has
incurred net income of $5,291,142, as a result of the one-time gain on the sale
of property interests and related assets of $14,171,405 and the gain on the sale
of the royalty of $866,505 during the year ended January 31, 2013 (2012-loss of
$6,451,698) and has an accumulated deficit of $39,262,352 (2012-$44,553,494). In
addition, the Company has a working capital deficiency of $252,103 at January
31, 2013 (2012-$5,184,281).
The underlying value of the resource properties is dependent
upon the existence and profitable recovery of reserves and confirmation of the
Companys interest in the underlying mineral claims, both of which are
uncertain. The Company continues an ongoing effort to dispose of one or more of
its remaining interests on an advantageous basis. There is no assurance that any
such initiatives will be sufficient and, as a result, there is significant doubt
regarding the going concern assumption and, accordingly, the ultimate
appropriateness of the use of accounting principles applicable to a going
concern. The Companys ability to continue to meet its obligations is uncertain
and dependent upon the ability to raise financing and/or to dispose of one or
more of its remaining interests on an advantageous basis. The Financial
Statements do not reflect the adjustments to the carrying values or
classifications of assets and liabilities or to the reported expenses that would
be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course
of operations for the foreseeable future. These adjustments could be material.
99
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
MINERAL PROPERTIES
Goldwedge Project
The Goldwedge Project, represented the Companys most advanced
project and was located in the Manhattan district of Nye County, Nevada,
approximately eight miles south of the Round Mountain mine and had been issued a
mine and mill permit by the NDEP. The Company had been completing, prior to the
slowdown in activity, the refurbishment of the on-site processing plant which
was used for the test mining and processing that took place in 2007 and 2008.
The mill was commissioned in April 2012. The process included primary crushing
and grinding facilities that fed a gravity recovery system. In addition, dry
stack tailings containment as well as silt and fresh water ponds were in place.
Testing of the various mineral processing functions commenced during April 2007,
and continued throughout 2008, using previously extracted stockpiles of low
grade gold feed material, as well as concurrently, newly mined material. The
plant feed material was processed into gold doré on site. The Company had
completed construction of the Rapid Infiltration Basins (RIB), dewatered the
previously completed underground development and also commenced phase 2 of the
underground development program. This phase of the development included the
exploration of defined mineralized zones concurrently with the second phase of
decline development. The previous work had concentrated on the development of a
spiral decline as a means to explore the deposit at depth. As part of the
earlier program, a series of crosscuts were constructed at specific intervals to
effectively assess the potential mineralized zones. Phase 2 of the development
was concentrated on developing along the strike of known mineralized zones to
assess continuity and grade as well as prepare areas for future test stoping.
Prior to the current slowdown, mineralized material was sampled daily and
analyzed for gold content at the Companys onsite assay laboratory. The assay
laboratory was refurbished and had been approved by the NDEP.
Prior to the Transaction with Scorpio, the Company had recorded
an asset retirement obligation (ARO) on its Goldwedge Project in the amount of
$183,445, representing the net present value of managements estimated costs to
restore the property site to its original condition. In determining these
estimated costs, management also reviewed calculations prepared by and provided
by the state of Nevada, using the Nevada Standardized Reclamation Cost Estimator
(SRCE). The SRCE is used by the state in calculating the reclamation bond
being requested from the Company. This ARO was assumed by Scorpio.
Based on the existing level of terrestrial disturbance and
water treatment and monitoring requirements, the discounted ARO for all
projects, where applicable, has been estimated by management assuming that the
future payments will be made over a ten year period from the date of initial
assessment of the AROs using a discount rate of 10%.
100
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Project Expenditures
During the year ended January 31, 2013, the Company's
exploration and evaluation expenditures on the Goldwedge Project were $2,803,375
(2012-$2,682,229). For a detailed description of the exploration and evaluation
expenditures by property, refer to note 9 in the Financial Statements.
Future Programs
As a result of the recent Transaction with Scorpio, the Company
sold the Goldwedge Project and will no longer be incurring expenditures on the
Goldwedge Project.
Piñon Project
The Piñon property was made up of certain lease agreements to
lease certain properties in Elko County, Nevada. During the year ended January
31, 2013, the Company's exploration and evaluation expenditures on the Piñon
property were $104,696 (2012-$107,388). As a result of the recent Transaction
with Scorpio, the Company sold the Piñon Project and will no longer be incurring
expenditures on the Piñon Project. The ARO, in the amount of $28,495, was
assumed by Scorpio. For a detailed description of the exploration and evaluation
expenditures by property, refer to note 9 in the Financial Statements.
Remaining Properties and Assets
Dixie-Comstock Project
On June 29, 2005, the Company entered into a five year Purchase
Option Agreement with a private individual for all of his patented and
unpatented mining claims in the Manhattan Mining District located in Nye County,
Nevada. The land package totaled approximately 1,600 acres (four patented and 70
unpatented claims). The propertys position adjoined the Company's Goldwedge
Mine. The land package included a number of exploration targets which were of
interest to the Company. This land package was included in the Transaction with
Scorpio. In addition, the Company's option included the Dixie-Comstock claim
group located in Churchill County, Nevada. Dixie-Comstock is a 1,500 acre
property containing a gold system that has been explored by a number of major
mining companies over the past 20 years. Annual option payments of $48,000 were
to be applied to a total purchase price of $600,000. This option was exercised
prior to August 31, 2009 and as a result, currently, the property included in
the Dixie-Comstock claim group, is 100% owned by the Company. For a detailed
description of the exploration and evaluation expenditures by property, refer to
note 9 in the Financial Statements.
Fondaway Canyon Project
The Fondaway Canyon property is located in Churchill County,
Nevada. During the year ended January 31, 2013, the Companys exploration and
evaluation expenditures on the Fondaway Canyon and Dixie-Comstock Properties
were $67,817 (2012-$67,817). For a detailed description of the exploration and evaluation expenditures by property,
refer to note 9 in the Financial Statements.
101
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Kentucky Project
The Kentucky Project is located in Wolfe County, Kentucky.
During the year ended January 31, 2013, the Companys exploration and evaluation
expenditures on the Kentucky Project were $161,317 (2012-$96,922). Included in
the total exploration and evaluation expenditures were penalties totaling
$145,000 issued by the Kentucky Energy and Environment Cabinet, Division of Mine
Enforcement and Reclamation (DMER) and is seeking forfeiture of the Companys
reclamation bond. Refer also to Contingencies (b), below. The Kentucky Project
represents the Companys sole venture in coal exploration. The Company continues
to review all options with this project. For a detailed description of the
exploration and evaluation expenditures by property, refer to note 9 in the
Financial Statements.
Recording of Asset Retirement Obligations
Under the guidance of IAS 37, the Company has recorded asset
retirement obligations (AROs) on the Fondaway Canyon and Dixie-Comstock
Projects in the amount of $2,774 and on the Kentucky Project $104,873,
representing the net present value of the estimated costs to restore each
property to its original condition, assuming future payments of $188,250 being
made over a ten year period from the date of initial assessment of the AROs and
a discount rate of 10%. In connection with the recent Transaction with Scorpio,
as noted above, the AROs with respect to the Goldwedge and Piñon Projects were
assumed by Scorpio.
Sale of Royalty
In August 2009, the Company retained a 1% net smelter royalty
on the sale of the Piñon Railroad Project. This royalty was sold to XDM on
January 31, 2013 for $900,000 Canadian dollars ($902,126).
ENVIRONMENTAL LIABILITIES
The Companys projects in Nevada are subject to regulation and
permitting by the NDEP and in Kentucky, by the Kentucky Division of Mine
Reclamation and Enforcement and the Kentucky Division of Mine Permits, both
divisions of the Kentucky Energy and Environment Cabinet. The Company is not
aware of any other environmental liabilities or obligations associated with its
mining interests. The Company believes it is conducting its operations in a
manner that is consistent with governing environmental legislation.
102
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
OVERALL PERFORMANCE
The Company was able to secure financing with Waterton,
finalizing an $8,000,000 Gold Stream Facility during the prior years third
quarter and a further $4,000,000 in two loan extensions, $2,000,000 on May 8,
2012 and $2,000,000 on June 27, 2012, bringing the total on the facility to
$12,000,000. The Gold Stream Facility had allowed the Company to focus primarily
on its Goldwedge Project and its primary objective of completing the processing
plant (mill). During the prior years fourth quarter, management hired two main
contractors to carry out the completion of the mill, which was commissioned
earlier in the year. The Company continued to prepare the mill for production
before the slowdown in operations. During the year ended January 31, 2013, the
Company had incurred $2,704,338 (2012-$1,619,341) in expenditures, including
capitalized interest of $895,055 (2012-$54,216), on the mill construction. The
Company benefited from negotiations management held with the two contractors
hired to carry out the completion of the mill during the fourth quarter and was
able to reduce the amounts outstanding to these two contractors by approximately
$686,000, which was accounted as a reduction of the construction costs. The mill
construction costs included significant electrical upgrades, new installations
and expenditures related to various test runs. During the construction, the
Company encountered many challenges with the existing equipment, due to
mechanical failure requiring repeated repairs and replacement. These costs would
have begun to be depreciated, once the mill was in production, but the mill was
included in the recent Transaction with Scorpio.
The Companys net income for the year ended January 31, 2013
was $5,291,142 ($0.06 income per share) and for the year ended January 31, 2012
a net loss of $6,451,698 ($0.08 loss per share), an increase of $11,742,840. The
increase is the result of the one-time gain of $14,171,405 on the Transaction
with Scorpio and the gain on the sale of the royalty of $866,505, offset
substantially, by the increased finance costs of $3,597,760, on the Gold Stream
Facility. The funds made available by the Gold Stream Facility allowed the
Company to carry out its mine development and mill construction activities. In
addition, general and administrative expenditures were reduced by $564,883,
primarily due to lower professional fees and corporate development costs.
The Companys future financial condition and operations is
dependent on many factors including, the underlying value of the remaining
resource properties which is dependent on the underlying mineral claims and the
Companys ability to dispose of one or more of its remaining interests, on an
advantageous basis.
103
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
SELECTED FINANCIAL INFORMATION
|
Twelve
|
Twelve
|
|
months ended
|
months ended
|
|
January 31,
|
January 31,
|
|
2013
|
2012
|
|
|
|
Total revenues
|
nil
|
nil
|
|
|
|
Net income (loss) for the
year
|
$5,291,142
|
$(6,451,698)
|
|
|
|
Basic and diluted income
(loss) per share
|
$0.06
|
$(0.08)
|
|
|
|
Total issued common shares
|
83,953,825
|
83,853,825
|
|
|
|
Equipment, net
|
$23,716
|
$2,084,336
|
|
|
|
Total liabilities (excluding
long- term debt and related embedded derivative)
|
$3,303,319
|
$3,361,101
|
|
|
|
Total long-term debt and
related embedded derivative
|
-
|
$6,102,644
|
SUMMARY OF QUARTERLY RESULTS
The following is a summary of selected financial information of
the Company for the quarterly periods indicated.
|
Ended
Jan-31
2013
$
|
Ended
Oct-31
2012
$
|
Ended
July-31
2012
$
|
Ended
Apr-30
2012
$
|
Ended
Jan-31
2012
$
|
Ended
Oct-31
2011
$
|
Ended
Jul-31
2011
$
|
Ended
Apr-30
2011
$
|
Finance Income
|
3,048
|
3,103
|
511
|
612
|
2,285
|
801
|
708
|
497
|
Exploration
|
(75,902)
|
(393,582)
|
(1,260,127)
|
(1,407,594)
|
(1,056,814)
|
(999,865)
|
(722,789)
|
(174,888)
|
General & administrative
|
279,927
|
(266,758)
|
(1,555,326)
|
(702,079)
|
(2,278,160)
|
(202,442)
|
(257,793)
|
(70,724)
|
Gain on sale of royalty
|
866,505
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Gain on sale of property interests
|
14,171,405
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Other
(expenses) income
|
(205,017)
|
(3,201,269)
|
(843,270)
|
(123,045)
|
608,991
|
(1,280,855)
|
(12,481)
|
(8,169)
|
104
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Net income (loss)
|
15,039,966
|
(3,858,506)
|
(3,658,212)
|
(2,232,106)
|
(2,723,698)
|
(2,482,361)
|
(992,355)
|
(253,284)
|
Basic & diluted income (loss) per share
|
0.18
|
(0.05)
|
(0.04)
|
(0.03)
|
(0.03)
|
(0.03)
|
(0.01)
|
(0.00)
|
Weighted average number of shares
|
83,885,036
|
83,878,202
|
83,853,825
|
83,853,825
|
83,853,825
|
83,853,825
|
83,853,825
|
83,853,825
|
FINANCIAL PERFORMANCE
Revenue
The Companys Goldwedge Project was the property of main focus.
It was still in the exploration and development stage. Until sufficient work had
been completed to confirm the technical feasibility and commercial viability of
this project, no material revenue had or will be earned. No revenue has been
earned during the year or any previous years on any of the Companys properties.
Expenses
The Companys net income for the year ended January 31, 2013
was $5,291,142 ($0.06 income per share) compared to a loss of $6,451,698 ($0.08
loss per share) for the year ended January 31, 2012, an increase of $11,742,840.
The primary reasons for the significant increase over the prior year, was the
result of the one-time gain on the sale of property interests and related assets
to Scorpio in the amount of $14,171,405 and the gain on the sale of the royalty
of $866,505, offset substantially, by the increased finance cost of $3,597,760,
on the Gold Stream Facility. As a result of the slowdown at the end of August
2012, the Goldwedge mine was operating on a maintenance and upkeep basis after
this date and exploration and evaluation expenditures increased by only $121,146
on the Goldwedge Project and $182,849 overall on all properties, for the year
ended January 31, 2013 compared to the year ended January 31, 2012. The Company
also benefited from the progress made by management with several major suppliers
to settle outstanding balances owing, resulting in a savings of approximately $
187,000 of expenditures previously expensed. On an ongoing basis, management
continued to assess the performance of its workforce, making changes where
necessary, many of which were carried out in the first quarter. Management was
continually challenged with recruiting quality employees who were willing to
accept the challenges of working in this remote location. Until the slowdown,
the Company continued to focus on mine development, maintaining a full shift of
underground miners to the end of August. Consulting, wages and salaries
decreased by $502,239 on the Goldwedge Project and $ 529,297 on all properties,
for the year ended January 31, 2013 compared to the year ended January 31, 2012,
primarily due to the slowdown at the end of August. The Company was also able to
benefit from the net proceeds on the sale of exploration and development ore in the amount of $367,521, during the year,
with no comparable amount in the prior year.
105
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
General and administrative expenses decreased by $564,883,
mainly attributable to a reduction in professional fees of $465,433 compared to
the prior year. Again, through negotiation with certain significant service
providers to settle outstanding balances owing, the Company was able to save
approximately $157,000 of expenditures previously expensed. In addition, legal
fees in connection with ongoing litigation reduced towards the end of the year.
Share based payments totaled $429,496 which represented the vested amount during
the year for the stock options granted on January 20, 2012. Corporate
development expenses were also lower for the year ended January 31, 2013
compared to the prior year, in the amount of $83,105, due to the reduction in
services provided by the investor relations consultant after the slowdown and
not having incurred expenses in the absence of a January annual general meeting,
as in the prior year. Also, significantly impacting the net income for the year,
were the financing costs associated with the Gold Stream Facility, a total of
$4,310,582, an increase of $3,597,760 over the prior year. The increase in the
financing costs was attributable to the fair value of the Gold Stream Facility,
prior to the sale to Scorpio and the higher interest incurred for the year ended
January 31, 2013 compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has no operating cash flow and has to
date, financed its mineral exploration activities and its ongoing expenditures,
primarily through equity transactions such as equity offerings, the exercise of
warrants and its recent financing arrangement with Waterton. The Companys
financial success will be dependent on the economic viability of its remaining
mineral exploration properties to the extent that it can establish reserves and
its ability to secure ongoing financing and/or the ability to dispose of one or
more of its remaining interests on an advantageous basis.
As at January 31, 2013, the Company had cash and cash
equivalents of $201,565. Cash used in operating activities was $4,285,822 for
the year ended January 31, 2013. During the year ended January 31, 2013, the
Company experienced a net increase in non-cash working capital items of
$552,285, which was due to an increase in accounts payable and accrued
liabilities of $524,769 and a reduction in sundry receivables and prepaids of
$62,539, offset by a decrease in due to related parties of $35,023. As at
January 31, 2013 and the date hereof, the Company had met its capital commitment
obligations to keep its property agreements in good standing.
