Geomark Exploration Ltd. ("Geomark" or the "Company" (www.geomark.ca) (TSX
VENTURE:GME) is pleased to announce its financial and operational results for
the three months and fiscal year ended December 31, 2010.
ANNUAL FINANCIAL AND OPERATIONAL HIGHLIGHTS
As at and for the year ended
December 31 2010 2009 2008
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($ 000s, except $ per share)
Revenue
Minerals Division 13,958 247 808
Oil and Gas Division 2,207 1,898 3,468
Cash Flow (Deficiency) from
Operations 523 (292) 2,644
Per Share Basic (1) 0.01 (0.01) -
Per Share Diluted (1) 0.01 (0.01) -
Net Earnings (Loss) 13,287 (1,561) 976
Per Share Basic (1) 0.25 (0.03) -
Per Share Diluted (1) 0.25 (0.03) -
Capital Expenditures
Minerals Division 226 - -
Oil and Gas Division 166 604 427
Total Assets
Minerals Division 40,382 28,241 21,964
Oil and Gas Division 12,623 9,466 5,902
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Oil and Gas Operations
Barrels of Oil Equivalent (BOE)
per day (2) 148 152 181
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QUARTERLY FINANCIAL AND OPERATIONAL HIGHLIGHTS
2010 2009
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($ 000s, except $
per share) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenue
Minerals Division 179 13,636 73 70 72 59 77 39
Oil and Gas
Division 440 523 676 568 549 367 425 557
Cash Flow
(Deficiency) From
Operations 300 60 (41) 204 (77) 123 (262) (76)
Per Share Basic and
Diluted (1) 0.01 0.00 (0.00) 0.00 (0.00) 0.00 (0.01) (0.00)
Net Earnings (Loss) 189 13,276 (12) (166) (673) (461) (318) (109)
Per Share Basic and
Diluted (1) 0.00 0.26 (0.00) (0.00) (0.01) (0.01) (0.01) (0.00)
Capital
Expenditures
Minerals Division 179 47 - - - - - -
Oil and Gas
Division 8 1 - 157 144 112 184 164
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Oil and Gas
Operations
Barrels of Oil
Equivalent (BOE)
per day (2) 125 161 148 161 139 139 150 177
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(1) Geomark issued one common share upon incorporation on April 20, 2010,
and on July 6, 2010 issued 52,039,760 common shares as consideration
for the net investment in Geomark Operations with an ascribed net book
value of $21,152,000 as at December 31, 2009 and cancelled the original
common share. For purposes of the per share calculations, it was assumed
that all 52,039,760 shares issued have been outstanding since January 1,
2009.
(2) Barrels of Oil Equivalent (BOE) are calculated using a conversion ratio
of 6 MCF to 1 barrel of oil. The conversion is based on an energy
equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead and as such
may be misleading if used in isolation.
Highlights
-- Geomark Exploration Ltd. is a new, publicly traded junior exploration
company which emerged as a spin-out from Comaplex Minerals Corp.
(Comaplex) in conjunction with the sale of Comaplex and its five million
ounce Meliadine gold deposit to Agnico-Eagle Mines Limited (Agnico-
Eagle) through a plan of arrangement (the "Arrangement"). Geomark
commenced operations on July 6, 2010.
-- Geomark retained its experienced core staff and management following the
Arrangement and is focused on developing new prospects internally,
either through grassroots efforts or through negotiated transactions
with other companies. The Company intends to target projects with gold
and associated precious metal potential.
-- As part of the Arrangement, Comaplex transferred to Geomark all the
assets and related liabilities other than those relating to the
Meliadine properties. Geomark issued a total of 52,039,760 common shares
to the former Comaplex shareholders (excluding Agnico-Eagle and Perfora
Investments S.a.r.l.) as consideration for the Non-Meliadine Operations.
-- Geomark's assets include: 1) working capital of approximately $40
million (which includes a short-term loan to Bonterra Energy Corp.); 2)
mineral properties located in Ontario, the Northwest Territories and
Nunavut; 3) oil and gas properties located primarily in the Harmattan
area of southwestern Alberta, which generate between $1.0 and $2.0
million in cash flow per year; and 4) investments which have a current
combined value of approximately $12.9 million (at March 4, 2011) and
that pay dividends to Geomark of approximately $500,000 per year.
-- In 2010, Geomark consolidated all eight of its existing Timmins area
gold properties (bought out partners) and ended 2010 with interest
ranging from 90 to 100 percent. Two of the properties are located in the
currently active West Timmins area near the Lake Shore gold properties
and several are on strike with, and near, multi-million ounce historic
gold producers.
-- Geomark commenced geophysical surveys (Quantec Titan 24 DC/IP and MT
resistivity surveys) in November 2010 on four of the Timmins area assets
- Thorneloe, Deloro, Carr-Wilkie and Cody Nighthawk. The surveys were
completed in the first quarter of 2011.
-- Based on the survey results received, Geomark began an approximate 5,000
metre diamond drill program on three of the Timmins area gold properties
(Carr-Wilkie, Deloro and Thorneloe) in mid-March 2011.
-- Geomark's exploration activities are funded from its existing working
capital, income from its investments and its oil and natural gas
operations. The cash flow from these sources will cover a significant
portion of all currently planned expenditures in 2011. Should any of the
proposed exploration programs prove successful, follow-up work, as
required, will be initiated without delay.
