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| MGNU.PK > SEC Filings for MGNU.PK > Form 10-K on 13-Nov-2009 | All Recent SEC Filings |
13-Nov-2009
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, 2009, 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, 2009, the price of gold was $954.50 per ounce (source:
www.kitco.com) compared to $911.20 at July 31, 2008, representing an increase of
approximately 4.8 %. Similarly, the value of copper and the value of silver both
increased during the same period. Gold and other commodities prices have mostly
increased since 31 July 2008 but future prices are uncertain. On November 4,
2009, the price of gold was $1,091.90 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 $2,485,548 at July 31, 2009.
The Company has 100% ownership of its Uganda projects and no longer has any joint venture projects that require it to make expenditures to earn its interest. Magnus withdrew from its Mashonga and Ibanda joint ventures in December 2008.
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 $795,511 or $0.01 per share compared to the previous year's consolidated net loss of $1,618,023 or $0.03 per share. The net loss in the year ended July 31, 2007 was $4,502,428, or $0.11 per share. The largest expense in 2009 was related to the cost of exploration of the properties in Uganda (see "Property Agreements"). The second largest expense in 2009 was related.to stock-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
Exploration expenses totaled $212,572 in 2009, including geological expenses and exploration licenses. Exploration expenses decreased from a total of $997,543 in 2008 and $1,645,479 in 2007. The decrease in 2009 is mostly due to the
suspension of any major exploration activity in Uganda by Magnus after October 2008 because of lack of available capital. In 2007 and 2008 the decrease in exploration expenditure was 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 $194,274 in the current fiscal year compared to $381,687 in 2008 and $246,772 in 2007. The decrease over 2008 is due to the elimination of the Vancouver office and all of its full-time employees, the elimination of investor relations activities due to poor stock market conditions for most of fiscal 2009, and a reduction in travel expenses due to the elimination of travel on capital raising trips and to investor and industry conferences.
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 $165,819 decreased from $528,266 in 2008 and $411,546 in 2007. The increase from 2007 to 2008 is due to the effect of re-pricing options in 2008. The decrease from 2008 to 2009 is due to granted options becoming fully vested in 2009.
Financial Position, Liquidity and Capital Resources
Cash used in Operations
Cash used in operations was $252,385 in the current fiscal year compared to cash uses of $2,419,650 in 2008 and $2,614,207 in 2007. The decrease from 2008 is primarily due to the suspension of any major exploration activity in Uganda by Magnus since October 2008 and also due to the elimination of the Vancouver office and all of its full-time employees. This resulted in greatly reduced business activity of the Company in fiscal year 2009. The decrease from 2008 to 2007 is insignificant but reflects the elimination of exploration activities in China.
Financing Activities
The Company used cash for financing activities of $4,696 in the current fiscal year compared to receiving cash of $1,354,767 in 2008 and $2,756,377 in 2007. The decrease in financing activities in 2009 reflects the global economic slowdown in fiscal year 2009 and an extreme reduction in the allocation of capital towards earlier stage exploration companies. The decrease in 2008 was due to a more difficult capital raising environment for earlier stage exploration companies in 2008 than in 2007.
Liquidity and Capital Resources
At July 31, 2009, the Company's total assets were $71,179 as compared to $340,935 in 2008 and $654,979 in 2007. Long-term liabilities as of July 31, 2009 totaled $0 as compared to $0 in the previous year. The Company had a working capital deficiency of $2,485,548at July 31, 2009.
Major cash commitments in the next fiscal year are related to proposed exploration activities in Uganda and corporate administration.
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 $21,826,615 as of July 31, 2009. As of July 31, 2009, the Company had a total of $20,704 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 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 of 31 July 2009, the Company did not have proven or probable reserves.
Transactions with Related Parties / Subsequent Events
In relation to Long Teng Mining Ltd. in China, on May 9, 2009 the Lai group entered into an agreement with Mr. Peijan He under which the Lai group would transfer its interest in Yunnan Long Teng Mining Ltd. to Mr. He for RMB 24.8 million. As the Lai group still owed Magnus RMB 13.5 million for acquiring its interest in Long Teng, on September 3, 2009, Magnus entered into an agreement with the Lai group and Mr. He under which Mr. He agreed to pay RMB 13,500,000 of the purchase price it owes to the Lai group to Magnus instead. This RMB 13,500,000 is payable to Magnus under the agreement as follows: RMB 5,000,000 is payable upon issuance of a new business license of Long Teng to Mr. He or his designee; RMB 4,865,000 is payable to Magnus and 135,000 is payable to Yunnan Beichuan Law firm on or before September 28, 2009; and RMB 3,500,000 is payable on or before October 28, 2009 after the capital verification process has been completed for Long Teng by the relevant government authorities in Yunnan. Under the agreement, Magnus is required to pay a commission of RMB 135,000 and legal fees to Yunnan Beichuan Law firm which is acting as escrow agent for the funds. As at the 10 November 2009, a new business license has been issued reflecting that ownership of Long Teng has been transferred to Mr. He. Consequently, Magnus has received RMB 10,000,000 pursuant to the agreement and has paid RMB 135,000 in commission and 50,000 in legal fees to Yunnan Beichuan Law firm. As at November 12, 2009, the remaining 3.5 million RmB (approximately $510,000) related to the sale of Long Teng Mining in China has not been received by Magnus.
On December 11, 2008, the Company's indirect wholly-owned subsidiary, African Mineral Fields Limited, received notice that a legal action had been instituted against it in Uganda by Kamu Kamu Drilling Experts Limited, a drill
contractor used by the Company in Uganda. Kamu Kamu was seeking special damages in the amount of US$306,595, general damages, interest and costs of the action for the alleged breach by African Mineral Fields Limited of a reverse circulation drilling agreement dated April 29, 2008 between Kamu Kamu and African Mineral Fields Limited. On November 11, 2009, African Mineral Fields entered into a settlement agreement with Kamu Kamu under which Kamu Kamu agreed to deliver to African Mineral Fields a full and final release of its claim in exchange for: (1) US$50,000; and (2) the transfer by African Mineral Fields to Kamu Kamu of 10 mineral properties in Uganda representing 1,706 square kilometers. If any of the properties cannot be transferred then African Mineral Fields will pay an additional US$2,000 to Kamu Kamu for each property that cannot be transferred. The mineral properties are in the process of being transferred, and the Company does not foresee any difficulties in transferring all of the properties to Kamu Kamu. Magnus intends to transfer the following ten licenses to Kamu Kamu as part of the settlement: EL0005, EL0020, EL0022, EL0023, EL0167, EL0187, EL0188, EL0196, EL0199 and EL0200. One of the licenses is part of the Mwerusandu Project (EL0022). Four of the licenses are part of the Mitoma Property (EL0005, EL0023, EL0187 and EL0188). Five of the licenses comprise the Lugazi Property (EL0020, EL0167, EL0196, EL0199 and EL0200).
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