The Company's approach to managing liquidity risk is to ensure
that it will have sufficient liquidity to meet liabilities when due. As at
January 31, 2013, the Company had cash and cash equivalents of $201,565 compared
to $629,553 as at January 31, 2012, to settle current liabilities of $3,195,672
compared to $6,120,109 as at January 31, 2012. All of the Company's financial
liabilities have contractual maturities of less than 60 days and are subject to
normal trade terms. The Company regularly evaluates its cash position in an
effort to maintain its liquidity. In addition, included in sundry receivables and prepaids are
amounts receivable on the sale of the Scorpio common shares to Waterton, in the
amount of $1,651,320 and on the sale of the royalty to XDM of $900,720.
106
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
There is no assurance that future sales or equity or debt
capital will be available to the Company in the amounts or at the times desired,
or on terms that are acceptable to the Company, if at all. See Risk Factors
below.
During the year ended January 31, 2013, the Company had
received additional advances from Waterton, in the amount of $600,000. These
advances were non-interest bearing and were paid subsequent to the year-end. In
addition, on the Transaction with Scorpio, the Gold Stream Facility was fully
extinguished.
As at January 31, 2013, the Company had 83,953,825 common
shares issued and outstanding and stock options outstanding to acquire 3,800,000
common shares of the Company. As of the date hereof 3,050,000 stock options were
outstanding of which 2,550,000 stock options were exercisable that would raise
$635,000 if exercised in full. The Companys liquidity risk with financial
instruments is minimal as any excess cash, when present, is invested in highly
liquid bank-backed guaranteed investment certificates.
The market value of the Companys investment in Sharpe, a
Canadian publicly held company, as at January 31, 2013, was $30,000. The Company
believes that the certificate representing the Sharpe shares was in the
possession of former management of the Company. Current management of the
Company has been unable to locate the certificate and the Company is currently
attempting to have Sharpe and/or its transfer agent issue a replacement
certificate. If a replacement certificate is not obtained in due course,
management may consider taking other action to obtain a replacement certificate
including initiating a legal claim. With a replacement certificate, the Company
would be in a position to sell the shares to raise funds to settle outstanding
obligations. The investment is considered an available for sale investment and
the Company has recorded other comprehensive loss on this investment of $63,875
and recorded an impairment loss on the investment in the amount of $56,125 for
the year ended January 31, 2013.
CONTRACTUAL OBLIGATIONS
(a) Under the terms of the option agreement with Sharpe
Resources Corporation (Sharpe), the Company was required to incur expenditures
of $2,000,000 in total by December 9, 2011 to exercise its option. The Company
exercised the option on December 7, 2011. Pursuant to the terms of the option
agreement, the Company requested Sharpe to provide additional cash to the
Kentucky Project, to match that of the Company, which had exceeded $2,000,000.
As of the date hereof, Sharpe had not responded.
(b) The Company had an employment contract dated January 1,
2011 with the former Chief Executive Officer (former CEO). The contract was
for a term of five years, allowing for a base salary of $250,000 per year and also providing for an
additional annual bonus payment at the discretion of the Board of Directors. The
contract also contained termination provisions entitling the former CEO to
receive the greater of three years basic compensation and the amount outstanding
for the remainder of the term of the employment agreement only if he is
terminated other than for cause or if he terminated his employment for good
reason which includes material failure by the Company to substantially comply
with the terms of the employment agreement. Management has determined that the
former CEO is not entitled to any additional compensation since he was
terminated with cause.
107
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
With the sale to Scorpio of the Goldwedge and Pinon properties
and assets referred to in Highlights above, the Companys principal focus is
to fund ongoing operations and to pay existing creditors including through the
sale of its remaining properties and assets. Management continues to review all
contractual obligations and other payables in relation to the Companys
properties and operations. The Company has no operating revenues and therefore
it must utilize its current cash reserves, certain amounts received after
year-end and included in sundry receivable and prepaids as at January 31, 2013,
funds obtained from the exercise of stock options, other financing transactions
and possibly the disposal of one or more of its remaining interests on an
advantageous basis, in order to maintain its capacity to meet ongoing
discretionary operating activities. The Company does not have sufficient funds
on hand to meet its current operating requirements; therefore, the Company may
continue to seek additional equity or debt financing to generate funds.
RELATED PARTY TRANSACTIONS
Remuneration of Directors and key management personnel of the
Company was as follows:
Years ended January 31,
|
|
2013
|
|
|
2012
|
|
Salaries and benefits paid to directors and
officers
(1)
|
$
|
505,259
|
|
$
|
471,380
|
|
Share-based payments
|
$
|
403,231
|
|
$
|
501,799
|
|
|
(1)
|
Salaries and benefits include director fees. The board of
directors do not have employment or service contracts with the Company,
except for Ken Strobbe, who provided mine consulting services at the
Goldwedge Project totaling $73,607 for the year ended January 31, 2013
(2012-$nil), included under consulting, wages and salaries for the
Goldwedge Project. Directors are entitled to director fees and stock
options for their services. In addition, James B. Clancy received an
honorarium of $10,000, included above, for providing consulting services
in connection with the Kentucky Project for the year ended January 31,
2013 (2012- $nil) and John Fitzgerald, a past director received $9,900 for
services in connection with the due diligence process for the Scorpio
transaction (included in transactions costs, in the notes to the Financial
Statements, under note 2(a)).
|
108
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Paul G. Smith, a director and Chairman of the Board, is the
President and Chief Executive Officer of Equity Financial Holdings Inc.
(Equity), a company providing financial services to the Company. Services
provided by Equity totaled $13,223 for the year ended January 31, 2013
(2012-$8,387).
Due to related parties balance as at January 31, 2013 consists
of $nil (2012-$22,607), owing to the former CEO and $nil owing to Sharpe
(2012-$12,416). In addition, included in accounts payable and accrued
liabilities is $nil (2012 - $18,677), owing to the former CEO.
SHARE CAPITAL
The Company is authorized to issue an unlimited number of
common shares and special shares. As at January 31, 2013 and the date hereof,
the Company had 83,953,825 common shares outstanding.
As of the date hereof, the Company had 3,050,000 stock options
outstanding, as follows:
Number of Options
|
Exercise Price
|
Expiry Date
|
650,000
|
$0.10
|
June 26, 2014
|
2,400,000
|
$0.30
|
January 20, 2017
|
2,550,000 of the outstanding stock options are exercisable.
CONTINGENCIES
|
(a)
|
The Company received documents filed in the District
Court, Nye County, Nevada, whereby an optionor of mining claims in Nye
County, Nevada acquired by the Company, is contending the surface rights
acquired by the Company for a patented mining claim. In the opinion of
management, the legal proceedings are without merit and the Company
intends to vigorously defend itself against this claim.
|
|
|
|
|
(b)
|
The Company received an action against it whereby the
Company was requested, by a prior lease holder, to take any and all steps
necessary to ensure that the prior lease holders bear no responsibilities
or liability for the Companys failure to comply with the rules and
regulations of the Kentucky Energy and Environment Cabinet, Division of
Mine Enforcement and Reclamation (the DMER). Management had responded to
the DMER and is working on resolving the issue. In the meantime, the DMER
has issued penalties of $145,000 and is seeking forfeiture of the
Companys reclamation bond in the amount of $178,700. These penalties have
been included in accounts payable and accrued liabilities.
|
|
|
|
|
(c)
|
The Companys wholly-owned subsidiary, Manhattan Mining
Co., received documents filed in the District Court, Nye County, Nevada,
from a former vendor contending damages for breach of contract. The vendor is also
seeking damages for unjust enrichment and related attorneys fees and the
costs of the suit. The damages sought for breach of contract and unjust
enrichment total $37,500. On April 24, 2013, a court appointed arbitrator
found in favor of the plaintiff in the amount of $20,612. The amount is
included in accounts payable and accrued liabilities.
|
109
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
|
(d)
|
On September 27, 2011, Hale Capital Management, LP and
Hale Capital Partners, LP (together, Hale Capital) commenced an action
in the New York Supreme Court alleging breach of contract in relation to a
term sheet entered into between the Company and Hale Capital on December
11, 2010 (the Term Sheet), which set out preliminary terms for Hale to
provide financing of up to $15 million for the Companys Goldwedge Project
(the Hale Transaction). Hale Capital is seeking the right to
participate in financing the Company on no less favorable terms and
conditions as was agreed upon between the Company and Waterton on June 29,
2011 or, in the alternative, damages for breach of the exclusivity
provision contained in the Term Sheet. Hale is also seeking expense
reimbursement for legal, travel and due diligence fees incurred by Hale
Capital, which allegedly totaled approximately $376,170, as of November
21, 2011. On November 23, 2011, Hale Capital amended their complaint to
include the Companys subsidiary Manhattan Mining Co. Management had
estimated these expenses at $330,000 and had accrued this amount in the
accounts for the year ended January 31, 2012. Subsequently, an additional
amount of $171,000 relating to additional legal expenses (including
interest) incurred by Hale Capital had been accrued. At January 31, 2013,
$171,000 remains outstanding.
|
|
|
|
|
(e)
|
During the year ended January 31, 2013, the Secretary of
Labor, Mine Safety and Health Administration (MSHA), as the petitioner,
filed a complaint made by a former employee of Manhattan, charging
discrimination pursuant to Section 105(c) 1 of the Federal Mine Safety and
Health Act of 1977. The Office of Assessments assessed a civil penalty of
$20,875, which has been included in accounts payable and accrued
liabilities for the year ended January 31, 2013. The complaint was settled
and paid subsequent to the year-end.
|
OFF BALANCE SHEET ARRANGEMENTS
As of the date hereof, management believes the Company does not
have any off balance sheet arrangements that have, or are reasonably likely to
have, a current or future effect on the results of operations or financial
condition of the Company, including, and without limitation, such considerations
as liquidity and capital resources.
PROPOSED TRANSACTIONS
As noted under Highlights, the Company completed the recent
Transaction with Scorpio. Management continues to meet with potential buyers of
its remaining property interests.
110
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
NEW SIGNIFICANT ACCOUNTING POLICIES
No new accounting policies were adopted during the year ended
January 31, 2013.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the Companys consolidated financial
statements requires management to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of expenses during the
reporting period. Actual outcomes could differ from those estimates. The
Financial Statements for the year ended January 31, 2013 and 2012 include
estimates that, by their nature, are uncertain. The impacts of such estimates
are pervasive throughout the Financial Statements for the year ended January 31,
2013 and 2012 and may require accounting adjustments based on future
occurrences. Revisions to accounting estimates are recognized in the period in
which the estimate is revised and future periods if the revision affects both
current and future periods. These estimates are based on historical experience,
current and future economic conditions and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
Significant assumptions about the future that management has
made that could result in a material adjustment to the carrying amounts of
assets and liabilities, in the event that actual results differ from assumptions
made, relate to, but are not limited to, the following and are explained in
detail in Note 3 of the audited consolidated financial statements for the years
ended January 31, 2013 and 2012:
Critical accounting estimates
-
the recoverability of sundry receivables that are included in the
consolidated statements of financial position;
-
the inputs used in accounting for share based payment transactions in the
consolidated statements of operations.
-
Contingencies, as noted above under Contingencies and in note 19 to the
consolidated financial statements.
Critical accounting judgments
-
the categorization of financial assets and liabilities is an accounting
policy that requires management to make judgments or assessments;
-
management's assumption of material restoration, rehabilitation and
environmental obligations, based on the facts and circumstances that existed
during the period;
-
the measurement of income taxes payable and deferred income tax assets and
liabilities requires management to make judgments in the interpretation and
application of the relevant tax laws. Deferred tax assets require management
to assess the likelihood that the Company will generate taxable income in
future periods in order to utilize recognized deferred tax assets;
111
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
-
going concern presentation of the consolidated financial statements which
assumes that the Company will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities in the
normal course of operations as they come due; and
-
management's determination that the functional currency of the Company and
each of its subsidiaries is the United States Dollar.
NEW ACCOUNTING PRONOUNCEMENTS
Certain new standards, interpretations and amendments to
existing standards have been issued by the International Accounting Standards
Board (IASB) or (IFRIC) that are mandatory for accounting periods beginning
after December 31, 2012 or later periods. The following have not yet been
adopted and are being evaluated to determine their impact on the Company.
IFRS 9 Financial Instruments (IFRS 9)
IFRS 9 was issued by the IASB in October 2010 and will replace
IAS 39 Financial Instruments Recognition and Measurement (IAS 39). IFRS 9 uses
a single approach to determine whether a financial asset is measured at
amortized cost or fair value, replacing the multiple rules in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash flow
characteristics of the financial assets. Most of the requirements in IAS 39 for
classification and measurement of financial liabilities were carried forward
unchanged to IFRS 9. The new standard also requires a single impairment method
to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is
effective for annual periods beginning on or after January 1, 2015.
IFRS 10 Consolidated Financial Statements (IFRS
10)
IFRS 10 was issued by the IASB in May 2011. IFRS 10 is a new
standard which identifies the concept of control as the determining factor in
assessing whether an entity should be included in the consolidated financial
statements of the parent company. Control is comprised of three elements: power
over an investee; exposure to variable returns from an investee; and the ability
to use power to affect the reporting entitys returns. IFRS 10 is effective for
annual periods beginning on or after January 1, 2013.
IFRS 11 Joint Arrangements (IFRS 11)
IFRS 11 was issued by the IASB in May 2011. IFRS 11 is a new
standard which focuses on classifying joint arrangements by their rights and
obligations rather than their legal form. Entities are classified into two
groups: parties having rights to the assets and obligations for the liabilities
of an arrangement, and rights to the net assets of an arrangement. Entities in
the former case account for assets, liabilities, revenues and expenses in
accordance with the arrangement, whereas entities in the latter case account for the arrangement using
the equity method. IFRS 11 is effective for annual periods beginning on or after
January 1, 2013.
112
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
IFRS 12 Disclosure of Interests in Other Entities (IFRS
12)
IFRS 12 was issued by the IASB in May 2011. IFRS 12 is a new
standard which provides disclosure requirements for entities reporting interests
in other entities, including joint arrangements, special purpose vehicles, and
off balance sheet vehicles. IFRS 12 is effective for annual periods beginning on
or after January 1, 2013.
IFRS 13 Fair Value Measurement (IFRS 13)
IFRS 13 was issued by the IASB in May 2011. IFRS 13 is a new
standard which provides a precise definition of fair value and a single source
of fair value measurement considerations for use across IFRSs. The key points of
IFRS 13 are as follows:
-
fair value is measured using the price in a principal market for the asset
or liability, or in the absence of a principal market, the most advantageous
market;
-
financial assets and liabilities with offsetting positions in market risks
or counterparty credit risks can be measured on the basis of an entitys net
risk exposure;
-
disclosures regarding the fair value hierarchy have been moved from IFRS 7
to IFRS 13, and further guidance has been added to the determination of
classes of assets and liabilities;
-
a quantitative sensitivity analysis must be provided for financial
instruments measured at fair value;
-
a narrative must be provided discussing the sensitivity of fair value
measurements categorized under Level 3 of the fair value hierarchy to
significant unobservable inputs;
-
and information must be provided on an entitys valuation processes for
fair value measurements categorized under Level 3 of the fair value hierarchy.
IFRS 13 is effective for annual periods beginning on or after
January 1, 2013.
IAS 1 Presentation of Financial Statements
IAS 1 was amended by the IASB in June 2011 in order to align
the presentation of items in other comprehensive income with US GAAP standards.
Items in other comprehensive income will be required to be presented in two
categories: items that will be reclassified into profit or loss and those that
will not be reclassified. The flexibility to present a statement of
comprehensive income as one statement or two separate statements of profit and
loss and other comprehensive income remains unchanged. The amendments to IAS 1
are effective for annual periods beginning on or after July 1, 2012.
113
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
IAS 28 Investments in Associates and Joint
Ventures
As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12,
IAS 28 has been amended and will further provide the accounting guidance for
investments in associates and will set out the requirements for the application
of the equity method when accounting for investments in associates and joint
ventures. This standard will be applied by the Company when there is joint
control, or significant influence over an investee. Significant influence is the
power to participate in the financial and operating policy decisions of the
investee but does not include control or joint control of those policy
decisions. When determined that the Company has an interest in a joint venture,
the Company will recognize an investment and will account for it using the
equity method in accordance with IAS 28. IAS 28 is required to be applied for
annual periods beginning on or after January 1, 2013, with earlier adoption
permitted.
IAS 32 Financial Instuments;Presentation
IAS 32 was amended by the IASB in December 2011 to clarify
certain aspects of the requirements on offsetting. The amendments focus on the
criterion that an entity currently has a legally enforceable right to set off
the recognized amounts and the criterion that an entity intends either to settle
on a net basis, or to realize the asset and settle the liability simultaneously.