-- Geomark is very actively assessing and pursuing new precious metal
properties of merit that it can add to its portfolio and remains
optimistic that additional opportunities will develop in the near-term.
A Discussion of Financial and Operational Results
The following press is a review of the operations and current financial position
for Geomark Exploration Ltd. ("Geomark" or the "Company") and should be read in
conjunction with the Management's Discussion and Analysis (MD&A) and the audited
financial statements for the year ended December 31, 2010, including the notes
related thereto.
Forward-Looking Statements
Certain statements contained in this press release include statements which
contain words such as "anticipate", "could", "should", "expect", "seek", "may",
"intend", "likely", "will", "believe" and similar expressions, statements
relating to matters that are not historical facts, and such statements of our
beliefs, intentions and expectations about development, results and events which
will or may occur in the future, constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and are based on
certain assumptions and analysis made by us derived from our experience and
perceptions. Forward-looking information in this press release includes, but is
not limited to: expected cash provided by continuing operations; future capital
expenditures, including the amount and nature thereof; mineral prices and
demand, oil and natural gas prices and demand; expansion and other development
trends of the mineral and oil and gas industry; business strategy and outlook;
expansion and growth of our business and operations; and maintenance of existing
customer, supplier and partner relationships; supply channels; accounting
policies; credit risks; and other such matters.
All such forward-looking information is based on certain assumptions and
analyses made by us in light of our experience and perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. The risks,
uncertainties, and assumptions are difficult to predict and may affect
operations, and may include, without limitation: foreign exchange fluctuations;
equipment and labour shortages and inflationary costs; general economic
conditions; industry conditions; changes in applicable environmental, taxation
and other laws and regulations as well as how such laws and regulations are
interpreted and enforced; the ability of mineral companies to raise capital; the
effect of weather conditions on operations and facilities; the existence of
operating risks; volatility of oil and natural gas prices; oil and gas product
supply and demand; risks inherent in the ability to generate sufficient cash
flow from operations to meet current and future obligations; increased
competition; stock market volatility; opportunities available to or pursued by
us; and other factors, many of which are beyond our control. The foregoing
factors are not exhaustive.
Actual results, performance or achievements could differ materially from those
expressed in, or implied by, this forward-looking information and, accordingly,
no assurance can be given that any of the events anticipated by the
forward-looking information will transpire or occur, or if any of them do, what
benefits will be derived therefrom. Except as required by law, Geomark disclaims
any intention or obligation to update or revise any forward-looking information,
whether as a result of new information, future events or otherwise.
The forward-looking information contained herein is expressly qualified by this
cautionary statement.
RESULTS OF OPERATIONS
Revenues
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
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Minerals Division Revenue:
Receipt of contingent
consideration - 13,500 - 13,500 -
Interest and other 179 136 72 458 247
Oil and Gas Division
Revenue:
Oil and gas sales 377 427 458 1,868 1,702
Dividend income 136 135 98 510 344
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Gross Revenue 692 14,198 628 16,336 2,293
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Average Realized Prices
(Cdn $):
Natural gas (per MCF) 3.76 3.74 4.78 4.29 4.33
Natural gas liquids (per
barrel) 61.79 49.00 55.50 58.65 41.53
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In December 2009, Comaplex acquired Meliadine Resources Ltd. from Perfora, by
issuance of 12,750,000 common shares of Comaplex. As part of the Purchase and
Sale Agreement, Perfora was required to pay additional consideration to Comaplex
for the issued common shares upon their sale to a maximum of $13,500,000.
Agnico-Eagle acquired on July 6, 2010 all of the issued and outstanding common
shares of Comaplex on the basis of one Comaplex share for 0.1576 of an
Agnico-Eagle share. The right to the contingent consideration was transferred to
Geomark pursuant to the Arrangement. Perfora sold all of its 2,009,400
Agnico-Eagle common shares (12,750,000 times 0.1576 exchange ratio) in the third
quarter of 2010. Geomark has received the maximum consideration of $13,500,000
and has recorded the amount as income.
Interest and other income for the 2010 year increased by $211,000 from 2009. The
increase in interest income was mainly due to increased interest income from the
receipt of the $13,500,000 contingent receivable from Perfora and a larger cash
balance from a financing done in the second half of 2009. Interest and other
income for Q4 2010 were higher than Q3 2010 due to the funds received on the
contingent receivable being outstanding for the full quarter and a higher
interest rate earned on $8,000,000 additional funds loaned to Bonterra Energy
Corp. (Bonterra) in the third quarter of 2010.
Revenue from petroleum and natural gas sales increased 9.8 percent in 2010
compared to 2009 due to an increase in natural gas liquid prices; this was
partially offset by lower natural gas production volumes. Quarter over quarter
the Company saw a decrease in revenue due to prior period adjustments for
natural gas production, which was partially offset by higher commodity prices
for natural gas liquids.
On February 1, 2009, the operator of one of the Company's oil and gas properties
unilaterally stopped allocating natural gas production (approximately 55 MCF per
day) to Geomark and the other minority interest partners based on the operator's
interpretation of the pooling agreement. It is the Company's position that this
interpretation of the agreement is incorrect and the non-operating partners
should continue to receive this production. None of the natural gas in dispute
has been recorded as sales from this property. Geomark has filed a claim against
the operator. Until the matter is resolved, no amounts will be accrued in
respect of this production.
