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| MGNU.PK > SEC Filings for MGNU.PK > Form 10-K on 13-Nov-2008 | All Recent SEC Filings |
13-Nov-2008
Annual Report
The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company for the period ended July 31, 2008, and the related notes thereto.
Overview
Magnus is currently in the development stage and is engaged in the acquisition, exploration and development of precious and base metals. To this end, the Company has entered, and plans to enter, into various property agreements (see "Description of Business" above). Some of these agreements require the Company to contribute capital toward the exploration and development of various properties while requiring the joint venture partner to obtain or contribute mineral rights for desirable mineral properties, and obtain all required permits and licenses to commence exploration and mining activities. In other cases, the Company obtains these licenses and permits itself.
Outlook
At July 31, 2008, the price of gold was $911.20 per ounce compared to $663.60 at July 31, 2007, representing an increase of approximately 37.3 %. Similarly, the value of copper and the value of silver both increased during the same period. If this trend were to continue, the properties that are owned and controlled by the Company which contain mineralized material could gain in value. However, gold and other commodities prices have recently decreased, and future prices are uncertain. On November 6, 2008, the price of gold was $732.10 per ounce.
The Company does not currently generate operating cash flows. Subject to sustained mineral prices and successful financing, management expects to generate revenues and cash flows in the future.
The Company had a working capital deficiency of $1,946,157 at July 31, 2008.
Total cash requirements stipulated under the Company's Mashonga Agreement is $4,650,000. Under the Mashonga Agreement, Magnus has the right to earn a 60% interest in the Mashonga Property by making aggregate cash payments of US$650,000 to its joint venture partners, making US$4,000,000 in property exploration expenditures and completing a pre-feasibility study on the property by August 30, 2012. Magnus' joint venture partners have the right to accept common shares of Magnus in lieu of the cash payments. To July 31, 2008, Magnus had made $40,000 in cash payments and $181,489 in exploration expenditures on the Mashonga Property.
Total cash requirements stipulated under the Company's Ibanda Agreement is $2,000,000. Under the Ibanda Agreement, Magnus has the right to earn an 80% interest in the Ibanda Property by making aggregate exploration expenditures of $2,000,000 by May 1, 2013. To July 31, 2008, Magnus had made $8,483 in exploration expenditures on the Ibanda Property.
It is the Company's intention to attempt to re-negotiate the Mashonga and Ibanda agreements to reduce the financial obligations relating to each one. If this cannot be accomplished and the Company cannot find third parties to reduce some of its obligations then the Company may relinquish its interests in these joint ventures.
Beyond the payments that are due to the Company from the sale of Long Teng, the Company will need to raise additional funds through private placements in order to meet its future investment requirements in the above properties. While the Company has been successful in raising money by private placements in the past, there are no guarantees that the Company will be successful in the future. Management believes, however, that absent sufficient funding through a private placement or some other financing the Company will not generate sufficient revenue to cover any shortfall in the next year.
Results from Operations
Summary
The Company's consolidated net loss for the current fiscal year was $1,618,022 or $0.03 per share compared to the previous year's consolidated net loss of $4,502,428 or $0.11 per share. The net loss in the year ended July 31, 2006 was $9,401,834, or $0.27 per share. The largest expense in 2008 was related to the cost of exploration of the properties in Uganda (see "Property Agreements"). The second largest expense in 2008 was related.to stock option-based compensation.
Mineral production and revenue
As the Company is still an exploration stage company and in the exploration stage of development on the Company's properties, it has not, as of yet, produced any revenues nor produced any minerals.
Exploration, property evaluation and holding costs
The Company is committed to make total cash payments and exploration expenditures of $4,650,000 under the Mashonga Agreement (of which $221,489 was paid by July 31, 2008) and $2,000,000 under the Ibanda Agreement (of which $8,483 was paid by July 31, 2008).
Exploration expenses totaled $997,543 in 2008, including geological expenses, exploration licenses and expenses included in the loss from operations of components held for sale. The decrease from the total of $1,645,479 in 2007 and $3,251,792 in 2006 is due to the decrease in exploration activity at the properties in China, partly offset by exploration expenses incurred on the African projects since the acquisition of African Mineral Fields.