The amendments to IAS 32 are effective for annual periods beginning on or after
January 1, 2014. Earlier adoption is permitted.
MANAGEMENT OF CAPITAL
The Company manages its capital with the following objectives:
-
to ensure sufficient financial flexibility to achieve the ongoing business
objectives including funding of future growth opportunities, and pursuit of
accretive acquisitions; and
-
to maximize shareholder return through enhancing the share value.
The Company monitors its capital structure and makes
adjustments according to market conditions in an effort to meet its objectives
given the current outlook of the business and industry in general. The Company
may manage its capital structure by issuing new shares, repurchasing outstanding
shares, adjusting capital spending, or disposing of assets. The capital
structure is reviewed by Management and the Board of Directors on an ongoing
basis.
The Company considers its deficiency to be equity, comprising
share capital, reserves, accumulated deficit and accumulated other comprehensive
loss which as at January 31, 2013 totaled $147,782 (2012 - $5,810,547). Included
in the Financial Statements is an accumulated deficit of $39,262,352 as at
January 31, 2013 (2012 $44,553,494).
114
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
The Company manages capital through its financial and
operational forecasting processes. The Company reviews its working capital and
forecasts its future cash flows based on operating expenditures, and other
investing and financing activities. The forecast is regularly updated based on
activities related to its mineral properties. Selected information is provided
to the Board of Directors of the Company. The Companys capital management
objectives, policies and processes have remained unchanged during the year ended
January 31, 2013 and 2012.
The Company has cash balances and no interest-bearing debt. The
Company's current policy is to invest excess cash, when present, in guaranteed
investment certificates, bankers acceptance and money market deposits, with
reputable financial institutions. The Company regularly monitors its cash
management policy. At January 31, 2013 and the date hereof, the Company did not
have any interest bearing debt. The Companys interest bearing debt, the Gold
Stream Facility, was assumed by Scorpio.
The Companys functional and reporting currency is the US
dollar and major purchases are transacted in US dollars. An operating account is
maintained in Canadian dollars primarily for settlement of general corporate
expenditures.
Sensitivity analysis
Based on management's knowledge and experience of the financial
markets, the Company believes the following movements are "reasonably possible"
over a twelve month period. The sensitivity analysis shown in the notes below
may differ materially from actual results.
-
The Companys marketable securities are subject to fair value fluctuations.
As at January 31, 2013, if the fair value of the marketable securities had
decreased/increased by 10% with all other variables held constant, net income
(loss) and comprehensive income (loss) for the year ended January 31, 2013,
would have been approximately $3,000 higher/lower. Similarly, as at January
31, 2013, reported shareholders deficiency would have been approximately
$3,000 lower/higher as a result of a 10% decrease/increase in the fair value
of marketable securities.
-
Cash, sundry receivables and accounts payable and accrued liabilities
denominated in Canadian dollars are subject to foreign currency risk. As at
January 31, 2013, had the US dollar weakened/strengthened by 5% against the
Canadian dollar with all other variables held constant, the net income (loss)
and comprehensive income (loss) would be affected by approximately $104,000.
-
Commodity price risk could adversely affect the Company. In particular, the
Companys future profitability and viability of development depends upon the
world market price of coal and precious metals. Coal and precious metals have
fluctuated widely in recent years. There is no assurance that, even as
commercial quantities of coal and precious metals may be produced in the
future, a profitable market will exist for them. A decline in the market price
of coal and precious metals may also require the Company to reduce
its mineral properties, which could
have a material and adverse effect on the Companys value. As at January 31,
2013 and the date hereof, the Company is not a coal or precious metal producer.
As a result, commodity price risk may affect the completion of future equity
transactions such as equity offerings, debt offerings and the exercise of stock
options. This may also affect the Companys liquidity and its ability to meet
its ongoing obligations. See Risk Factors.
115
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
RISK FACTORS
An investment in the securities of the Company is highly
speculative and involves numerous and significant risks. Such investment should
be undertaken only by investors whose financial resources are sufficient to
enable them to assume such risks and who have no need for immediate liquidity in
their investment. Prospective investors should carefully consider the risk
factors below.
Exploration Stage Company and Exploration Risks
The Company is a junior resource company focused primarily on
the acquisition and exploration of mineral properties located in the United
States and, as such, is engaged in a highly speculative business. The properties
of the Company have no established reserves. There is no assurance that any of
the projects can be mined profitably. Accordingly, it is not assured that the
Company will realize any profits in the short to medium term, if at all, from
its mineral properties. Any profitability in the future from the business of
exploration will be dependent upon developing and commercially mining an
economic deposit of minerals, which in itself, is subject to numerous risk
factors. The exploration and development of mineral deposits involve a high
degree of financial risk over a significant period of time that even a
combination of managements careful evaluation, experience and knowledge may not
eliminate. There are a number of uncertainties inherent in any exploration and
development program, including the location of economic ore bodies, the
development of appropriate metallurgical processes, the receipt of necessary
governmental permits, and the construction of mining and processing
facilities.
While discovery of ore-bearing structures may result in
substantial rewards, few properties that are explored are ultimately developed
into producing mines. Major expenses may be required to establish reserves by
drilling and to construct mining and processing facilities at a particular site.
It is impossible to ensure that the current exploration, development and
production programs of the Company will result in profitable commercial mining
operations. The profitability of the Companys operations will be, in part,
directly related to the cost and success of its exploration and development
programs, which may be affected by a number of factors. Substantial expenditures
are required to establish reserves that are sufficient to commercially mine some
of the Companys properties and construct, complete and install mining and
processing facilities on those properties that are actually mined and developed.
116
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
No History of Profitability from Mineral Exploration
The Company is a development stage company with no history of
profitability from mineral exploration. There can be no assurance that the
operations of the Company will be profitable in the future. The Company has
limited financial resources and will require additional financing to further
explore, develop, acquire, retain and engage in commercial production on its
property interests and, if financing is unavailable for any reason, the Company
may become unable to acquire and retain its mineral concessions and carry out
its business plan.
Market Fluctuations and Commercial Quantities
The market for minerals is influenced by many factors beyond
the control of the Company such as changing production costs, the supply and
demand for minerals, the rate of inflation, the inventory of mineral producing
companies, the international economic and political environment, changes in
international investment patterns, global or regional consumption patterns,
costs of substitutes, currency availability and exchange rates, interest rates,
speculative activities in connection with minerals, and increased production due
to improved mining and production methods. The metals industry in general is
intensely competitive and there is no assurance that, even if commercial
quantities and qualities of metals are discovered, a market will exist for the
profitable sale of such metals. Commercial viability of precious and base metals
and other mineral deposits may be affected by other factors that are beyond the
Companys control including particular attributes of the deposit such as its
size, quantity and quality, the cost of mining and processing, proximity to
infrastructure and the availability of transportation and sources of energy,
financing, government legislation and regulations including those relating to
prices, taxes, royalties, land tenure, land use, import and export restrictions,
exchange controls, restrictions on production, as well as environmental
protection. It is impossible to assess with certainty the impact of various
factors that may affect commercial viability so that any adverse combination of
such factors may result in the Company not receiving an adequate return on
invested capital.
Mining Risks and Insurance
The Company is subject to risks normally encountered in the
mining industry, such as unusual or unexpected geological formations, cave-ins
or flooding. The Company may become subject to liability for pollution, damage
to life or property and other hazards if mineral exploration against which it or
the operator of its exploration programs cannot insure or against which it or
such operator may elect not to insure because of high premium costs or other
reasons. In addition, insurance coverage may not continue to be available or may
not be adequate to cover any resulting liability. Losses from these events may
cause the Company to incur significant costs that could have a material adverse
effect upon the Companys financial condition and results of operations.
Environmental Risk
The mining and mineral processing industries are subject to
extensive governmental regulations for the protection of the environment,
including regulations relating to air and water quality, mine reclamation, solid and hazardous waste handling and disposal
and the promotion of occupational health and safety, which may adversely affect
the Company or require it to expend significant funds.
117
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Title Risk
The validity of unpatented mining claims on public lands, which
constitute most of the Companys property holdings, is often uncertain and may
be contested and subject to title defects.
Property Interests
The Company's gold and coal interests being the Dixie-Comstock
Project, Fondaway Canyon Project and Kentucky Project (collectively Property
Interests) are the Companys remaining material projects. As noted under
Highlights, the Company completed the recent Transaction with Scorpio and will
currently be solely dependent upon these remaining Property Interests. As a
result, any adverse developments affecting the Company's existing Property
Interests would have a material adverse effect on the Companys financial
condition and results of its operations.
Credit Risk
Credit risk is the risk of loss associated with counterpartys
inability to fulfill its payment obligations. The Company's credit risk is
primarily attributable to cash, sundry receivables and reclamation bonds. As of
the date hereof, the Company has no significant concentration of credit risk
arising from operations. While cash and reclamation bonds are held with
reputable financial institutions from which management believes the risk of loss
to be minimal, there can be no assurances that such institutions will not
encounter economic difficulties, which may, in turn, have a material adverse
effect on the Company.
Liquidity Risk
There is a risk that the Company will not be able to meet its
financial obligations when they become due, or can only do so at excessive cost.
The Company's approach to managing liquidity risk is to ensure that it will have
sufficient liquidity to meet liabilities when due. However, since the Company
does not have any revenue, there is a risk that the Company will not have
sufficient cash resources to meet liabilities as they come due.
Commodity Prices
The value and price of the Companys securities, its financial
results, and its exploration, development and mining activities may be
significantly adversely affected by declines in the price of gold, other
precious metals and coal. Gold prices fluctuate widely and are affected by
numerous factors beyond the Companys control, such as interest rates, exchange
rates, inflation or deflation, fluctuation in the value of the U.S. dollar and
foreign currencies, global and regional supply and demand, and the political and economic conditions of gold
producing countries throughout the world.
118
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Government Regulation
The Companys mineral exploration and development activities,
if any, are subject to various laws governing prospecting, mining, development,
production, taxes, labor standards and occupational health, mine safety, toxic
substances, land use, water use, land claims of local people and other matters.
The Company can provide no assurance that new rules and regulations will not be
enacted or that existing rules and regulations will not be applied in a manner
which could limit or curtail the Companys exploration, production or
development activities. There is no guarantee that the Companys exploration
licenses will be extended or that new exploration licenses will be approved. In
addition, such exploration licenses could be changed and there can be no
assurances that any application to renew any existing licenses will be approved.
Failure to comply with applicable laws, regulations and permitting requirements
may result in enforcement actions there under, including orders issued by
regulatory or judicial authorities causing operations to cease or be curtailed,
and may include corrective measures requiring capital expenditures, installation
of additional equipment, or remedial actions. Government approvals and permits
are currently, and may in the future be, required in connection with the
Companys operations, if any. There can be no assurance that the Company will be
able to obtain these permits in a timely manner.
Capital Investment
The ability of the Company to continue exploration and
development of its property interests, should this be entertained, will be
dependent upon its ability to raise significant additional financing hereafter.
There is no assurance that adequate financing will be available to the Company
or that the terms of such financing will be favorable. Should the Company not be
able to obtain such financing, or be able to dispose of any or all of its
remaining properties, they may be lost entirely.
Conflicts of Interest
Certain of the directors and officers of the Company may also
serve as directors and officers of other companies involved in base, precious
metal or coal exploration and development and consequently, the possibility of
conflict exists. Any decisions made by such directors involving the Company will
be made in accordance with the duties and obligations of directors to deal
fairly and in good faith with the Company and such other companies. In addition,
such directors declare, and refrain from voting on, any matters in which such
directors may have a conflict of interest.
Dependence on Key Employees
The Companys business is dependent on retaining the services
of a small number of key employees. The success of the Company is, and will
continue to be, to a significant extent, dependent on the expertise and experience of these employees.
The loss of one or more of these employees could have a materially adverse
effect on the Company.
119
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
Litigation Risk
The Company has been named as a defendant in various legal
proceedings as noted above under Contingencies and may be threatened with, or
named as a defendant in, or may become subject to additional legal proceedings.
Defending lawsuits could require substantial amounts of management attention,
which could divert their focus from operations and could materially adversely
affect the Companys financial condition. A significant judgment against the
Company or the imposition of a significant fine or penalty as a result of a
finding that the
Company failed to comply with laws or
regulations
could have a significant adverse impact on the Companys business, financial
condition and results of operations.
RISK MANAGEMENT
Risk management is carried out by the Company's management team
with guidance from the Audit Committee under policies approved by the Board of
Directors. The Board of Directors provides regular guidance for overall risk
management.
DISCLOSURE OF INTERNAL CONTROLS
Management has established processes, which are in place to
provide them sufficient knowledge to support management representations that
they have exercised reasonable diligence that (i) the consolidated financial
statements do not contain any untrue statement of material fact or omit to state
a material fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it is made, as of the
date of and for the periods presented by the consolidated financial statements,
and (ii) the consolidated financial statements fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company, as of the date of and for the periods presented by the consolidated
financial statements.
In contrast to the certificate required for Non-Venture Issuers
under National Instrument 52-109 Certification of Disclosure in Issuers' Annual
and Interim Filings (NI 52-109), the Company utilizes the Venture Issuer Basic
Certificate, which does not include representations relating to the
establishment and maintenance of disclosure controls and procedures (DC&P)
and internal control over financial reporting (ICFR), as defined in NI 52-109.
In particular, the certifying officers filing the Certificate are not making any
representations relating to the establishment and maintenance of:
(i) controls and other procedures designed to provide
reasonable assurance that information required to be disclosed by the issuer in
its annual filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation; and
120
Royal Standard Minerals Inc.
|
Managements Discussion and Analysis
|
Year Ended January 31, 2013
|
Discussion Dated May 24, 2013
|
|
(ii) a process to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS.
The Companys certifying officers are responsible for ensuring
that processes are in place to provide them with sufficient knowledge to support
the representations they are making in this certificate.
Investors should be aware that inherent limitations on the
ability of certifying officers of a venture issuer to design and implement on a
cost effective basis DC&P and ICFR as defined in NI 52-109 may result in
additional risks to the quality, reliability, transparency and timeliness of
interim and annual filings and other reports provided under securities
legislation.
ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS
The following table sets forth a breakdown of the components of
general and administrative expenditures for the Company, for the years ended
January 31, 2013 and 2012.
|
January 31,
2013
$
|
January 31,
2012
$
|
Detail
|
|
|
Corporate development
|
180,146
|
263,251
|
Insurance
|
28,533
|
22,841
|
Office and general
|
30,643
|
1,719
|
Professional fees
|
1,024,556
|
1,489,989
|
Consulting, wages and salaries
|
511,545
|
526,446
|
Share-based payments
|
429,496
|
503,942
|
Travel
|
38,938
|
-
|
Depreciation
|
379
|
931
|
|
|
|
Total
|
2,244,236
|
2,809,119
|
121
Royal Standard Minerals Inc.
(Expressed in United States Dollars)
Consolidated Financial Statements
January 31, 2012 and 2011
122
MANAGEMENT'S RESPONSIBILITY FOR
CONSOLIDATED
FINANCIAL REPORTING
The accompanying audited annual financial statements of Royal
Standard Minerals Inc. (the "Company") are the responsibility of the Board of Directors.
The audited annual financial statements have been prepared by
management, on behalf of the Board of Directors, in accordance with the
accounting policies disclosed in the notes to the audited annual financial
statements. Where necessary, management has made informed judgments and
estimates in accounting for transactions which were not complete at the
reporting date. In the opinion of management, the financial statements have been
prepared within acceptable limits of materiality and are in compliance with all
applicable International Financial Reporting Standards.
Management has established processes, which are in place to
provide it sufficient knowledge to support management representations that it
has exercised reasonable diligence that (i) the audited annual financial
statements do not contain any untrue statement of material fact or omit to state
a material fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it is made, as of the
date of, and for the periods presented by, the audited annual financial
statements; and (ii) the audited annual financial statements fairly present in
all material respects the financial condition, financial performance and cash
flows of the Company, as of the date of and for the periods presented by the
audited annual financial statements.
The Board of Directors is responsible for reviewing and
approving the audited annual financial statements together with other financial
information of the Company and for ensuring that management fulfills its
financial reporting responsibilities. An Audit Committee assists the Board of
Directors in fulfilling this responsibility. The Audit Committee meets with
management to review the financial reporting process and the audited annual
financial statements together with other financial information of the Company.
The Audit Committee reports its findings to the Board of Directors for its
consideration in approving the audited annual financial statements together with
other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the
Companys affairs in compliance with established financial standards, and
applicable laws and regulations, and for maintaining proper standards of conduct
for its activities.