Dividend income from Bonterra increased for the 2010 year over the 2009 year.
This was due to Bonterra increasing its dividends to $2.49 per share for the
twelve months of 2010 from $1.68 per share for the twelve months of 2009.
Production
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2010 2010 2009 2010 2009
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Natural gas (MCF per day) 561 731 619 660 693
Natural gas liquids
(barrels per day) 32 39 36 39 37
Total BOE per day 125 161 139 148 152
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Average production was slightly lower in 2010 compared to 2009 due to natural
gas declines offset by field optimization conducted in the latter half of 2009
and early 2010. Production was lower in Q4 2010 compared to Q3 2010 due to the
production adjustments in the third quarter of 2010, on one of Geomark's largest
properties.
Royalties
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
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Crown royalties (recovery) 50 21 (10) 83 67
Gross overriding royalties 23 18 17 88 81
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Total royalty expense 73 39 7 171 148
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Crown royalties for the 2010 year were higher than the 2009 year partially due
to Geomark not being allocated gas cost allowance (GCA), which reduces crown
royalties. Once all 2010 GCA forms are filled in Q1 2011 by Geomark, the Company
anticipates a refund of a portion of these crown royalties. The Company received
the benefit of the GCA until Q4 2010, when the operator of the properties
transferred production allocations to Geomark.
Geomark acquired two crown royalty drilling credits of $102,000 per credit from
Bonterra for $51,000 each. One of the credits was acquired in the first quarter
of 2010 and the other in the last quarter of 2009 (discussed further in the
related party section of this report). These drilling credits reduce crown
royalty expense to a maximum of 50 percent of crown royalties payable.
Production Costs
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2010 2010 2009 2010 2009
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Production costs - Natural
gas/NGLs ($ 000s) 92 195 109 567 680
$ per BOE 7.96 13.21 8.55 10.46 12.22
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Production costs for the 2010 year end were lower than 2009 because of a
settlement of outstanding 2008 processing fees that was applied to Q1 2009
production costs. Q4 2010 production costs were lower in comparison to Q3 2010
due to the payment of 13 month equalization adjustments in the third quarter on
one of the Company's major properties.
General and Administrative (G&A)
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
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G&A costs - Minerals
Division 271 493 330 1,465 1,277
G&A costs - Oil and Gas
Division 20 36 36 134 143
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Total G&A 291 529 366 1,599 1,420
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Minerals division general and administrative costs increased by $188,000 in 2010
compared to 2009 due to increased legal and compliance costs with regard to the
incorporation and commencement of operations for Geomark in the third quarter of
2010. The Oil and Gas division G&A costs have remained relatively unchanged.
Stock-Based Compensation
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
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Stock-based compensation 151 345 186 829 913
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Stock-based compensation is a statistically calculated value representing the
estimated expense of issuing employee stock options. As Geomark Operations was
responsible for all the employees it has recorded a compensation expense over
the vesting period based on the fair value of options granted to employees,
directors and consultants. Stock-based compensation decreased in 2010 compared
to 2009. The decrease was due primarily to the granting of 731,000 stock options
in September, 2008, with the majority of the stock-based compensation being
recognized in the first year after issuance. Stock-based expense for Q4 2010
decreased from Q3 2010 due to the vesting of the remaining Comaplex stock
options upon the July 6, 2010 Arrangement.
Subsequent to the Arrangement, the Company issued 3,009,000 (2009 - 22,500)
stock options with an estimated fair value of $984,000 (2009 - $26,000); $0.33
per option (2009 - $1.15 per option) using the Black-Scholes option pricing
model with the following key assumptions:
2010 2009
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Weighted-average risk free interest rate (%) 1.8 1.4
Dividend yield (%) 0.0 0.0
Expected life (years) 3.3 3.0
Weighted-average volatility (%) 57.0 51.0
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Depletion, Depreciation, Accretion Expense and Impairment Expense
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
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Depletion, depreciation
and accretion expense 77 90 115 333 331
Impairment of oil and gas
assets 77 - 252 77 252
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The Company follows the successful efforts method of accounting for petroleum
and natural gas exploration and development costs. Under this method, the costs
associated with dry holes are charged to operations. For intangible capital
costs that result in the addition of reserves, the Company depletes its oil and
natural gas intangible assets using the unit-of-production basis by field. Oil
and gas tangible assets, such as well equipment, are depreciated at a 20 percent
declining balance per year.
Provisions are made for asset retirement obligations for the Company's oil and
gas and mineral properties. The amount of the asset retirement obligations is
based on management's estimation of the discounted amount of the total
abandonment and site reclamation costs to be incurred using escalating cost
assumptions. The calculated amount is recorded as a liability and as part of the
cost of the related intangible assets. The adjustment to the intangible assets
is depleted as per the above discussion. A charge (accretion expense) related to
the discounting of the asset retirement obligation is made each year.
At December 31, 2010, the estimated total undiscounted amount required to settle
the asset retirement obligations for the oil and gas operations was $425,000
(2009 - $326,000). No amounts were recorded for an asset retirement obligation
in respect to its mineral operations. This amount has been discounted using a
credit adjusted risk-free interest rate of five percent. The discount rate is
reviewed annually and adjusted if considered necessary. A change in the rate
would not have a significant impact on the amount recorded for asset retirement
obligations. These obligations will be settled based on the useful lives of the
underlying assets.