Corporate administration and investor relations
Corporate administrative and investor relations costs were $381,687 in the current fiscal year compared to $246,772 in 2007 and $2,808,692 in 2006. The increase over 2007 is due to increased office activity with AMF being part of Magnus for a full year in 2008, and needing to raise capital during a time of tight stock market conditions. Included in these costs are travel expenses for executives and geologists to China and Uganda, travel to various conferences, and other miscellaneous office expenses.
Registration payment arrangements
See Part II, Item 5 above, and Note 9 to the financial statements included herein for details on the registration payment arrangements.
Stock-based compensation
Stock-based compensation expenses of $528,266 increased from $411,546 in 2007 and decreased from the total of $1,068,142 in 2006. The decrease from 2006 is due to options granted in 2004 becoming fully vested prior to 2007, to expiry of options on termination of grantees, and to options granted to an investor relations firm in 2006 with immediate vesting, which did not recur in 2007 or 2008. The increase from 2007 is due to the effect of re-pricing options in 2008.
Financial Position, Liquidity and Capital Resources
Cash used in Operations
Cash used in operations was $2,419,648 in the current fiscal year compared to cash uses of $2,614,207 in the previous year and $7,785,499 in 2006. The decrease form 2007 is insignificant the decrease form 2006 is attributable to exploration being slowed down on the mineral properties in China since 2006.
Financing Activities
The Company received cash from financing activities of $1,354,767 in the current fiscal year compared to $2,756,377 in the previous year and $6,673,919 in 2006. The decrease is attributable to the China projects being relatively new, conmbined with a booming world economy in 2006 with the result that the Company was able to raise financing more easily in 2006.
Liquidity and Capital Resources
At July 31, 2008, the Company's total assets were $340,935 as compared to $654,979 the previous year. Long-term liabilities as of July 31, 2008 totaled $0 as compared to $0 in the previous year. The Company had a working capital deficiency of $1,946,157 at July 31, 2008.
Major cash commitments in the next fiscal year are related to proposed exploration activities, corporate administration, investor relations and operations (including financial commitments with respect to the properties in Uganda, as described above).
The consolidated financial statements have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.
The Company has experienced total losses during the exploration stage amounting to $21,031,103 as of July 31, 2008. As of July 31, 2008, the Company had a total of $177,093 in cash and cash equivalents; however this amount is insufficient to sustain operations over the course of the next twelve months. These factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to meet its commitments as they become payable, including the completion of acquisitions, exploration and development of mineral properties and projects, is dependent on the ability of the Company to obtain necessary financing or achieving a profitable level of operations. There are no assurances that the Company will be successful in achieving these goals.
The Company is in the process of exploring and evaluating its mineral properties and projects and has not yet determined whether these properties contain economically recoverable ore reserves. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete development and upon future profitable production or sufficient proceeds from the disposition thereof.
The financial statements do not give effect to adjustments to the amounts and classifications to assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
Critical Accounting Policies
Principles of Consolidation
The consolidated financial statements include accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant inter-company balances and transactions are eliminated. The statement of operations includes the results of operations for AMF since May 1, 2007, the date of acquisition, as well as the results of Western Mining and Long Teng up to the dates of disposition of those companies.
Mineral Properties and Exploration Expenses
Mineral property acquisition, exploration and development costs are charged to operations as incurred until such time that proven or probable ore reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from reserves equals or exceeds the costs deferred. The deferred costs will be amortized using the unit-of-production method when a property reaches commercial production. As at July 31, 2008, the Company did not have proven or probable reserves.
Transactions with Related Parties / Subsequent Events
As of 31 October 2008, Magnus has eliminated its Vancouver office and reduced its Vancouver staffing to two. It is Company's intention to keep them on a full-time basis until the 31 December 2008, after which it is anticipated that they would move to a consulting basis. Associated office overheads and staffing will therefore be significantly reduced.
We are also in the process of finding a smaller office in Uganda and have reduced our full-time staff to one administrator/accountant and one housekeeper. We can use former full-time staff on a consulting basis when needed.
Our office lease in China expires on the 31 March 2009 and after it expires we will no longer have a China office. It is anticipated that one or two staff members will remain on the payroll in China until we are fully paid for the sale of Long Teng. It is expected that Magnus will collect all monies due to the Company prior to the end of March 2008 and that the China office will be closed prior to the end of the office lease.
We intend to reduce the total budget for Magnus for the year down to about US $600,000 of costs (that are not currently loans or payables) for the coming year. Thus costs will be reduced by a very significant amount.
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