(signed) "Philip Gross"
|
(signed) "Ike Makrimichalos"
|
|
|
Philip Gross
|
Ike Makrimichalos
|
Interim President and Chief Executive Officer
|
Chief Financial Officer
|
Toronto, Canada
May 29, 2012
123
Independent Auditors' Report
To the Shareholders of
Royal Standard Minerals Inc.
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial
statements of Royal Standard Minerals Inc. (the Company), which comprise the
consolidated statements of financial position as at January 31, 2012, January
31, 2011 and February 1, 2010, and the consolidated statements of operations,
changes in shareholders equity and cash flows for the years ended January 31,
2012 and 2011 and a summary of significant accounting policies and other
explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Royal Standard
Minerals Inc. as at January 31, 2012, January 31, 2011 and February 1, 2010, and
its financial performance and its cash flows for the years ended January 31,
2012 and 2011 in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 to
the consolidated financial statements which indicates that the Company has no
sources of recurring revenue and has incurred losses amounting to $44,553,494
since its inception. These conditions, along with other matters as set forth in
Note 1, indicate the existence of material uncertainties that may cast
significant doubt about the Companys ability to continue as a going
concern.
|
Signed:
MSCM LLP
|
|
|
|
Chartered Accountants
|
|
Licensed Public Accountants
|
Toronto, Ontario
|
|
May 29, 2012
|
|
701 Evans Avenue, 8th Floor, Toronto ON M9C 1A3, Canada T
(416) 626-6000 F (416) 626-8650 MSCM.CA
124
Royal Standard Minerals Inc.
|
Consolidated Statements of Financial Position
|
(expressed in
United States Dollars)
|
|
|
As at
|
|
|
As at
|
|
|
As at
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
(Note 21)
|
|
|
(Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
629,553
|
|
$
|
102,038
|
|
$
|
745,779
|
|
Marketable
securities (Note 5)
|
|
150,000
|
|
|
52,000
|
|
|
60,500
|
|
Sundry receivables and prepaids
(Note 6)
|
|
156,275
|
|
|
61,277
|
|
|
24,537
|
|
|
|
935,828
|
|
|
215,315
|
|
|
830,816
|
|
|
|
|
|
|
|
|
|
|
|
Due from related parties (Note 17)
|
|
-
|
|
|
-
|
|
|
121,740
|
|
Reclamation bonds (Note 7)
|
|
633,034
|
|
|
537,860
|
|
|
534,984
|
|
Equipment, net (Note 9)
|
|
2,084,336
|
|
|
453,733
|
|
|
725,906
|
|
|
$
|
3,653,198
|
|
$
|
1,206,908
|
|
$
|
2,213,446
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities (Note 10)
|
$
|
3,033,763
|
|
$
|
578,627
|
|
$
|
301,381
|
|
Due to related
parties (Note 17)
|
|
35,023
|
|
|
357,061
|
|
|
-
|
|
Long-term debt - current portion (Note 12)
|
|
2,965,962
|
|
|
-
|
|
|
-
|
|
Embedded
derivative on long-term debt
|
|
|
|
|
|
|
|
|
|
- current portion (Note 12)
|
|
85,361
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,120,109
|
|
|
935,688
|
|
|
301,381
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations
(Note 11)
|
|
292,315
|
|
|
232,010
|
|
|
232,010
|
|
Long-term debt (Note 12)
|
|
2,965,961
|
|
|
-
|
|
|
-
|
|
Embedded derivative on long-term debt (Note 12)
|
|
85,360
|
|
|
-
|
|
|
-
|
|
|
|
9,463,745
|
|
|
1,167,698
|
|
|
533,391
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' (Deficiency) Equity
|
|
|
|
|
|
|
|
|
|
Share capital (Note 13(b))
|
|
28,098,264
|
|
|
28,098,264
|
|
|
28,098,264
|
|
Reserves
|
|
10,580,808
|
|
|
10,076,866
|
|
|
10,076,866
|
|
Accumulated deficit
|
|
(44,553,494
|
)
|
|
(38,101,796
|
)
|
|
(36,468,951
|
)
|
Accumulated other comprehensive (loss) income
|
|
63,875
|
|
|
(34,124
|
)
|
|
(26,124
|
)
|
|
|
(5,810,547
|
)
|
|
39,210
|
|
|
1,680,055
|
|
|
$
|
3,653,198
|
|
$
|
1,206,908
|
|
$
|
2,213,446
|
|
Going Concern
(Note 1)
Contingencies
(Note
18)
Subsequent events
(Note 22)
Approved by the Board
:
Paul
G. Smith
|
|
James B. Clancy
|
|
Director
|
|
Director
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
125
Royal Standard Minerals Inc.
|
Consolidated Statements of Operations
|
(expressed in
United States Dollars)
|
For the years ended January 31
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(Note 21)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Exploration and evaluation expenditures (Note
8)
|
$
|
2,954,356
|
|
$
|
1,044,905
|
|
General and administrative (Note 19)
|
|
2,809,119
|
|
|
741,275
|
|
|
|
5,763,475
|
|
|
1,786,180
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
Finance income
|
|
4,291
|
|
|
3,221
|
|
Finance costs (Note 12)
|
|
(712,822
|
)
|
|
-
|
|
Write down of advances to
related Company
|
|
-
|
|
|
(132,060
|
)
|
Gain on disposal of marketable securities
|
|
-
|
|
|
275,194
|
|
Foreign currency translation adjustment
|
|
20,308
|
|
|
6,980
|
|
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(6,451,698
|
)
|
$
|
(1,632,845
|
)
|
|
|
|
|
|
|
|
Basic and diluted loss per share (Note 15)
|
$
|
(0.08
|
)
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Loss
(expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended
January 31
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(Note 21)
|
|
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(6,451,698
|
)
|
$
|
(1,632,845
|
)
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
Net unrealized income (loss) on available-for-sale
marketable securities
|
|
97,999
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
Comprehensive loss for the year
|
$
|
(6,353,699
|
)
|
$
|
(1,640,845
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
126
Royal Standard Minerals Inc.
|
Consolidated Statements of Changes in Shareholders'
Equity
|
(Expressed in
United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
January 31, 2011
|
|
Capital
|
|
|
Reserves
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 1, 2010
|
$
|
28,098,264
|
|
$
|
10,076,866
|
|
$
|
(36,468,951
|
)
|
$
|
(26,124
|
)
|
$
|
1,680,055
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
(1,632,845
|
)
|
|
-
|
|
|
(1,632,845
|
)
|
Net decrease in unrealized losses on available-for-sale
marketable securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,000
|
)
|
|
(8,000
|
)
|
Balance, January 31, 2011
|
$
|
28,098,264
|
|
$
|
10,076,866
|
|
$
|
(38,101,796
|
)
|
$
|
(34,124
|
)
|
$
|
39,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
January 31, 2012
|
|
Capital
|
|
|
Reserves
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 1, 2011
|
$
|
28,098,264
|
|
$
|
10,076,866
|
|
$
|
(38,101,796
|
)
|
$
|
(34,124
|
)
|
$
|
39,210
|
|
Stock-based payments
|
|
-
|
|
|
503,942
|
|
|
-
|
|
|
-
|
|
|
503,942
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
(6,451,698
|
)
|
|
-
|
|
|
(6,451,698
|
)
|
Net
increase in unrealized gain on available-for-sale marketable securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
97,999
|
|
|
97,999
|
|
Balance, January 31, 2012
|
$
|
28,098,264
|
|
$
|
10,580,808
|
|
$
|
(44,553,494
|
)
|
$
|
63,875
|
|
$
|
(5,810,547
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
127
Royal Standard Minerals Inc.
|
Consolidated Statements of Cash Flows
|
(expressed in
United States Dollars)
|
For the years ended January 31
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
(Note 21)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(6,451,698
|
)
|
$
|
(1,632,845
|
)
|
Operating items not involving
cash:
|
|
|
|
|
|
|
Depreciation
|
|
137,274
|
|
|
272,172
|
|
Increase in asset retirement obligation
|
|
60,305
|
|
|
-
|
|
Accretion expense
|
|
611,108
|
|
|
-
|
|
Stock-based payments
|
|
503,942
|
|
|
-
|
|
Gain on disposal
of marketable securities
|
|
-
|
|
|
(275,194
|
)
|
Write down of advances to related Company
|
|
-
|
|
|
132,060
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Sundry receivables and prepaids
|
|
(94,998
|
)
|
|
(36,740
|
)
|
Accounts payable
and accrued liabilities
|
|
1,481,098
|
|
|
277,246
|
|
Due to related parties
|
|
(322,038
|
)
|
|
346,741
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
(4,075,007
|
)
|
|
(916,560
|
)
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
Increase in long-term debt
|
|
5,970,350
|
|
|
-
|
|
Finance costs paid on long-term debt
|
|
(400,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
5,570,350
|
|
|
-
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
Increase in reclamation bonds
|
|
(95,174
|
)
|
|
(2,876
|
)
|
Purchase of equipment
|
|
(872,654
|
)
|
|
-
|
|
Proceeds on disposal of marketable securities
|
|
-
|
|
|
275,695
|
|
|
|
|
|
|
|
|
Cash
(used in) provided by investing activities
|
|
(967,828
|
)
|
|
272,819
|
|
|
|
|
|
|
|
|
Change in cash
|
|
527,515
|
|
|
(643,741
|
)
|
|
|
|
|
|
|
|
Cash, beginning of year
|
|
102,038
|
|
|
745,779
|
|
|
|
|
|
|
|
|
Cash, end of year
|
$
|
629,553
|
|
$
|
102,038
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
128
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
1.
|
The Company and Operations and Going Concern
|
|
|
|
Royal Standard Minerals Inc. (the "Company") is a publicly held company, engaged in the acquisition, exploration and development of gold and precious metal properties in the United States of America. The Company is continued under
the Canada Business Corporations Act and its common shares are traded in the United States of America on the Over-the-Counter ("OTC") Bulletin Board. Inception has been deemed to be June 26, 1996, the date on which the Company acquired all of the
outstanding common shares of Southeastern Resources Inc. ("SRI"), which acquisition was accounted for as a reverse takeover of the Company by SRI. The Company's head office is located at 50 Richmond Street East, Suite 101, Toronto, Ontario,
M5C1N7.
|
|
|
|
The consolidated financial statements were approved by the Board of Directors on May 29, 2012.
|
|
|
|
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities in the normal course of operations as they come due. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future,
which is at least, but is not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events or conditions that cast significant doubt upon the entity's
ability to continue as a going concern. The Company has incurred a loss in the current and prior periods, with a current net loss of $6,451,698 during the year ended January 31, 2012 (2011 - $1,632,845) and has an accumulated deficit of
$44,553,494 (January 31, 2011 - $38,101,796, February 1, 2010 - $36,468,951).
|
|
|
|
The underlying value of the resource properties is dependent upon the existence and economic recovery of economic reserves, confirmation of the Company’s interest in the underlying mineral claims, the ability to raise
long-term financing to complete the development of the properties and upon future profitable production or, alternatively, upon the Company’s ability to dispose of its interest on an advantageous basis, all of which are uncertain. There is no
assurance that any such initiatives will be sufficient and, as a result, there is significant doubt regarding the going concern assumption and, accordingly, the ultimate appropriateness of the use of accounting principles applicable to a going
concern. The Company’s ability to continue to meet its obligations and carry out its planned exploration activities is uncertain and dependent upon the continued financial support of its shareholders, its current creditors and securing
additional financing. During the year ended January 31, 2012, the Company secured financing of $8,000,000 (see note 12). These financial statements do not reflect the adjustments to the carrying values or classifications of assets and
liabilities or to the reported expenses that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations for the foreseeable future. These adjustments could be
material.
|
129
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
2.
|
Significant Accounting Policies
|
|
|
|
|
[a]
Statement of compliance and
conversion to International Financial Accounting Standards
(IFRS)
|
|
|
|
|
These consolidated financial statements of the Company
have been prepared in accordance with IFRS as issued by the International
Accounting Standards Board (IASB).
|
|
|
|
|
These consolidated financial statements have been
prepared in accordance with IFRS with a changeover date of February 1,
2011 and a transition date of February 1, 2010. Previously, the Company
prepared its financial statements in accordance with Canadian Generally
Accepted Accounting Principles (GAAP). The disclosures required by the
provision of IFRS 1, First-time adoption of International Financial
Reporting Standards, explaining how the transition to IFRS has affected
the reported loss and comprehensive loss, cash flows, changes of equity
and financial position of the Company, are presented in note 21.
|
|
|
|
|
The policies applied in these consolidated financial
statements are presented below and are based on IFRS issued and
outstanding as of May 29, 2012, the date the Board of Directors approved
the consolidated financial statements.
|
|
|
|
|
[b]
Accounting polices
|
|
|
|
|
Principles of consolidation
|
|
|
|
|
These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Kentucky
Standard Energy Inc. and Manhattan Mining Co., both United States
companies. All intercompany transactions and balances have been eliminated
upon consolidation.
|
|
|
|
|
Equipment
|
|
|
|
|
Equipment is recorded at cost less accumulated
depreciation. Depreciation is provided using the declining balance method
using the following rates:
|
|
Exploration equipment
|
- 25% to 30%
|
|
Office equipment
|
- 20%
|
|
Construction in progress
|
- nil, as not yet in service
|
At the end of each reporting period,
the Company reviews the carrying amounts of its equipment to determine whether
there is any indication that the equipment has suffered an impairment loss.
Where such an indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss. The
recoverable amount is the higher of the the equipment's fair value less cost to
sell or its value in use.
130
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
2.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Exploration and evaluation
expenditures
|
|
|
|
The Company expenses exploration and evaluation
expenditures as incurred. Exploration and evaluation expenditures include
acquisition costs of mineral properties, property option payments and
evaluation activity.
|
|
|
|
Once a project has been established as commercially
viable and technically feasible, related development expenditure is
capitalized. This includes costs incurred in preparing the site for mining
operations. Capitalization ceases when the mine is capable of commercial
production, with the exception of development costs that give rise to a
future benefit.
|
|
|
|
Restoration, rehabilitation and environmental
obligations
|
|
|
|
A legal or constructive obligation to incur restoration,
rehabilitation and environmental costs may arise when environmental
disturbance is caused by the exploration, development or ongoing
production of a mineral property interest. Such costs arising from the
decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and recorded in the exploration
and evaluation expenditures, as soon as the obligation to incur such costs
arises. Discount rates using a pretax rate that reflects the time value of
money are used to calculate the net present value. These costs are charged
against profit or loss over the economic life of the related asset,
through amortization using either a unit-of- production or the
straight-line method as appropriate. The related liability is adjusted for
each period for the unwinding of the discount rate and for changes to the
current market-based discount rate, amount or timing of the underlying
cash flows needed to settle the obligation.
|
|
|
|
Share based payments
|
|
|
|
The fair value of the stock options granted to directors,
officers and employees is determined using the Black-Scholes option
pricing model and management's assumptions as disclosed in Note 14 and
recorded as stock-based compensation expense over the vesting period of
the stock options, with the offsetting credit recorded as an increase in
reserves. The fair value of stock options issued to other than employees
are measured at the fair value of the goods or services received unless
this cannot be reliably estimated, and are recognized over the period of
service.
|
|
|
|
If the stock options are exercised, the proceeds are
credited to share capital and the fair value at the date of grant is
reclassified from reserves to share capital.
|
|
|
|
Income taxes
|
|
|
|
Tax expense comprises current and deferred tax. Current
tax and deferred tax are recognized in profit or loss except to the extent
that it relates to a business combination, or items recognized directly in
equity or in other comprehensive income.
|
131
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
2.
|
Significant Accounting Policies (Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Income taxes (continued)
|
|
|
|
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
|
|
|
|
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for
the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of
goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and
liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend
to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
|
|
|
|
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
|
|
|
|
Loss per common share
|
|
|
|
Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year, including contingently issuable shares which are included when the conditions
necessary for issuance have been met. Diluted loss per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise
of common share purchase options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants.
|
|
|
|
Foreign currency translation
|
|
|
|
The United States dollar is the functional and presentation currency of the Company. Functional currency is also determined for each of the company’s subsidiaries, and items included in the financial statements of the
subsidiary are measured using that functional currency.
|
132
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
2.
|
Significant Accounting Policies (Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Foreign currency translation (continued)
|
|
|
|
Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities not denominated in the
functional currency are translated at the year end rates of exchange. Foreign exchange gains and losses are recognized in the statement of earnings (loss). Intercompany amounts with foreign operations for which settlement is neither planned nor
likely to occur in the foreseeable future are part of the Company’s net investment in the foreign operation. Foreign exchange gains and losses related to these intercompany amounts are included in accumulated other comprehensive income.