Depletion, depreciation and accretion expenses related to oil and gas assets
were $333,000 in 2010 compared to $331,000 in 2009. An impairment provision of
$77,000 (2009 - $252,000) was recorded on one of the oil and gas properties as
its estimated fair value was below its carrying value. These calculations
require an estimation of the amount of the Company's petroleum reserves by
field. This figure is calculated annually by an independent engineering firm and
is used to calculate depletion and is, to a large extent, subjective. Reserves
are affected by economic assumptions as well as estimates of petroleum products
in place and methods of recovering those reserves. When reserves are increased
or decreased, depletion costs generally will be affected. No amounts were
recorded for depletion, depreciation and accretion expenses in relation to the
mineral operations.
The Company reviews the carrying value of its mineral properties on an ongoing
basis and reduces the cost of properties if it is determined that the property
values are lower than the property cost.
Income Tax Expense (Recovery)
The Company has adopted the liability method of accounting for income taxes
under which the future income tax provision is based on the temporary
differences in the accounts calculated using income tax rates expected to apply
in the year in which the temporary differences will reverse. The Company has no
current income tax expense as it has sufficient tax pools to ensure that no
current income taxes are payable.
In 2010, the future income tax recovery was $527,000 compared to a future income
tax expense of $110,000 in 2009. The 2010 future income tax recovery relates
primarily to the receipt of the $13,500,000 contingent consideration that was
not taxable in Geomark and to changes in the estimates, tax rates and other
differences in the Geomark Operations to the legal entity tax returns prior to
July 6, 2010. These adjustments were partially offset by a full valuation
allowance on the Company's future income tax assets which was determined that
their recoverability is not likely. The 2009 future income tax expense was
primarily due to the changes in the estimates, tax rates and other differences
in the Geomark Operations to the legal entity tax returns.
The tax pool balances at the end of 2010 totalled $6,448,000 and consist of the
following pool balances.
Rate of Amount
Utilization (%) ($ 000s)
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Undepreciated capital costs 30 1,159
Canadian oil and gas property expenditures 10 4,733
Canadian development expenditures 30 61
Canadian exploration expenditures 100 165
Non-capital loss carryforward (1) 100 330
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6,448
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(1) Expires 2030.
Net Earnings (Loss)
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss) 189 13,276 (674) 13,287 (1,561)
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Net earnings for the 2010 year increased compared to the 2009 year, due to the
receipt of the contingent consideration of $13,500,000 and to a lesser extent by
increased oil and gas revenue, dividend and interest income. The decrease in net
earnings in Q4 2010 compared to Q3 2010 is mainly attributable to the contingent
consideration received in the third quarter of 2010.
Other Comprehensive Income
Other comprehensive income relates entirely to the mark to market valuation on
Geomark's investments in Bonterra and Pine Cliff Energy Ltd. (Pine Cliff).
During the 2010 year, the market value of the investments increased by
$3,480,000. In the 2009 year, the market value of the investments increased by
$3,572,000.
Cash Flow (Deficiency) from Operations
Three months ended Twelve months ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
($ 000s) 2010 2010 2009 2010 2009
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Cash flow (deficiency)
from operations 300 60 (77) 523 (292)
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Cash flow from operations increased $815,000 in the 2010 year compared to the
2009 year. The increase was primarily due to increased oil and gas revenue,
dividend and interest income and adjustments in non-cash working capital items.
Q4 2010 increased from Q3 2010 due to lower G&A and production costs and
increased interest income, offset partially by lower oil and gas sales and
higher royalty expense.
Liquidity and Capital Resources
At December 31, 2010, Geomark had a working capital position of $39,923,000
(December 31, 2009 - $27,893,000). These numbers do not include the value of
liquid investments of $10,673,000 at December 31, 2010 (December 31, 2009 -
$7,193,000).
Capital expenditures of $226,000 (2009 - $Nil) were conducted on Geomark's
mineral projects. Capital expenditures of $166,000 (2009 - $604,000) were
incurred on Geomark's oil and natural gas assets for capital maintenance
projects. The Company is currently examining its 2011 capital budget for its
mineral exploration operations. Capital expenditures for the oil and natural gas
assets are expected to be less than $250,000 for 2011.
The Company's authorized share capital consists of an unlimited number of common
shares without nominal or par value as well as an unlimited number of first
preferred shares. As of December 31, 2010, no first preferred shares have been
issued. A summary of the issued status of the common shares and changes for the
year ended December 31, 2010:
Amount
Number ($ 000s)
----------------------------------------------------------------------------
Common Shares
Balance, January 1(1) 52,039,760 21,152
Additional net investment to Comaplex (641)
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Balance, December 31 52,039,760 20,511
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(1) Geomark issued one common share upon incorporation on April 20, 2010,
and on July 6, 2010 issued 52,039,760 common shares as consideration
for the net investment in Geomark Operations with an ascribed net book
value of $21,152,000 as at December 31, 2009 and cancelled the original
common share. For purposes of the earnings per share calculation, it was
assumed that all 52,039,760 shares issued have been outstanding since
January 1, 2009.