|
|
|
|
Assets and liabilities of entities with functional currencies other than United States dollars are translated at the year end rates of exchange, and the results of their operations are translated at average rates of exchange for
the year. The resulting translation adjustments are included in accumulated other comprehensive income in shareholders' equity.
|
|
|
|
Financial instruments
|
|
|
|
The Company recognizes financial assets and financial liabilities when the Company becomes a party to a contract. Financial assets and financial liabilities, with the exception of financial assets classified as at fair value
through profit or loss, are measured at fair value plus transaction costs on initial recognition. Financial assets at fair value through profit or loss are measured at fair value on initial recognition and transaction costs are expensed when
incurred. Securities are accounted for at the trade date.
|
|
|
|
Measurement in subsequent periods depends on the classification of the financial instrument.
|
|
|
|
i) Financial assets at fair value through profit or loss (FVTPL)
|
|
|
|
Financial assets are classified as FVTPL when acquired principally for the purpose of trading, if so designated by management (fair value option), or if they are derivative assets that are not part of an effective and designated
hedging relationship. Financial assets classified as FVTPL are measured at fair value, with changes recognized in the consolidated statements of income (loss).
|
|
|
|
The Company’s financial assets classified as FVTPL include cash and cash equivalents. The Company does not currently hold any derivative instruments or apply hedge accounting.
|
|
|
|
ii) Available-for-sale financial assets
|
|
|
|
Financial assets are classified as available-for-sale when so designated by management. Financial assets classified as available-for-sale are measured at fair value, with changes recognized in the other comprehensive income.
|
|
|
|
The Company’s financial assets classified as available-for-sale include marketable securities.
|
133
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
2.
|
Significant Accounting Policies (Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Financial instruments (continued)
|
|
|
|
iii) Loans and receivables
|
|
|
|
Loans and receivables are non-derivative financial assets that have fixed or determinable payments and are not quoted in an active market. Subsequent to initial recognition, loans and receivables are carried at amortized cost
using the effective interest method.
|
|
|
|
Sundry receivables and due from related parties are classified as loans and receivables.
|
|
|
|
iv) Financial liabilities at fair value through profit or loss ("FVTPL")
|
|
|
|
This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of being sold or repurchased in the near term. They are carried in the consolidated statements of financial position at fair
value with changes in fair value recognized in the consolidated statements of operations.
|
|
|
|
Embedded derivative on long-term debt is classified as FVTPL.
|
|
|
|
v) Other financial liabilities
|
|
|
|
Other financial liabilities are financial liabilities that are not classified as FVTPL. Subsequent to initial recognition, other financial liabilities that are not subject to hedge accounting, are measured at amortized cost using
the effective interest method.
|
|
|
|
Accounts payable and accrued liabilities, due to related parties, long-term debt, and asset retirement obligations are classified as other financial liabilities. The Company does not currently apply hedge accounting.
|
|
|
|
The effective interest method is a method of calculating the amortised cost of an instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument to the net carrying
amount on initial recognition.
|
134
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
2.
|
Significant Accounting Policies (Continued)
|
|
|
|
[b] Accounting polices (continued)
|
|
|
|
Financial instruments (continued)
|
|
|
|
vi) Financial instruments recorded at fair value:
|
|
|
|
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair
value hierarchy has the following levels: Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data
(unobservable inputs). As of January 31, 2012, January 31, 2011 and February 1, 2010, the only financial assets or liability measured at fair value is the Company's cash and cash equivalents, investment in Sharpe Resources Corporation ("Sharpe"),
and embedded derivative on long-term debt. As at January 31, 2012, Sharpe's fair market value was determined to be $150,000 (January 31, 2011 - $52,000 and February 1, 2010 - $60,500), and the embedded derivative on long-term debt's fair
market value was determined to be $170,721.
|
|
|
|
Cash and cash equivalents, Sharpe, and embedded derivative on long-term debt are considered Level 1 for purposes of the fair value hierarchy.
|
|
|
|
Significant accounting judgments and estimates
|
|
|
|
The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are
pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the
revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
|
|
|
|
Critical accounting estimates
|
|
|
|
Significant assumptions about the future that management has made that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate
to, but are not limited to, the following:
|
-
management's assumption of material restoration, rehabilitation and environmental obligations, based on the facts and circumstances that existed during the period; and
-
management's assumption used to determine the fair value of the embedded derivative on long-term debt.
135
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
2.
|
Significant Accounting Policies
(Continued)
|
|
|
|
|
[b]
Accounting polices
(continued)
|
|
|
|
|
Significant accounting judgments and estimates
(continued)
|
|
|
|
|
Critical accounting judgments
|
|
|
|
|
The categorization of financial assets and liabilities is
an accounting policy that requires management to make judgments or
assessments.
|
|
|
|
|
Long-term debt
|
|
|
|
|
Long-term debt instruments are initially recognized at
fair value, net of debt issuance costs incurred. Long- term debt
instruments are subsequently valued at amortized cost. Debt issue costs
are deducted from the balance of the underlying debt and amortized using
the effective interest rate method.
|
|
|
|
|
Embedded derivative on Long-term
debt
|
|
|
|
|
The Company may enter into certain financial derivative
contracts in order to manage the exposure to market risks from
fluctuations in commodity prices. The Companys policy is not to utilize
derivative financial instruments for speculative purposes. All financial
derivative contracts are classified as fair value through profit or
loss.
|
|
|
|
|
Embedded derivatives are separated from the host contract
and accounted for separately if the economic characteristics and risks of
the host contract and the embedded derivative are not closely related, a
separate instrument with the same terms as the embedded derivative would
meet the definition of a derivative, and the combined instrument is not
measured at fair value through the profit or loss. Changes in the fair
value of separable embedded derivatives are recognized immediately profit
or loss.
|
|
|
|
|
[c]
New standards
|
|
|
|
|
IFRS 9 Financial instruments (IFRS
9)
|
|
|
|
|
IFRS 9 was issued by the IASB in October 2010 and will
replace IAS 39 Financial Instruments: Recognition and Measurement [IAS
39]. IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortized cost or fair value, replacing the multiple rules
in IAS 39. The approach in IFRS 9 is based on how an entity manages its
financial instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. Most of the
requirements in IAS 39 for classification and measurement of financial
liabilities were carried forward unchanged to IFRS 9. The new standard
also requires a single impairment method to be used, replacing the
multiple impairment methods in IAS 39. IFRS 9 is effective for annual
periods beginning on or after January 1, 2015. The Company has not yet
assessed the impact of the standard or determined whether it will adopt
the standard early.
|
136
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
2.
|
Significant Accounting Policies (Continued)
|
|
|
|
[c] New standards (continued)
|
|
|
|
IFRS 10 Consolidated Financial Statements (“IFRS 10”)
|
|
|
|
IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs ("Special purpose entities") in the scope of SIC-12. In addition, the consolidation procedures are
carried forward substantially unmodified from IAS 27 (2008). IFRS 10 is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Company has not yet assessed the impact of the standard or determined
whether it will adopt the standard early.
|
|
|
|
IFRS 11 Joint Arrangements (“IFRS 11”)
|
|
|
|
IFRS 11 replaces the guidance in IAS 31 Interests in Joint Ventures and SIC 13 - Joint Controlled Entities - Non-Monetary Contributions by Venturers. IFRS 11 is effective for annual periods beginning on or after January 1, 2013,
with early adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
|
|
|
|
IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”)
|
|
|
|
IFRS 12 was issued by the IASB in May 2011. IFRS 12 is a new standard which provides disclosure requirements for entities reporting interests in other entities, including joint arrangements, special purpose vehicles, and off
balance sheet vehicles. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
|
|
|
|
IFRS 13, Fair Value Measurement ("IFRS 13")
|
|
|
|
IFRS 13, Fair Value Measurement was issued by the IASB on May 12, 2011. The new standard converges IFRS and US GAAP on how to measure fair value and the related fair value disclosures. The new standard creates a single source of
guidance for fair value measurements, where fair value is required or permitted under IFRS, by not changing how fair value is used but how it is measured. The focus will be on an exit price. IFRS 13 is effective for annual periods beginning on or
after January 1, 2013, with early adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
|
|
|
|
IAS 1 Presentation of Financial Statements
|
|
|
|
IAS 1 was amended by the IASB in June 2011 in order to align the presentation of items in other comprehensive income with US GAAP standards. Items in other comprehensive income will be required to be presented in two categories:
items that will be reclassified into profit or loss and those that will not be reclassified. The flexibility to present a statement of comprehensive income as one statement or two separate statements of profit and loss and other comprehensive income
remains unchanged. The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012.
|
137
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
2.
|
Significant Accounting Policies
(Continued)
|
|
|
|
[c] New standards (continued)
|
|
|
|
IAS 28 Investments in Associates and Joint
Ventures
|
|
|
|
As a consequence of the issue of IFRS 10, IFRS 11 and
IFRS 12, IAS 28 has been amended and will further provide the accounting
guidance for investments in associates and will set out the requirements
for the application of the equity method when accounting for investments
in associates and joint ventures. This standard will be applied by the
Company when there is joint control, or significant influence over an
investee. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but does not
include control or joint control of those policy decisions. When
determined that the Company has an interest in a joint venture, the
Company will recognize an investment and will account for it using the
equity method in accordance with IAS 28. IAS 28 is required to be applied
for annual periods beginning on or after January 1, 2013, with earlier
adoption permitted. The Company has not yet assessed the impact of the
standard or determined whether it will adopt the standard early.
|
|
|
3.
|
Capital Management
|
|
|
|
The Company manages its capital with the following
objectives:
|
-
to ensure sufficient financial flexibility to achieve the ongoing business
objectives including funding of future growth opportunities, and pursuit of
accretive acquisitions; and
-
to maximize shareholder return through enhancing the share value.
The Company monitors its capital
structure and makes adjustments according to market conditions in an effort to
meet its objectives given the current outlook of the business and industry in
general. The Company may manage its capital structure by issuing new shares,
repurchasing outstanding shares, adjusting capital spending, or disposing of
assets. The capital structure is reviewed by Management and the Board of
Directors on an ongoing basis.
The Company considers its capital
(deficiency) to be equity, comprising share capital, reserves, accumulated
deficit and accumulated other comprehensive loss, which at January 31, 2012,
totalled $(5,810,547) (January 31, 2011 - $39,210, February 1, 2010 -
$1,680,055). Note that included in the balance presented is a deficit of
$44,553,494 as at January 31, 2012 (January 31, 2011 - $38,101,796, February 1,
2010 -$36,468,951).
The Company manages capital through its
financial and operational forecasting processes. The Company reviews its working
capital and forecasts its future cash flows based on operating expenditures, and
other investing and financing activities. The forecast is regularly updated
based on activities related to its mineral properties. Selected information is
provided to the Board of Directors of the Company. The Companys capital
management objectives, policies and processes have remained unchanged during the
year ended January 31, 2012. The Company is not subject to external capital
requirements.
138
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
4.
|
Property and Financial Risk Factors
|
|
|
|
|
|
(a)
Property risk
|
|
|
|
|
|
The Company's significant mineral property is the
Goldwedge Project.
|
|
|
|
|
|
Unless the Company acquires or develops additional
significant resource properties, the Company will be solely dependent upon
the Goldwedge Project. If no additional mineral properties are acquired by
the Company, any adverse development affecting the Goldwedge Project would
have a material adverse effect on the Company's financial condition and
results of operations.
|
|
|
|
|
|
(b)
Financial risk factors
|
|
|
|
|
|
The Companys activities expose it to a variety of
financial risks: credit risk, liquidity risk and market risk (including
interest rate, foreign exchange rate, and commodity price risk).
|
|
|
|
|
|
Risk management is carried out by the Company's
management team with guidance from the Audit Committee under policies
approved by the Board of Directors. The Board of Directors also provides
regular guidance for overall risk management.
|
|
|
|
|
|
|
(i) Credit risk
|
|
|
|
|
Credit risk is the risk of loss associated with a
counterpartys inability to fulfill its payment obligations. The Company's
credit risk is primarily attributable to cash and reclamation bonds. The
Company has no significant concentration of credit risk arising from
operations. Cash and reclamation bonds are held with reputable financial
institutions, from which management believes the risk of loss to be
minimal.
|
|
|
|
|
(ii) Liquidity risk
|
|
|
|
|
The Company's approach to managing liquidity risk is to
ensure that it will have sufficient liquidity to meet liabilities when
due. As at January 31, 2012, the Company had a cash balance of $629,553
(January 31, 2011 - $102,038, February 1, 2010 - $745,779) to settle
current liabilities of $6,120,109 (January 31, 2011 - $935,688, February
1, 2010 - $301,381). All of the Company's financial liabilities have
contractual maturities of less than 60 days and are subject to normal
trade terms. The Company continues to seek sources of additional capital
to improve its liquidity position. During the year ended January 31, 2012,
the Company secured financing of $8,000,000 (see note 12).
|
|
|
|
|
(iii) Market risk
|
|
|
|
|
Market risk is the risk of loss that may arise from changes
in market factors such as interest rates, foreign exchange rates, and
commodity and equity prices.
|
|
|
|
|
|
|
Interest rate risk
|
|
|
|
|
|
|
|
The Company has cash balances and interest-bearing debt
with a fixed interest rate. The Company's current policy is to invest
excess cash in guaranteed investment certificates, bankers acceptance and
money market deposits, with reputable financial institutions. The interest
rate risk is remote.
|
139
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
4.
|
Property and Financial Risk Factors
(Continued)
|
|
|
|
|
|
(b)
Financial risk factors
(continued)
|
|
|
|
|
|
|
(iii) Market risk
(continued)
|
|
|
|
|
|
|
Foreign currency risk
|
|
|
|
|
|
|
The Company's functional and reporting currency is the United States
dollar and major purchases are transacted in United States dollars. An
operating account is maintained in Canadian dollars primarily for
settlement of general and corporate expenditures.
|
|
|
|
|
|
|
Commodity price risk
|
|
|
|
|
|
|
The Company is exposed to price risk with respect to commodity and
equity prices. Equity price risk is defined as the potential adverse
impact on the Company's earnings due to movements in individual equity
prices or general movements in the level of the stock market. Commodity
price risk is defined as the potential adverse impact on earnings and
economic value due to commodity price movements and volatilities. The
Company closely monitors commodity prices, as they relate to gold and
precious metals in the United States, individual equity movements, and the
stock market to determine the appropriate course of action to be taken by
the Company.
|
|
|
|
|
(c)
Sensitivity analysis
|
|
|
|
|
|
As of January 31, 2012, the carrying and fair value
amounts of the Company's financial instruments are approximately
equivalent.
|
|
|
|
|
|
Based on management's knowledge and experience of the
financial markets, the Company believes the following movements are
"reasonably possible" over a twelve month period:
|
-
The Company's marketable securities are subject to fair value
fluctuations. As at January 31, 2012, if the fair value of the marketable
securities had decreased/increased by 10% with all other variables held
constant, comprehensive loss for the year ended January 31, 2012 would have
been approximately $15,000 higher/lower. Similarly, as at January 31, 2012,
reported shareholders' equity would have been approximately $15,000
lower/higher as a result of a 10% decrease/increase in the fair value of
marketable securities.
-
Cash, sundry receivables, due from and to related parties, and accounts
payable and accrued liabilities denominated in Canadian dollars are subject to
foreign currency risk. As at January 31, 2012, had the US dollar
weakened/strengthened by 5% against the Canadian dollar with all other
variables held constant, it would affect net loss and comprehensive loss by
approximately $36,000.
140
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
4.
|
Property and Financial Risk Factors (Continued)
|
|
|
|
(c) Sensitivity analysis
(continued)
|
-
Commodity price risk could adversely affect the Company. In particular,
the Companys future profitability and viability of development depends upon
the world market price of gold and precious metals. Gold and precious metals
have fluctuated widely in recent years. There is no assurance that, even if
commercial quantities of gold and precious metals may be produced in the
future, a profitable market will exist for them. A decline in the market price
of gold and precious metals may also require the Company to reduce its mineral
properties, which could have a material and adverse effect on the Companys
value. As of January 31, 2012, the Company is not a gold or precious metals
producer. As a result, commodity price risk may affect the completion of
future equity transactions such as equity offerings and the exercise of stock
options and warrants. This may also affect the Company's liquidity and its
ability to meet its ongoing obligations.
-
The fair value of embedded derivatives on long-term debt is determined by
the gold price at the repayment dates. When the gold price is over $1,600 per
ounce, the embedded derivative would have a value. As at January 31, 2012, had
the future gold price increased/decreased $50 dollars per ounce, it would
affect net loss and comprehensive loss by approximately $57,000.
5.
|
Marketable Securities
|
|
|
|
Marketable securities consist of 2,000,000 common shares
of Sharpe Resources Corporation ("Sharpe"), a publicly held Canadian
company engaged in the exploration and development of coal properties in
the United States. Sharpe was considered to be related to the Company
because of common management prior to the termination of the former CEO's
employment in December 2011. The market value of the shares at January 31,
2012 was $150,000 (January 31, 2011 - $52,000, February 1, 2010 -
$60,500).
|
|
|
6.
|
Sundry Receivables and
Prepaids
|
|
|
|
As at
|
|
|
As at
|
|
|
As at
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales tax receivables
|
$
|
71,415
|
|
$
|
18,290
|
|
$
|
1,573
|
|
|
Other receivables
|
|
60,094
|
|
|
31,592
|
|
|
12,080
|
|
|
Prepaid expenses
|
|
24,766
|
|
|
11,395
|
|
|
10,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156,275
|
|
$
|
61,277
|
|
$
|
24,537
|
|
7.
|
Reclamation Bonds
|
|
|
|
The Company has posted reclamation bonds for its mining
projects, as required by the States of Nevada and Kentucky, to secure
clean-up costs if the projects are abandoned or closed. $397,676 of the
reclamation bonds pertains to the Goldwedge Project, $56,658 to the Piñon
Project and $178,700 to the Kentucky Project.
|
141
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
8.
|
Exploration and Evaluation Expenditures on Mineral
Properties
|
|
|
|
|
(a)
Goldwedge Project
|
|
|
|
|
The Goldwedge Project, a property owned by the Company,
represents the Company's most advanced project and is located in the
Manhattan District in Nye County, Nevada, approximately eight miles south
of the Round Mountain mine and has been issued a mine and mill permit by
the Nevada Division of Environmental Protection. The Company is completing
refurbishment of the on-site processing plant which was used for the test
mining and processing that took place between 2007 and 2008. The process
includes primary and secondary crushing and grinding facilities that feed
a gravity recovery system. In addition, dry stack tailings containment as
well as silt and fresh water ponds are in place. Testing of the various
mineral processing functions extracted stockpiles of low grade gold feed
material, as well as concurrently newly mined material. The feed material
was processed into gold dore on site. The Company has recently completed
construction of the Rapid Infiltration Basins (RIB), dewatered the
previously completed underground development and also commenced phase 2 of
the underground development program. This phase of the development
includes the exploration of defined mineralized zones concurrently with
the second phase of decline development. The previous work had
concentrated on the development of a spiral decline as a means to explore
the deposit at depth. As part of the program, a series of crosscuts were
constructed at specific intervals to effectively assess the potential
mineralized zones. Phase 2 of the development is concentrated on
developing along the strike of known mineralized zones to assess
continuity and grade as well as prepare areas for future test stoping. All
material is sampled daily and analyzed for gold onsite at the Company's
assay laboratory. In addition, the Company sends samples for analysis to
an independent laboratory located offsite.
|
|
|
|
|
Also held under the same option agreement as the
Goldwedge Property was the Dixie-Comstock Mining Company option, in Nye
County located within the Manhattan District and other unpatented mining
claims located in Churchill County, Nevada. In 2010, the Company exercised
its option to purchase these unpatented and patented mining claim
groups.
|
|
|
|
|
Under the guidance of IAS 37, the Company has recorded an
asset retirement obligation ("ARO") of $168,276 on this project,
representing the estimated costs, on a discounted basis, of the Company's
obligation to restore the site to its original condition.
|
|
|
|
|
Based on the existing level of terrestrial disturbance
and water treatment and monitoring requirements, the discounted ARO's for
all projects, where applicable, has been estimated by management. The
assumptions for the future payments are based on future expenses being
incurred between 2017 and 2019 and a discount rate of 10%.
|
|
|
|
|
(b)
Piñon Project
|
|
|
|
|
The Piñon Project is a property made up of a number of
property leases located in Elko Country, Nevada. Under the guidance of IAS
37, the Company has recorded an ARO of $28,724 on this project,
representing the estimated costs, on a discounted basis, of the Company's
obligation to restore the site to its original condition.
|
|
|
|
|
(c)
Fondaway Canyon Project
|
|
|
|
|
The Fondaway Canyon Project is located in Churchill
County, Nevada. During the years ended January 31, 2011 and 2012, the
Company did not perform any exploration on this
project.
|
142
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
8.
|
Exploration and Evaluation Expenditures on Mineral
Properties (Continued)
|
|
|
|
|
(d)
Kentucky Project
|
|
|
|
|
On December 7, 2011, the Company exercised its option to
acquire a 50% interest in certain coal projects in Eastern Kentucky. The
option was originally acquired by the Company pursuant to an option and
joint venture agreement entered into with Sharpe on November 21, 2008 and
amended on September 11, 2009, to jointly pursue the exploration and
development of approximately 1,000 acres in Wolfe County,
Kentucky.
|
|
|
|
|
In the prior year, the Company wrote off a promissory
note receivable from the optionor in the amount of $133,134. Further, the
Company paid for a reclamation bond of $178,700, included in the
consolidated statements of financial position under reclamation
bonds.
|
|
|
|
|
Under the guidance of IAS 37, the Company has recorded an
ARO on its Kentucky Project in the amount of $95,315, representing the
estimated costs, on a discounted basis, of the Company's obligation to
restore the property to its original condition.
|
143
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
8.
|
Exploration and Evaluation Expenditures on Mineral
Properties (Continued)
|
|
|
|
During the year ended January 31, 2012, the Company's
exploration and evaluation expenditures were as
follows:
|
|
|
|
Years Ended
|
|
|
|
|
January 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Gold Wedge Project
|
|
|
|
|
|
|
|
Property acquisition costs
|
$
|
10,000
|
|
$
|
40,492
|
|
|
Travel
|
|
71,292
|
|
|
65,983
|
|
|
Mine development costs
|
|
397,626
|
|
|
42,312
|
|
|
Drilling
|
|
40,206
|
|
|
-
|
|
|
Professional fees
|
|
113,442
|
|
|
65,550
|
|
|
Consulting, wages and
salaries
|
|
1,238,299
|
|
|
240,392
|
|
|
Office and general
|
|
393,149
|
|
|
84,314
|
|
|
Analysis and assays
|
|
7,392
|
|
|
2,225
|
|
|
Supplies, equipment and transportation
|
|
353,312
|
|
|
(9,010
|
)
|
|
Depreciation
|
|
124,231
|
|
|
254,908
|
|
|
|
$
|
2,748,949
|
|
$
|
787,166
|
|
|
|
|
|
|
|
|
|
|
Piñon Project
|
|
|
|
|
|
|
|
Property acquisition costs
|
$
|
69,571
|
|
$
|
102,706
|
|
|
Consulting, wages and salaries
|
|
1,617
|
|
|
(15,711
|
)
|
|
|
$
|
71,188
|
|
$
|
86,995
|
|
|
|
|
|
|
|
|
|
|
Fondaway Project
|
|
|
|
|
|
|
|
Property acquisition costs
|
$
|
35,000
|
|
$
|
58,037
|
|
|
Office and general
|
|
2,297
|
|
|
-
|
|
|
|
$
|
37,297
|
|
$
|
58,037
|
|
|
|
|
|
|
|
|
|
|
Kentucky Project
|
|
|
|
|
|
|
|
Property acquisition costs
|
$
|
-
|
|
$
|
(300
|
)
|
|
Travel
|
|
12,764
|
|
|
62
|
|
|
Reclamation
|
|
-
|
|
|
444
|
|
|
Professional fees
|
|
2,400
|
|
|
17,786
|
|
|
Consulting, wages and
salaries
|
|
46,300
|
|
|
49,150
|
|
|
Office and general
|
|
12,794
|
|
|
15,223
|
|
|
Supplies, equipment and
transportation
|
|
10,552
|
|
|
13,646
|
|
|
Depreciation
|
|
12,112
|
|
|
16,696
|
|
|
|
$
|
96,922
|
|
$
|
112,707
|
|
|
|
|
|
|
|
|
|
|
Total exploration activities
|
$
|
2,954,356
|
|
$
|
1,044,905
|
|
144
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
|
|
|
Construction
|
|
|
Exploration
|
|
|
Office
|
|
|
|
|
|
COST
|
|
in progress
|
|
|
equipment
|
|
|
equipment
|
|
|
Total
|
|
|
Balance, February 1, 2010
|
$
|
-
|
|
$
|
2,977,464
|
|
$
|
21,253
|
|
$
|
2,998,717
|
|
|
Additions
|
|
-
|
|
|
-
|
|
|
553
|
|
|
553
|
|
|
Balance, January 31, 2011
|
$
|
-
|
|
$
|
2,977,464
|
|
$
|
21,806
|
|
$
|
2,999,270
|
|
|
Additions
|
|
1,619,341
|
|
|
148,536
|
|
|
-
|
|
|
1,767,877
|
|
|
Balance, January 31, 2012
|
$
|
1,619,341
|
|
$
|
3,126,000
|
|
$
|
21,806
|
|
$
|
4,767,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
Exploration
|
|
|
Office
|
|
|
|
|
|
ACCUMULATED DEPRECIATION
|
|
in progress
|
|
|
equipment
|
|
|
equipment
|
|
|
Total
|
|
|
Balance, February 1, 2010
|
$
|
-
|
|
$
|
2,253,811
|
|
$
|
19,000
|
|
$
|
2,272,811
|
|
|
Depreciation for the year
|
|
-
|
|
|
271,604
|
|
|
1,122
|
|
|
272,726
|
|
|
Balance, January 31, 2011
|
$
|
-
|
|
$
|
2,525,415
|
|
$
|
20,122
|
|
$
|
2,545,537
|
|
|
Depreciation for the year
|
|
-
|
|
|
136,343
|
|
|
931
|
|
|
137,274
|
|
|
Balance, January 31, 2012
|
$
|
-
|
|
$
|
2,661,758
|
|
$
|
21,053
|
|
$
|
2,682,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
Exploration
|
|
|
Office
|
|
|
|
|
|
CARRYING AMOUNT
|
|
in progress
|
|
|
equipment
|
|
|
equipment
|
|
|
Total
|
|
|
Balance, February 1, 2010
|
$
|
-
|
|
$
|
723,653
|
|
$
|
2,253
|
|
$
|
725,906
|
|
|
Balance, January 31, 2011
|
$
|
-
|
|
$
|
452,049
|
|
$
|
1,684
|
|
$
|
453,733
|
|
|
Balance, January 31, 2012
|
$
|
1,619,341
|
|
$
|
464,242
|
|
$
|
753
|
|
$
|
2,084,336
|
|
Construction in progress relates to the
refurbishment of the mill at the Company's Goldwedge Project.
Depreciation of exploration equipment
is expensed to exploration and evaluation expenditures and depreciation of
office equipment is expensed to general and administrative on the consolidated
statements of operations.
10.
|
Accounts Payable and Accrued
Liabilities
|
|
|
|
As at
|
|
|
As at
|
|
|
As at
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
$
|
579,664
|
|
$
|
231,432
|
|
$
|
68,002
|
|
|
Accrued liabilities
|
|
2,454,099
|
|
|
347,195
|
|
|
233,379
|
|
|
|
$
|
3,033,763
|
|
$
|
578,627
|
|
$
|
301,381
|
|
Included in accrued liabilities are
accrued finance costs of $78,814 and accrued costs in connection with the
construction in progress, and purchase
of exploration equipment, totaling $895,223.
145
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
11.
|
Asset Retirement Obligations
|
|
|
|
The Company is required to recognize a liability for a
legal and constructive obligation to perform asset retirement activities,
including decommissioning, reclamation and environmental monitoring
activities once any of its projects are permanently closed. Although these
activities are conditional upon future events, the Company is required to
make a reasonable estimate of the fair value of the liability. Based on
the existing level of terrestrial disturbance and water treatment and
monitoring requirements, the discounted asset retirement obligations
("ARO's") were estimated to be $292,315 as at January 31, 2012, assuming
future payments of $484,706 being made over a ten year period from the
date of initial assessment of the ARO's and a discount rate of
10%.
|
|
|
|
Determination of the undiscounted ARO and the timing of
these obligations were based on internal estimates using information
currently available, existing regulations, and estimates of closure costs.
There was no significant change in the present value of the obligation for
the year ended January 31, 2011. Accordingly, no accretion cost has been
expensed in the year ended January 31, 2011. During the year ended January
31, 2012, the Company determined an additional $52,165 increase in ARO
related to the Company's Goldwedge Project. The following is the
reconciliation of the asset retirement
obligations:
|
|
|
|
Year ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
$
|
232,010
|
|
$
|
232,010
|
|
$
|
232,010
|
|
|
Increase in asset retirement obligations
|
|
52,165
|
|
|
-
|
|
|
-
|
|
|
Accretion cost
|
|
8,140
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
$
|
292,315
|
|
$
|
232,010
|
|
$
|
232,010
|
|
12.
|
Long-Term Debt
|
|
|
|
On June 29, 2011, the Company's wholly owned subsidiary,
Manhattan Mining Co. ("Manhattan") entered into a secured bridge loan
agreement (the Bridge Loan) with Waterton Global Value, L.P.
(Waterton) pursuant to which Waterton agreed to provide an $8,000,000
bridge loan (the Credit Facility) available to Manhattan. Of the total
$8,000,000 Bridge Loan, $4,000,000 was available on closing and the
remaining $4,000,000 after the satisfaction of certain covenants. Under
the Bridge Loan agreement, the amounts drawn down under the Credit
Facility would incur interest at 6% per annum, and the scheduled repayment
date of the Credit Facility was 16 months after the initial closing date.
In connection with the Credit Facility, Manhattan agreed to pay Waterton a
structuring fee, and also provided Waterton with certain royalty interests
relating to its Goldwedge Property. Manhattan and Waterton have also
entered into a gold purchase agreement pursuant to which Waterton had
agreed to purchase Manhattans production. The Credit Facility was secured
by, amongst other items, the Companys real property assets in
Nevada.
|
146
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31, 2012
|
12.
|
Long-Term Debt (Continued)
|
|
|
|
On August 26, 2011, Manhattan amended its existing Bridge Loan with Waterton such that the Bridge Loan was transitioned into a more permanent senior secured gold stream debt facility (the “Gold Stream Facility”)
amongst the parties. Under the Gold Stream Facility, Waterton will make $8,000,000 (the “Principal Amount”) available to Manhattan. The Principal Amount is repayable by Manhattan to Waterton in monthly payments commencing in August
2012 and ending in July 2013. Under the Gold Stream Facility, each monthly repayment of the Principal Amount will be made by the delivery by Manhattan to Waterton of gold bullion ounces where the number of ounces to be delivered shall be based on
the spot price of gold on the business day immediately preceding the repayment date less an applicable discount or by the payment of the cash equivalent of such number of ounces. In addition, there is a profit participation formula which is
triggered when the spot price of gold is in excess of $1,600 an ounce on the business day immediately preceding the repayment ("Profit Participation"). The Principal Amount will accrue interest at 9.0% per annum. The Gold Stream Facility is
secured by, amongst other items, Manhattan's real property assets in Nevada.
|
|
|
|
The Company considers Profit Participation as an embedded derivative. As at January 31, 2012, the gross proceeds received under the Gold Stream Facility was $5,970,350, which was allocated to the embedded derivative based on
the initial fair values of the embedded derivative determined when proceeds were received ($170,721), and then the residual value was allocated to the liability portion. The Company estimates the future cash flow needs in terms of Profit
Participation using the gold future contract prices of repayment periods and discounted to the present value using 9% as annual discount rate. As of January 31, 2012, the Company estimates the gold future price during the repayment period from
August 2012 to July 2013 to be $1,750 per ounce.
|
|
|
|
As consideration for entering into the Gold Stream Facility, a structuring fee equal to 2% of the aggregate amount of the Gold Stream Facility and an establishment fee of $80,000 was payable by Manhattan to Waterton in cash
and Manhattan also granted Waterton certain royalty interests over its exploration stage projects. In addition, Manhattan and Waterton have agreed that Waterton shall have the right to purchase all of the gold produced by Manhattan from its Nevada
projects at a price per ounce that will be equal to an agreed discount to the existing spot price of gold at the time of any such purchase. Bayfront Capital Partners Ltd. acted as placement agent in connection with the Gold Stream Facility in
consideration for a placement fee equal to 4% of any Principal Amounts actually drawn by Manhattan under the Gold Stream Facility.