Related Party Transactions
A management fee to Bonterra of $316,500 (2009 - $330,000) was paid by Geomark.
Geomark also shares office rental costs with Bonterra and reimburses Bonterra
for costs related to employee benefits and office materials. These costs have
been included in general and administrative costs. In addition, Bonterra owns
689,682 (December 31, 2009 - 689,682) common shares in Geomark and previous to
July 6, 2010 the equivalent amount in Comaplex. Services provided by Bonterra
include executive services (executive and finance duties), accounting services,
oil and gas administration and office administration. All services performed are
charged at estimated fair value. As at December 31, 2010, Geomark had an account
payable to Bonterra of $35,000 (December 31, 2009 - $105,000).
During the year, Bonterra sold $102,000 (2009 - $102,000) of drilling royalty
credits to Geomark for $51,000 (2009 - $51,000). Drilling royalty credits will
be used to offset future crown royalties.
Geomark assets include at December 31, 2010, 204,633 (December 31, 2009 -
204,633) common shares in Bonterra representing just over one percent of the
outstanding shares of Bonterra. The shares have a fair value of $10,569,000
(December 31, 2009 - $7,093,000). In 2010, Geomark received dividend income of
$510,000 (2009 - $344,000).
As at December 31, 2010, Geomark has loaned Bonterra $20,000,000 (December 31,
2009 - $12,000,000). Effective May 1, 2010, interest is charged at a rate of
Canadian Chartered Bank Prime less 5/8 percent. Prior to May 1, 2010, interest
was charged at a rate of Canadian Chartered Bank Prime less 0.25 percent. The
loan is subordinated to Bonterra's bank debt and is unsecured. The loan is
payable upon demand subject to availability under Bonterra's line of credit. As
at December 31, 2010, Bonterra has sufficient room under its line of credit to
repay the loan. Interest earned on the loan during the period was $313,000 (2009
- $194,000). This loan results in a substantial benefit to Bonterra and to the
Company. The interest paid by Bonterra is substantially lower than the bank
interest rate and for the Company, the interest earned is substantially higher
than it would receive by investing in bank instruments such as bankers'
acceptance or guaranteed investment certificates.
Geomark assets also include, at December 31, 2010, 346,000 (December 31, 2009 -
346,000) common shares in Pine Cliff. Pine Cliff has common directors and
management with the Company. Pine Cliff trades on the TSX Venture Exchange. As
of December 31, 2010 the common shares have a fair value of $104,000 (December
31, 2009 - $100,000). The ownership of 346,000 common shares represents less
than one percent of the total issued and outstanding common shares of Pine
Cliff. There were no transactions between Pine Cliff and Geomark.
Financial Reporting Update
International Financial Reporting Standards (IFRS)
In October 2009, the Accounting Standards Board issued a third and final IFRS
Omnibus Exposure Draft confirming that publicly accountable enterprises will be
required to apply IFRS, in full and without modification, for all financial
periods beginning January 1, 2011. The adoption date of January 1, 2011 will
require the restatement, for comparative purposes, of amounts reported by
Geomark for the year ended December 31, 2010, including the opening balance
sheet as at January 1, 2010.
The Company commenced the process to transition its financial statements from
current Canadian GAAP to IFRS in 2008. The Company's project consists of three
key phases: the scoping and diagnostic phase, the impact analysis and evaluation
phase and the implementation phase.
-- Scoping and diagnostic phase - this phase involves performing a high
level impact analysis to identify areas that may be affected by the
transition to IFRS. The results of this analysis were given a priority
ranking according to their complexity and the amount of time required to
assess the impact of changes in transitioning to IFRS. The Company
identified the following high impact and medium impact areas:
High impact areas:
-- IFRS 1 - First time adoption of IFRS
-- IFRS 3 - Business combinations
-- IFRS 6 - Exploration and evaluation of mineral resources
-- IAS 16 - Property and equipment
-- IAS 36 - Impairment of assets
Medium impact areas include:
-- IFRS 2 - Share-based payments
-- IAS 1 - Presentation of financial statements
-- IAS 10 - Events after the balance sheet date
-- IAS 12 - Income Taxes
-- IAS 18 - Revenues
-- IAS 23 - Borrowing costs
-- IAS 37 - Provisions, contingent liabilities and contingent assets
-- ED 9 - Joint arrangements
-- Impact analysis and evaluation phase - during this phase, items
identified in the diagnostic were addressed according to the priority
ranking assigned to them. The Company conducted analysis of policy
choices allowed under IFRS and their impact to the financial statements.
Additionally, certain potential differences were further investigated to
assess if there was any broader impact to the Company's net earnings,
compensation arrangements or management reporting systems. The impact
analysis and evaluation phase was concluded by management pending the
Audit Committee of the Board of Directors approval on all accounting
policies chosen by management. Since Geomark uses successful efforts
method of accounting on its petroleum and natural gas properties under
Canadian GAAP, the audit committee of the Board of Directors gave
management the directive to choose policies that will retain as much
comparability to the accounting policies chosen under Canadian GAAP.
-- Implementation phase - involved implementation of all changes approved
in the impact analysis and evaluation phase, which included minor
changes to existing information systems, the creation of new business
processes and the modification of training staff impacted by the
conversion.
Since its inception, the project has been led by the financial reporting group
with sponsorship from the executive team. The Company has effectively completed
all phases of its IFRS transition project and continues to review its draft IFRS
financial statements and disclosures for completeness and quality assurance. The
Audit Committee will review and approve the Company's IFRS accounting policy
selections and adjustments prior to the release of the first quarter of 2011
financial statements and MD&A.
First Time Adoption of IFRS
Most adjustments required on transition to IFRS will be made retrospectively
against opening retained earnings as of the date of the first comparative
balance sheet presented, based on standards applicable at that time. IFRS 1
provides entities adopting IFRS for the first time with certain optional
exemptions and mandatory exceptions to the general requirement for full
retrospective application of IFRS. Management has analyzed the various
accounting policy choices available under IFRS 1 and has implemented those
determined to be the most appropriate for Geomark. Accordingly, it has applied
the following IFRS 1 exemptions in its IFRS opening balance sheet:
-- Business combinations (IFRS 1) - provides the option to apply IFRS 3,
business combinations, retrospectively or prospectively from the
Transition Date. The retrospective basis would require restatement of
all business combinations that occurred prior to the Transition Date.
The Company elected not to retrospectively apply IFRS 3 to business
combinations that occurred prior to its Transition Date and such
business combinations have not been restated. Any goodwill arising on
such business combinations before the Transition Date has not been
adjusted from the carrying value previously determined under Canadian
GAAP as a result of applying these exemptions.
-- Share-based payments (IFRS 2) - encourages the application of its
provisions to equity instruments granted on or before November 7, 2002,
but permits the application only to equity instruments granted after
November 7, 2002 that had not vested by the Transition Date. The Company
elected to avail itself of the exemption provided under IFRS 1 and
applied IFRS 2 for all equity instruments granted after November 7, 2002
that had not vested by its Transition Date. Further, the Company applied
IFRS 2 for all liabilities arising from share-based payment transactions
that existed at its Transition Date. This election has no material
effect on the Company.
-- Borrowing Costs (IAS 23) - requires an entity to capitalize the
borrowing costs related to all qualifying assets for which the
commencement date for capitalization is on or after January 1, 2010.
Since the Company has no debt, this election has no effect on the
Company.
-- Leases (IAS 17) - requires an entity to assess arrangements outstanding
at the Transition Date. It also requires a determination of the
appropriate lease classification in accordance with IAS 17, should an
arrangement containing a lease be identified as part of the
International Financial Reporting Interpretations Committee (IFRIC) 4,
Determining Whether an Arrangement Contains a Lease, application. This
election has no effect on the Company.
-- Decommissioning Liabilities Included in the Cost of Property, Plant and
Equipment (IAS 37) - Provisions, Contingent Assets and Contingent
Liabilities, requires an entity to estimate the statutory and
constructive liabilities that existed at the Transition Date, discounted
at the risk free rate. The Company has revalued its asset retirement
obligation under GAAP to IFRS. The Company also determined it had no
unrecorded statutory or constructive obligations.
Summary of Accounting Changes
The Company anticipates no material changes to IFRS from its January 1, 2010
balance sheet under Canadian GAAP. Geomark has not yet prepared a full set of
annual financial statements under IFRS, therefore, the determination that there
is no material changes is unaudited.
In addition to accounting policy differences, the Company's transition to IFRS
is expected to impact its internal controls over financial reporting, disclosure
controls and procedures, certain of Geomark's business activities and IT systems
as follows:
-- Internal controls over financial reporting (ICFR) - Geomark is currently
in the process of reviewing its ICFR documentation and is identifying
instances where controls must be amended or added in order to address
the accounting policy changes required under IFRS. No material changes
in control procedures are expected as a result of transition to IFRS.
-- Disclosure controls and procedures - Geomark has assessed the impact of
transition to IFRS on its disclosure controls and procedures and has not
identified any material changes required in its control environment. It
is expected that there will be increased note disclosure around certain
financial statement items than what is currently required under Canadian
GAAP. Management is currently drafting its IFRS note disclosure in
accordance with current IFRS standards and continues to monitor
requirements put forth by the International Accounting Standards Board
(IASB) in discussion papers and exposure drafts for future disclosure
requirements. Throughout the transition process, Geomark has carefully
considered its stakeholders' information requirements and will continue
to ensure that adequate and timely information is provided to meet these
needs.
-- Business activities - Management has been cognizant of the upcoming
transition to IFRS, and as such, has worked with its counterparties to
ensure that any agreements that contain references to Canadian GAAP
financial statements are modified to allow for IFRS statements. Based on
the changes to the Company's accounting policies, no issues are expected
to arise with the existing wording of agreements as a result of the
conversion to IFRS.
-- IT systems - Geomark has completed the accounting system updates
required in order to prepare for IFRS reporting. Since the Company has
been using successful efforts method to account for its petroleum and
natural gas assets, no significant modifications were deemed critical in
order to allow for reporting of both Canadian GAAP and IFRS statements
in 2010.
Additional information relating to Geomark may be found on www.sedar.com and by
visiting our website at www.geomark.ca.
The following consolidated financial statements and notes to the consolidated
financial statements have been provided for further details.
GEOMARK EXPLORATION LTD.