|
|
|
|
The Gold Stream Facility contains covenants for Manhattan such as, among other things, providing Waterton with updates on its operations, carrying on its business in accordance with prudent mining industry practices, and providing
Waterton with certain rights of inspection. Until all amounts outstanding under the Gold Stream Facility have been repaid in full or otherwise satisfied in accordance with the terms of such facility, certain standard restrictive covenants shall
apply to Manhattan limiting its ability to (without limitation): incur additional indebtedness, create liens on its assets or dispose of its assets. These negative covenants are subject to certain carve-outs that facilitate Manhattan's ability to
operate its business efficiently. The Gold Stream Facility also includes certain event of default provisions pursuant to which, immediately and automatically upon the occurrence of an event of default, all amounts outstanding under the Gold Stream
Facility would be automatically accelerated and immediately due and payable to Waterton.
|
147
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
12.
|
Long-Term Debt (Continued)
|
|
|
|
At any time, without penalty, the Gold Stream Facility
provides Manhattan the option to prepay in whole or in part, on 5 business
days prior notice. Prepayments may be made in physical gold ounces or
cash. The amount of any prepayment shall be calculated using the spot
price of gold on the business day immediately preceding the
prepayment.
|
|
|
|
The following table shows the reconciliation between the
gross proceeds received and the carrying value of the Gold Stream
Facility.
|
|
Gross proceeds
|
$
|
5,970,350
|
|
|
Less: Initial fair value of the embedded
derivative (i)
|
|
(170,721
|
)
|
|
Less: Debt issuance cost (ii)
|
|
(478,814
|
)
|
|
Add:
Accretion costs
|
|
611,108
|
|
|
|
|
|
|
|
Long-term debt (iii)
|
$
|
5,931,923
|
|
(i) There was no significant change in
the fair value of the embedded derivative during the year ended January 31,
2012. Accordingly, no such change was recorded in the consolidated statements of
operations. The fair value of the embedded derivative is presented as
follows:
|
Current portion
|
$
|
85,361
|
|
|
Non-current portion
|
|
85,360
|
|
|
|
$
|
170,721
|
|
(ii) Debt issuance costs consist of the
following:
|
Structuring and establishment
fee
|
$
|
240,000
|
|
|
Placement fee
|
|
238,814
|
|
|
|
$
|
478,814
|
|
(iii) The long-term debt balance is
presented as follows:
|
Current portion
|
$
|
2,965,962
|
|
|
Non-current portion
|
|
2,965,961
|
|
|
|
$
|
5,931,923
|
|
(iv) Minimum long-term debt repayments
under the Gold Stream Facility are as follows:
|
12 months ended January 31,
2013
|
$
|
3,980,232
|
|
|
12
months ended January 31, 2014
|
|
3,980,233
|
|
|
|
$
|
7,960,465
|
|
As of January 31, 2012, the Company had
an interest payable balance of $155,930 related to the Gold Stream Facility. The balance was
recorded in the accounts payable and accrued liabilities.
148
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
13.
|
Share Capital
|
|
|
|
|
(a)
Authorized
|
|
|
|
|
The authorized capital of the Company consists of an
unlimited number of common shares without par value.
|
|
|
|
|
(b)
Issued
|
|
Common shares issued
|
|
Shares
|
|
|
Amount
|
|
|
Balance, February 1, 2010, January 31, 2011 and January
31, 2012
|
|
83,853,825
|
|
$
|
28,098,264
|
|
14.
|
Stock Options
|
|
|
|
Under the Company's stock option plan (the "Option
Plan"), the directors of the Company can grant options to acquire common
shares of the Company to directors, employees and others who provide
ongoing services to the Company. Exercise prices cannot be less than the
closing price of the Company's shares on the trading day preceding the
grant date and the maximum term of any option cannot exceed ten
years.
|
|
|
|
The number of common shares under option at any time
under the Option Plan or otherwise cannot exceed 5% of the then
outstanding common shares of the Company for any optionee. In addition,
options granted to insiders of the Company cannot exceed more than 10% of
the then outstanding common shares of the Company. The options vest when
granted.
|
|
|
|
Option pricing models require the input of highly
subjective assumptions including the expected price volatility. Changes in
the subjective input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily provide a
reliable measure of the fair value of the Company's share purchase
options.
|
|
|
|
The following table reflects the continuity of stock
options:
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Balance, February 1, 2010
and January 31, 2011
|
|
7,904,691
|
|
$
|
0.10
|
|
|
Cancelled during the year
|
|
(544,500
|
)
|
$
|
0.10
|
|
|
Granted (i)
|
|
4,700,000
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2012
|
|
12,060,191
|
|
$
|
0.17
|
|
149
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
14.
|
Stock Options (continued)
|
|
|
|
The following table reflects the stock options
outstanding and exercisable as at January 31,
2012:
|
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Options
|
|
|
Fair
|
|
|
Weighted average
|
|
|
Expiry Date
|
|
($)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Value
|
|
|
remaining years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2014
|
|
0.10
|
|
|
7,360,191
|
|
|
7,360,191
|
|
$
|
4,002,581
|
|
|
2.40
|
|
|
January 20, 2017
|
|
0.30
|
|
|
4,700,000
|
|
|
1,700,000
|
|
|
1,334,800
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,060,191
|
|
|
9,060,191
|
|
$
|
5,337,381
|
|
|
3.36
|
|
|
(i) On January 20, 2012, 4,700,000 options to purchase
common shares of the Company at a price of $0.30 have been granted to
consultants, officers and directors of the Company expiring on January 20,
2017. A value of $1,334,800 was assigned using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%,
expected volatility of 206.2% based on historical trends, share price on
the date of grant of $0.29, risk-free interest rate of 1.29%, and an
expected life of 5 years. 3,750,000 of these options vest as to one third
immediately, one third after one year and one third after two years from
the date of grant; 500,000 of these options vest one half immediately and
one half after one year from the date of grant; 150,000 of these options
vest after one year from the date of grant; 100,000 of these options vest
after six months from the date of grant; and 200,000 of these options vest
immediately. For the year ended January 31, 2012, the impact on salaries
and benefits was $503,942.
|
|
|
15.
|
Basic and Diluted Loss Per Share
|
|
|
|
The following table sets forth the computation of basic
and diluted loss per share:
|
|
|
|
Year Ended
|
|
|
|
|
January 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Loss
for the year
|
$
|
(6,451,698
|
)
|
$
|
(1,632,845
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding for
basic and diluted loss per share
|
|
83,853,825
|
|
|
83,853,825
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.08
|
)
|
$
|
(0.02
|
)
|
The stock options and common share
purchase options were not included in the computation of diluted loss
per share on January 31, 2012 and 2011
as their inclusion would be anti-dilutive.
150
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
16.
|
Income Taxes
|
|
|
|
The following table reconciles the expected income tax
expense (recovery) at the Canadian statutory income tax rate at 28.08%
(2011 - 30.17%) to the amounts recognized in the consolidated statements
of operations:
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
$
|
(6,451,698
|
)
|
$
|
(1,632,845
|
)
|
|
Expected tax recovery at statutory rate
|
|
(1,811,637
|
)
|
|
(492,629
|
)
|
|
Permanent differences
|
|
141,507
|
|
|
-
|
|
|
Effects of expiration of non-capital losses
|
|
-
|
|
|
214,082
|
|
|
Difference between Canadian
and foreign tax rates
|
|
(270,193
|
)
|
|
(27,000
|
)
|
|
Tax
benefits not recognized
|
|
1,940,323
|
|
|
305,547
|
|
|
Tax provision
|
$
|
-
|
|
$
|
-
|
|
The Canadian statutory tax rate changed
from 30.17% for the year ended January 31, 2011 to 28.08% for the 2011 taxation
year as a result of the enacted reduction of Canadian corporate tax rates.
Deferred Tax Assets and
Liabilities
(a) Unrecognized deferred tax
assets
Deferred tax assets are recognized for
the carry-forward or unused tax losses and unused tax credits to the extent that
it is probably that taxable profits will be available against which the unused
tax losses/credits can be utilized. The following represents the deductible
temporary differences by jurisdiction which have not been recognized in the
financial statements.
|
|
|
2012
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
|
|
|
Canada
|
|
|
US
|
|
|
Canada
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unclaimed non-capital losses
|
$
|
7,487,313
|
|
$
|
24,183,584
|
|
$
|
5,643,790
|
|
$
|
17,731,886
|
|
|
Excess of undepreciated capital cost
allowance over carrying value of capital assets
|
|
3,093,265
|
|
|
-
|
|
|
2,994,884
|
|
|
-
|
|
|
Excess of unclaimed resources pools over carrying value of
exploration properties
|
|
1,459,616
|
|
|
-
|
|
|
1,564,552
|
|
|
-
|
|
|
|
$
|
12,040,194
|
|
$
|
24,183,584
|
|
$
|
10,203,226
|
|
$
|
17,731,886
|
|
151
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
16.
|
Income Taxes (Continued)
|
|
|
|
The unclaimed non-capital losses carried forward by
expiry date:
|
|
|
|
|
|
|
Canada
|
|
|
US
|
|
|
Expires
|
|
2015
|
|
$
|
630,952
|
|
$
|
-
|
|
|
|
|
2026
|
|
|
854,554
|
|
|
-
|
|
|
|
|
2027
|
|
|
834,665
|
|
|
5,431,480
|
|
|
|
|
2028
|
|
|
1,029,144
|
|
|
1,175,212
|
|
|
|
|
2029
|
|
|
643,397
|
|
|
872,981
|
|
|
|
|
2030
|
|
|
1,140,900
|
|
|
821,104
|
|
|
|
|
2031
|
|
|
489,264
|
|
|
9,431,109
|
|
|
|
|
2032
|
|
|
1,864,437
|
|
|
6,451,698
|
|
|
|
|
|
|
$
|
7,487,313
|
|
$
|
24,183,584
|
|
17.
|
Related Party Transactions and Balances
|
|
|
|
Remuneration of Directors and key management personnel of
the Company was as follows:
|
|
|
|
Years Ended
|
|
|
|
|
January 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits paid to
directors and officers
(1)
|
$
|
471,380
|
|
$
|
316,911
|
|
|
Stock-based payments
|
$
|
501,799
|
|
$
|
-
|
|
|
(1)
Salaries and benefits include director
fees. The board of directors does not have employment or service contracts
with the Company. Directors are entitled to director fees and stock
options for their services.
|
|
|
|
Paul G. Smith, a director and Chairman of the Board, is
the President and Chief Executive Officer of Equity Financial Holdings
Inc., a company providing financial services to the Company.
|
|
|
|
Due to related parties balance at January 31, 2012
consists of $22,607 (January 31, 2011 - $357,061, February 1, 2010 - $nil)
owing to the former CEO and $12,416 owed to Sharpe (January 31, 2011 -
$nil, February 1, 2010 - $121,740). In addition, included in accounts
payable and accrued liabilities is $18,677 (2011 - $nil), owing to the
former CEO.
|
|
|
18.
|
Contingencies
|
|
|
|
|
(a) The Company received documents filed in the
District Court, Nye County, Nevada, whereby a optionor of a property
acquired by the Company has requested payment for machinery and equipment
stored in the vicinity of the acquired property. In the opinion of
management, the legal proceedings are without merit and the Company
intends to vigorously defend itself against this
claim.
|
152
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
18.
|
Contingencies (Continued)
|
|
|
|
|
(b) The Company received an action against it
whereby the Company was requested by a prior lease holder to take any and
all steps necessary to ensure that the prior lease holders bear no
responsibilities or liability for the Companys failure to comply with the
rules and regulations of the Kentucky Energy and Environment Cabinet,
Division of Mine Enforcement and Reclamation (the DMER). Management has
responded to the DMER and are rectifying the notice received from the DMER
and as a result no penalty will be assessed and the Company will be in
compliance with the rules and regulations of the DMER.
|
|
|
|
|
(c) On September 27, 2011 Hale Capital
Management, LP and Hale Capital Partners, LP (together, Hale Capital)
commenced an action in the New York Supreme Court alleging breach of
contract in relation to a term sheet entered into between the Company and
Hale Capital on December 11, 2010 (the Term Sheet), which set out
preliminary terms for Hale to provide financing of up to $15 million for
the Companys Goldwedge Project (the Hale Transaction). Hale Capital is
seeking the right to participate in financing the Company on no less
favourable terms and conditions as was agreed upon between the Company and
Waterton on June 29, 2011 or, in the alternative, damages for breach of
the exclusivity provision contained in the Term Sheet. Hale is also
seeking expense reimbursement for legal, travel and due diligence fees
incurred by Hale Capital, which allegedly totaled $376,170 as of November
21, 2011. On November 23, 2011, Hale Capital amended their complaint to
include the Companys subsidiary Manhattan Mining Co. Management has
estimated the expenses at $330,000 and has accrued this amount in the
accounts.
|
|
|
|
19.
|
General and
Administrative
|
|
|
|
Years Ended
|
|
|
|
|
January 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Corporate development
|
$
|
263,251
|
|
$
|
57,402
|
|
|
Insurance
|
|
22,841
|
|
|
24,168
|
|
|
Office and general
|
|
1,719
|
|
|
31,786
|
|
|
Professional fees
|
|
1,489,989
|
|
|
193,778
|
|
|
Consulting, wages and
salaries (Note 17)
|
|
526,446
|
|
|
433,019
|
|
|
Share based payments
|
|
503,942
|
|
|
-
|
|
|
Depreciation
|
|
931
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,809,119
|
|
$
|
741,275
|
|
20.
|
Segmented Information
|
|
|
|
The Company has one reportable business segment
consisting of the exploration and development of mining properties.
Substantially all of the Companys assets are located in the United States
except for cash totaling $426,596 at January 31, 2012 (January 31, 2011 -
$100,065, February 1, 2010 - $678,589) held in Canadian banks. The
Companys operations in Canada consist of general and administrative
expenses, totaling $2,459,866 for the year ended January 31, 2012 (2011 -
$309,735), including expenses necessary to maintain the Companys public
company status.
|
153
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS
|
|
|
|
|
(i)
Overview
|
|
|
|
|
As stated in Significant Accounting Policies (note 2),
these consolidated financial statements are prepared in accordance with
IFRS as issued by the IASB.
|
|
|
|
|
The policies set out in the Significant Accounting
Policies section have been applied in preparing the financial statements
for the years ended January 31, 2012 and 2011 and in the preparation of an
opening IFRS balance sheet at February 1, 2010 (the Companys Transition
Date).
|
|
|
|
|
(ii)
First-time adoption of
IFRS
|
|
|
|
|
The adoption of IFRS requires the application of IFRS 1,
which provides guidance for an entitys initial adoption of IFRS. IFRS 1
generally requires retrospective application of IFRS as effective at the
end of its first annual IFRS reporting period. However, IFRS 1 also
provides certain optional exemptions and mandatory exceptions to this
retrospective treatment.
|
|
|
|
|
The Company has elected to apply the following optional
exemptions in its preparation of an opening IFRS statement of financial
position as at February 1, 2010.
|
-
To apply IFRS 2 Share-based Payments only to equity
instruments that were issued after November 7, 2002 and had not vested by the
Transition Date.
-
To apply IFRS 3 Business Combinations prospectively from the
Transition Date, therefore not restating business combinations that took place
prior to the Transition Date.
-
To apply IAS 23 Borrowing Costs prospectively from the
Transition Date. IAS 23 requires the capitalization of borrowing costs directly
attributable to the acquisition, production or construction of certain assets.
IFRS 1 does not permit changes to
estimates that have been made previously. Accordingly, estimates used in the
preparation of the Companys opening IFRS statement of financial position as at
the Transition Date are consistent with those that were made under Canadian
GAAP.
(iii) Changes to accounting
policies
The Company has changed certain
accounting policies to be consistent with IFRS effective on January 31, 2012
(note 2), the Company's first annual IFRS reporting date. The changes to its
accounting policies have resulted in certain changes to the recognition and
measurement of assets, liabilities, equity, revenue and expenses within its
financial statements.
The following summarizes the
significant changes to the Companys accounting policies on adoption of IFRS.
(a) Impairment of non-financial assets
IFRS requires a write down of assets if the higher of the fair value less costs
to sell and the value in use of a group of assets is less than its carrying
value. Value in use is determined using discounted estimated future cash flows.
Previously, Canadian GAAP required a write down to estimated fair value only if
the undiscounted estimated future cash flows of a group of assets are less than
its carrying value.
154
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS (Continued)
|
|
|
|
|
(iii)
Changes to accounting policies
(continued)
|
|
|
|
|
(a) Impairment of non-financial assets
(continued)
|
|
|
|
|
The Company's accounting policies related to impairment
of non-financial assets have been changed to reflect these differences.