Consolidated Balance Sheets
(See Note 1: Basis of Presentation)
As at December 31
($ 000s) 2010 2009
----------------------------------------------------------------------------
Assets
Current
Cash 8,110 16,051
Term investment (Note 4) 12,000 -
Accounts receivable 265 359
Prepaid expenses 33 246
Loan to related party (Note 5) 20,000 12,000
----------------------------------------------------------------------------
40,408 28,656
Investments (Note 5) 10,673 7,193
----------------------------------------------------------------------------
Property and Equipment (Note 7)
Property and equipment 10,639 10,172
Accumulated depletion, depreciation and
amortization (8,715) (8,314)
----------------------------------------------------------------------------
Net Property and Equipment 1,924 1,858
----------------------------------------------------------------------------
53,005 37,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities
(Note 5) 485 763
Asset Retirement Obligations (Note 8) 288 179
Future Income Tax Liability (Note 6) - 20
----------------------------------------------------------------------------
773 962
----------------------------------------------------------------------------
Shareholders' Equity (Note 9)
Share capital 20,511 21,152
Contributed surplus 254 -
----------------------------------------------------------------------------
20,765 21,152
----------------------------------------------------------------------------
Retained earnings 24,385 11,098
Accumulated other comprehensive income (Note
10) 7,082 4,495
----------------------------------------------------------------------------
31,467 15,593
----------------------------------------------------------------------------
Total Shareholders' Equity 52,232 36,745
----------------------------------------------------------------------------
53,005 37,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
Consolidated Statements of Net Earnings (Loss) and Retained Earnings
(See Note 1: Basis of Presentation)
For the Years Ended December 31
($ 000s, except $ per share) 2010 2009
----------------------------------------------------------------------------
Minerals Division
Receipt of contingent consideration (Note 13) 13,500 -
Interest and other 458 247
----------------------------------------------------------------------------
13,958 247
----------------------------------------------------------------------------
Oil and Gas Division
Oil and gas sales 1,868 1,702
Royalties (171) (148)
Dividend income (Note 5) 510 344
----------------------------------------------------------------------------
2,207 1,898
----------------------------------------------------------------------------
Total Net Revenue 16,165 2,145
----------------------------------------------------------------------------
Expenses
Oil and gas production costs 567 680
General and administrative (Note 5)
Minerals division 1,465 1,277
Oil and gas division 134 143
Stock-based compensation 829 913
Depletion, depreciation and accretion 333 331
Impairment of oil and gas assets (Note 7) 77 252
----------------------------------------------------------------------------
3,405 3,596
----------------------------------------------------------------------------
Earnings (Loss) Before Taxes 12,760 (1,451)
----------------------------------------------------------------------------
Income Taxes (Recovery) (Note 6)
Current - -
Future (527) 110
----------------------------------------------------------------------------
(527) 110
----------------------------------------------------------------------------
Net Earnings (Loss) for the Year 13,287 (1,561)
Retained earnings, beginning of year 11,098 12,659
----------------------------------------------------------------------------
Retained Earnings, End of Year 24,385 11,098
----------------------------------------------------------------------------
Net Earnings (Loss) Per Share - Basic and
Diluted (Note 9) 0.25 (0.03)
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
Consolidated Statements of Comprehensive Income
(See Note 1: Basis of Presentation)
For the Years Ended December 31
($ 000s, except $ per share) 2010 2009
----------------------------------------------------------------------------
Net Earnings (Loss) for the Year 13,287 (1,561)
----------------------------------------------------------------------------
Other Comprehensive Income
Unrealized gain on investments 3,480 3,572
Future taxes on unrealized gain on
investments (893) (522)
Future tax adjustment on exchange of
investments - 514
----------------------------------------------------------------------------
Other Comprehensive Income (Note 10) 2,587 3,564
----------------------------------------------------------------------------
Comprehensive Income 15,874 2,003
----------------------------------------------------------------------------
Comprehensive Income Per Share - Basic and
Diluted (Note 9) 0.30 0.04
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
Consolidated Statements of Cash Flow
(See Note 1: Basis of Presentation)
For the Years Ended December 31
($ 000s) 2010 2009
----------------------------------------------------------------------------
Operating Activities
Net earnings (loss) for the year 13,287 (1,561)
Items not affecting cash
Receipt of contingent consideration (13,500) -
Stock-based compensation 829 913
Depletion, depreciation and accretion 333 331
Impairment of oil and gas assets 77 252
Future income taxes (recovery) (527) 110
----------------------------------------------------------------------------
499 45
----------------------------------------------------------------------------
Change in non-cash operating working capital
items
Accounts receivable 118 (63)
Prepaid expenses 213 (59)
Accounts payable and accrued liabilities (278) (187)
Asset retirement obligations settled (29) (28)
----------------------------------------------------------------------------
24 (337)
----------------------------------------------------------------------------
Cash Provided By (Used in) Operating
Activities 523 (292)
----------------------------------------------------------------------------
Financing Activities
Net investment by Comaplex Minerals Corp. (1,608) 7,077
----------------------------------------------------------------------------
Cash Provided By (Used in) Financing
Activities (1,608) 7,077
----------------------------------------------------------------------------
Investing Activities
Mineral exploration property and equipment
expenditures (226) -
Oil and gas property and equipment
expenditures (166) (604)
Proceeds on oil and gas property and
equipment disposals 60 -
Loan to related party (8,000) (12,000)
Purchase of term investment (12,000) -
Receipt of contingent consideration 13,500 -
Change in non-cash operating working capital
items
Accounts receivable (24) -
----------------------------------------------------------------------------
Cash Used in Investing Activities (6,856) (12,604)
----------------------------------------------------------------------------
Net Cash Outflow (7,941) (5,819)
Cash, Beginning of Year 16,051 21,870
----------------------------------------------------------------------------
Cash, End of Year 8,110 16,051
----------------------------------------------------------------------------
Cash interest paid - -
Cash taxes paid - -
----------------------------------------------------------------------------
See accompanying notes to these consolidated financial statements.