There was no impact on the consolidated financial statements.
|
|
|
|
|
(b) Decommissioning Liabilities (Asset Retirement
Obligations)
|
|
|
|
|
IFRS requires the recognition of a decommissioning
liability for legal or constructive obligations. A constructive obligation
exists when an entity has created reasonable expectations that it will
take certain actions.
|
|
|
|
|
The Company's accounting policies related to
decommissioning liabilities have been changed to reflect these
differences. There is no impact on the consolidated financial
statements.
|
|
|
|
|
(c) Exploration and evaluation expenditures
|
|
|
|
|
On transition to IFRS, the Company adopted a policy to
expense exploration and evaluation expenditures as incurred. Previously,
the Company's Canadian GAAP policy was to capitalize exploration and
evaluation expenditures as incurred. As a result of this adoption, all
previously capitalized mineral property costs were written off against
accumulated deficit, and to the extent relating to cost incurred in the
current period, against the statement of operations.
|
|
|
|
|
In fiscal 2011, the Company wrote down mineral properties
amounting to $8,437,355 in relation to the Goldwedge Project, primarily
due to the lack of financing to fund exploration activities at the time.
The impairment loss recognized under Canadian GAAP would not have been
recognized under IFRS because the expenditures to which it related would
not have been recognized as assets.
|
|
|
|
|
Impact on Consolidated Statements of Financial
Position
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
January 31
|
|
|
February 1,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Adjustment to mineral properties
|
$
|
(12,009,423
|
)
|
$
|
(19,799,686
|
)
|
|
Adjustment to accumulated deficit
|
$
|
(12,009,423
|
)
|
$
|
(19,799,686
|
)
|
Impact on Consolidated Statements of
Operations
|
|
|
Year
|
|
|
|
|
ended
|
|
|
|
|
January 31,
|
|
|
|
|
2011
|
|
|
Adjustment to exploration and evaluation expenditures
|
$
|
7,790,263
|
|
|
Adjustment to loss
|
$
|
7,790,263
|
|
155
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS (Continued)
|
|
|
|
(iii) Changes to accounting policies
(continued)
|
|
|
|
(c) Exploration and evaluation expenditures
(continued)
|
|
|
|
Impact on Consolidated Statements of Cash
Flows
|
|
|
|
Year
|
|
|
|
|
ended
|
|
|
|
|
January 31,
|
|
|
|
|
2011
|
|
|
Adjustment to loss
|
$
|
7,790,263
|
|
|
Depreciation
|
$
|
271,050
|
|
|
Mineral resource properties and exploration expenditures
|
$
|
8,061,313
|
|
(d) Presentation
Certain amounts on the consolidated
statements of financial position, statements of operations and comprehensive
loss and statements of cash flows have been reclassified to conform to the
presentation adopted under IFRS.
156
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS (Continued)
|
|
|
|
(iv) Reconciliation between IFRS and Canadian
GAAP
|
|
|
|
The February 1, 2010 Canadian GAAP statement of financial
position has been reconciled to IFRS as
follows:
|
|
|
|
February 1, 2010
|
|
|
|
|
Canadian
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
GAAP
|
|
|
adjustments
|
|
|
reclassifications
|
|
|
IFRS
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
745,779
|
|
$
|
-
|
|
$
|
-
|
|
$
|
745,779
|
|
|
Marketable securities
|
|
60,500
|
|
|
-
|
|
|
-
|
|
|
60,500
|
|
|
Sundry receivables and prepaids
|
|
24,537
|
|
|
-
|
|
|
-
|
|
|
24,537
|
|
|
|
|
830,816
|
|
|
-
|
|
|
-
|
|
|
830,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from related parties
|
|
121,740
|
|
|
-
|
|
|
-
|
|
|
121,740
|
|
|
Reclamation bonds
|
|
534,984
|
|
|
-
|
|
|
-
|
|
|
534,984
|
|
|
Mineral properties (Note
21(iii)(c))
|
|
19,799,686
|
|
|
(19,799,686
|
)
|
|
-
|
|
|
-
|
|
|
Equipment, net
|
|
725,906
|
|
|
-
|
|
|
-
|
|
|
725,906
|
|
|
|
$
|
22,013,132
|
|
$
|
(19,799,686
|
)
|
$
|
-
|
|
$
|
2,213,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
301,381
|
|
$
|
-
|
|
$
|
-
|
|
$
|
301,381
|
|
|
|
|
301,381
|
|
|
-
|
|
|
-
|
|
|
301,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
232,010
|
|
|
-
|
|
|
-
|
|
|
232,010
|
|
|
|
|
533,391
|
|
|
-
|
|
|
-
|
|
|
533,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
28,098,264
|
|
|
-
|
|
|
-
|
|
|
28,098,264
|
|
|
Contributed surplus (Note
21(iii)(d))
|
|
10,076,866
|
|
|
-
|
|
|
(10,076,866
|
)
|
|
-
|
|
|
Reserves (Note 21(iii)(d))
|
|
-
|
|
|
-
|
|
|
10,076,866
|
|
|
10,076,866
|
|
|
Deficit (Note 21(iii)(c))
|
|
(16,669,265
|
)
|
|
(19,799,686
|
)
|
|
-
|
|
|
(36,468,951
|
)
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive loss
|
|
(26,124
|
)
|
|
-
|
|
|
-
|
|
|
(26,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,479,741
|
|
|
(19,799,686
|
)
|
|
-
|
|
|
1,680,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,013,132
|
|
$
|
(19,799,686
|
)
|
$
|
-
|
|
$
|
2,213,446
|
|
157
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS (Continued)
|
|
|
|
(iv) Reconciliation between IFRS and Canadian GAAP
(continued)
|
|
|
|
The January 31, 2011 Canadian GAAP statement of financial
position has been reconciled to IFRS as
follows:
|
|
|
|
January 31, 2011
|
|
|
|
|
Canadian
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
GAAP
|
|
|
adjustments
|
|
|
reclassifications
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
102,038
|
|
$
|
-
|
|
$
|
-
|
|
$
|
102,038
|
|
|
Marketable securities
|
|
52,000
|
|
|
-
|
|
|
-
|
|
|
52,000
|
|
|
Sundry receivables and prepaids
|
|
61,277
|
|
|
-
|
|
|
-
|
|
|
61,277
|
|
|
|
|
215,315
|
|
|
-
|
|
|
-
|
|
|
215,315
|
|
|
Due from related parties
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Reclamation bonds
|
|
537,860
|
|
|
-
|
|
|
-
|
|
|
537,860
|
|
|
Mineral properties (Note
21(iii)(c))
|
|
12,009,423
|
|
|
(12,009,423
|
)
|
|
-
|
|
|
-
|
|
|
Equipment, net
|
|
453,733
|
|
|
-
|
|
|
-
|
|
|
453,733
|
|
|
|
$
|
13,216,331
|
|
$
|
(12,009,423
|
)
|
$
|
-
|
|
$
|
1,206,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
578,627
|
|
$
|
-
|
|
$
|
-
|
|
$
|
578,627
|
|
|
Due
to related parties
|
|
357,061
|
|
|
-
|
|
|
-
|
|
|
357,061
|
|
|
|
|
935,688
|
|
|
-
|
|
|
-
|
|
|
935,688
|
|
|
Asset retirement obligations
|
|
232,010
|
|
|
-
|
|
|
-
|
|
|
232,010
|
|
|
|
|
1,167,698
|
|
|
-
|
|
|
-
|
|
|
1,167,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
28,098,264
|
|
|
-
|
|
|
-
|
|
|
28,098,264
|
|
|
Contributed surplus (Note
21(iii)(d))
|
|
10,076,866
|
|
|
-
|
|
|
(10,076,866
|
)
|
|
-
|
|
|
Reserves (Note 21(iii)(d))
|
|
-
|
|
|
-
|
|
|
10,076,866
|
|
|
10,076,866
|
|
|
Deficit (Note 21(iii)(c))
|
|
(26,092,373
|
)
|
|
(12,009,423
|
)
|
|
-
|
|
|
(38,101,796
|
)
|
|
Accumulated other comprehensive loss
|
|
(34,124
|
)
|
|
-
|
|
|
-
|
|
|
(34,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,048,633
|
|
|
(12,009,423
|
)
|
|
-
|
|
|
39,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,216,331
|
|
$
|
(12,009,423
|
)
|
$
|
-
|
|
$
|
1,206,908
|
|
158
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS (Continued)
|
|
|
|
(iv) Reconciliation between IFRS and Canadian GAAP
(continued)
|
|
|
|
The year ended January 31, 2011 Canadian GAAP statement
of loss and comprehensive loss has been reconciled to IFRS as
follows:
|
|
|
|
Canadian
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
GAAP
|
|
|
adjustments
|
|
|
reclassifications
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenditures(Note
21(iii)(c))
|
$
|
-
|
|
$
|
(7,790,263
|
)
|
$
|
8,835,168
|
|
$
|
1,044,905
|
|
|
General and administrative
expenses (Note 21(iii)(d))
|
|
674,394
|
|
|
-
|
|
|
66,881
|
|
|
741,275
|
|
|
Consulting, wages and salaries (Note
21(iii)(d))
|
|
65,759
|
|
|
-
|
|
|
(65,759
|
)
|
|
-
|
|
|
Depreciation (Note 21(iii)(d))
|
|
1,122
|
|
|
-
|
|
|
(1,122
|
)
|
|
-
|
|
|
|
|
(741,275
|
)
|
|
7,790,263
|
|
|
8,835,168
|
|
|
(1,786,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
3,221
|
|
|
-
|
|
|
-
|
|
|
3,221
|
|
|
Write down of advances to related company
|
|
(132,060
|
)
|
|
-
|
|
|
-
|
|
|
(132,060
|
)
|
|
Write-off of exploration
properties
|
|
(8,835,168
|
)
|
|
-
|
|
|
8,835,168
|
|
|
-
|
|
|
Gain on disposal of marketable securities
|
|
275,194
|
|
|
-
|
|
|
-
|
|
|
275,194
|
|
|
Foreign currency translation adjustment (Note 21(iii)(d))
|
|
6,980
|
|
|
-
|
|
|
-
|
|
|
6,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(9,423,108
|
)
|
$
|
7,790,263
|
|
$
|
8,835,168
|
|
$
|
(1,632,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on available-for-sale marketable
securities
|
|
(8,000
|
)
|
|
-
|
|
|
-
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year
|
$
|
(9,431,108
|
)
|
$
|
7,790,263
|
|
$
|
-
|
|
$
|
(1,640,845
|
)
|
159
Royal Standard Minerals Inc.
|
Notes to Consolidated Financial Statements
|
(Expressed in United States Dollars)
|
January 31,
2012
|
21.
|
Conversion to IFRS (Continued)
|
|
|
|
(iv) Reconciliation between IFRS and Canadian GAAP
(continued)
|
|
|
|
The year ended January 31, 2011 Canadian GAAP statement
of cash flows has been reconciled to IFRS as
follows:
|
|
|
|
Canadian
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
GAAP
|
|
|
adjustments
|
|
|
reclassifications
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
$
|
(9,423,108
|
)
|
$
|
7,790,263
|
|
$
|
-
|
|
$
|
(1,632,845
|
)
|
|
Operating items not involving
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
1,122
|
|
|
271,050
|
|
|
-
|
|
|
272,172
|
|
|
Write-off of exploration properties
|
|
8,835,168
|
|
|
(8,835,168
|
)
|
|
-
|
|
|
-
|
|
|
Gain on disposal
of marketable securities
|
|
(275,194
|
)
|
|
-
|
|
|
-
|
|
|
(275,194
|
)
|
|
Write down of advances to related company
|
|
132,060
|
|
|
-
|
|
|
-
|
|
|
132,060
|
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sundry receivables and prepaids
|
|
(36,740
|
)
|
|
-
|
|
|
-
|
|
|
(36,740
|
)
|
|
Accounts payable and
accrued liabilities
|
|
277,246
|
|
|
-
|
|
|
-
|
|
|
277,246
|
|
|
Due from (due to) related
parties
|
|
346,741
|
|
|
-
|
|
|
-
|
|
|
346,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
(142,705
|
)
|
|
(773,855
|
)
|
|
-
|
|
|
(916,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of reclamation bonds
|
|
(2,876
|
)
|
|
-
|
|
|
-
|
|
|
(2,876
|
)
|
|
Additions to mineral
properties (Note 21(iii)(c))
|
|
(773,855
|
)
|
|
773,855
|
|
|
-
|
|
|
-
|
|
|
Proceeds on disposal of marketable securities
|
|
275,695
|
|
|
-
|
|
|
-
|
|
|
275,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
(501,036
|
)
|
|
773,855
|
|
|
-
|
|
|
272,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(643,741
|
)
|
|
-
|
|
|
-
|
|
|
(643,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
745,779
|
|
|
-
|
|
|
-
|
|
|
745,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
$
|
102,038
|
|
$
|
-
|
|
$
|
-
|
|
$
|
102,038
|
|
22.
|
Subsequent Events
|
|
|
|
|
(a)
|
On May 8, 2012, the Company announced that it had secured
an additional $2,000,000 loan extension from Waterton. As consideration
for the loan extension, the Company will provide Waterton with additional
net smelter return royalties on several of its property including Piñon
and Fondaway Canyon.
|
|
|
|
|
(b)
|
On April 17, 2012, the Company announced the
commissioning of its mill at its Goldwedge Project.
|
|
|
|
|
(c)
|
On April 16, 2012, the Company announced that 6,560,191
stock options granted to past directors, having an expiry date of June 26,
2014 had expired.
|
160
Item 18.
Financial Statements
Not applicable.
161
Item 19.
Exhibits.
Exhibit
No.
|
Description of Exhibit
|
|
|
1.1
|
Articles of Incorporation of
the Company, as amended. (incorporated by reference to Exhibit 1.1 to Form
20-F filed with the SEC on June 14, 2012).
|
|
|
1.2
|
By-law No. 2 of the Company (incorporated by reference to
Exhibit 99.1 to Form 6-K filed with the SEC on January 12, 2012).
|
|
|
2.1
|
Shareholder Rights Plan Agreement dated December 23, 2010
between the Company and Equity Financial Trust Company (incorporated by
reference to Exhibit 2.1 to the Companys Amendment to Annual Report on
Form 20-F/A for the fiscal year ended January 31, 2012 filed with the SEC
on June 14, 2012).
|
|
|
4.1
|
2011 Amended and Restated Stock Option Plan (incorporated
by reference to Exhibit 4.1 to the Companys Form S-8 filed with the SEC
on June 26, 2012).
|
|
|
4.2.1#
|
Senior Secured Gold Stream Credit Agreement by and
between Manhattan Mining Co., certain guarantors and Waterton Global
Value, L.P., by the general partner of its general partner, Cortleigh
Limited, dated August 26, 2011 (incorporated by reference to Exhibit 99.2
to the Companys Amendment No. 2 to Form 6-K/A filed with the SEC on July
24, 2012).
|
|
|
4.2.2
|
First Amendment to Credit Agreement by and between
Manhattan Mining Co. and Waterton Global Value, L.P., by the general
partner of its general partner, Cortleigh Limited, dated May 2, 2012
(incorporated by reference to Exhibit 99.3 to the Companys Amendment No.
2 to Form 6-K filed with the SEC on May 14, 2012).
|
|
|
4.2.3
|
Second Amendment to Credit Agreement by and between
Manhattan Mining Co. and Waterton Global Value, L.P., by the general
partner of its general partner, Cortleigh Limited, dated June 28, 2012
(incorporated by reference to Exhibit 99.2 to the Companys Form 6-K filed
with the SEC on July 10, 2012).
|
|
|
4.3.1#
|
Royalty Agreement by and between Manhattan Mining Co. and
Waterton Global Value, L.P., dated August 26, 2011 (incorporated by
reference to Exhibit 99.4 to the Companys Amendment No. 2 to Form 6-K/A
filed with the SEC on July 24, 2012).
|
|
|
4.3.2
|
Amendment to Royalty Agreement by and between Manhattan
Mining Co. and Waterton Global Value, L.P., dated May 2, 2012
(incorporated by reference to Exhibit 99.5 to the Companys Amendment No.
1 to Form 6-K/A filed with the SEC on June 7, 2012).
|
|
|
4.4
|
Asset Purchase and Sale Agreement by and between the
Company, Manhattan Mining Co., Scorpio Gold Corporation and Goldwedge LLC
dated October 10, 2012 (incorporated by reference to Exhibit 99.2 to the
Companys Form 6-K filed with the SEC on October 23, 2012).
|
|
|
8.1
|
List of Subsidiaries of the Company.*
|
162
*
|
Filed herewith.
|
#
|
Confidential treatment has been requested for the
redacted portions of this agreement. A complete copy of the agreement,
including the redacted portions, has been filed separately with the
SEC.
|
163