GEOMARK EXPLORATION LTD.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
1. BASIS OF PRESENTATION, AND OPERATIONS
Geomark Exploration Ltd. ("Geomark" or the "Company") was incorporated on April
20, 2010 as a 100 percent wholly-owned subsidiary of Comaplex Minerals Corp.
(Comaplex). On July 6, 2010, Geomark was capitalized with Comaplex's Carved Out
Operations' assets and obligations (the "Geomark Operations"), including a 100
percent wholly-owned subsidiary WMC International Limited. In return, Geomark's
common shares were distributed to the shareholders of Comaplex, other than
Agnico-Eagle Mines Limited (Agnico-Eagle) and Perfora Investments S.a.r.l.
(Perfora), on the basis of one Geomark share for every Comaplex share.
As Geomark and the Geomark Operations were under common control, these
consolidated financial statements have been presented on a
continuity-of-interest basis of accounting and represent the activities of the
above noted entities from the date each commenced operations. The consolidated
financial statements presented for comparative purposes reflect the financial
position, results of operations and cash flows as if Geomark had been
consolidated with the Geomark Operations since inception.
Geomark is a public company listed on the TSX Venture Exchange. Geomark's
primary activity is to explore for both base and precious metals in Canada and
to a lesser extent the development and production of oil and natural gas in the
Western Canadian Sedimentary Basin.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are presented in accordance with Canadian generally
accepted accounting principles (GAAP).
Consolidated entities
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary WMC International Limited. Inter-company
transactions and balances are eliminated upon consolidation.
Measurement uncertainty
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as at
the date of the balance sheets as well as the reported amounts of revenues,
expenses, and cash flows during the periods presented. Such estimates relate
primarily to unsettled transactions and events as of the date of the financial
statements. Actual results could differ materially from estimated amounts.
Amounts recorded for depletion, depreciation and accretion costs and amounts
used for impairment test calculations are based on estimates of mineral
resources, crude oil and natural gas reserves and future costs required to
develop those resources and reserves. Stock-based compensation is based upon
expected volatility and option life estimates. Asset retirement obligations are
based on estimates of abandonment costs, timing of abandonment, inflation and
interest rates. The provision for income taxes is based on judgements in
applying income tax law and estimates on the timing, likelihood and reversal of
temporary differences between the accounting and tax basis of assets and
liabilities. These estimates are subject to measurement uncertainty and changes
in these estimates could materially impact the financial statements of future
periods.
Revenue recognition
Revenues associated with sales of petroleum, natural gas and all other items are
recorded when title passes to the customer. Interest and other income and
dividend income are recorded when earned.
Foreign currency translation
Monetary assets and liabilities denominated in a foreign currency are translated
at the rate of exchange in effect at the Consolidated Balance Sheet date.
Revenues and expenses are translated at the period average rates of exchange.
Translation gains and losses are included in earnings in the period in which
they arise.
Joint interest operations
Significant portions of the Company's oil and gas operations are conducted
jointly with other parties and accordingly the financial statements reflect only
the Company's proportionate interest in such activities.
Investments
Investments are carried at fair value. Fair value is determined by multiplying
the year end trading price of the investments by the number of common shares
held.
Property and equipment
Undeveloped Mineral Properties
All costs related to acquisition and exploration of mineral properties and
related equipment are capitalized. These costs are assessed on an annual basis
or more frequently when events or changes in circumstances indicate that the
carrying amounts of related assets might not be recoverable. In assessing the
impairment of exploration properties, management reviews its intended plans,
results of current exploration activities and the market value of recent
transactions involving sales or optioning of similar properties. The costs of
abandoned properties are charged to operations. When proved reserves are found,
and production commences, the related costs will be depleted on the
unit-of-production basis. Depreciation of mining equipment is provided on the
declining balance method. Declining balance depreciation is provided at 10 to 20
percent per year, based on the estimated service life of the related assets.
Petroleum and Natural Gas Properties and Related Equipment
The Company follows the successful efforts method of accounting for petroleum
and natural gas properties and related equipment. Costs of exploratory wells are
initially capitalized pending determination of proved reserves. Costs of wells
which are assigned proved reserves remain capitalized, while costs of
unsuccessful wells are charged to earnings. All other exploration costs
including geological and geophysical costs are charged to earnings as incurred.
Development costs, including the cost of all wells, are capitalized.
Producing properties and significant unproved properties are assessed annually
or as economic events dictate, for potential impairment. Impairment is assessed
by comparing the estimated net undiscounted future cash flows to the carrying
value of the asset. If required, the impairment recorded is the amount by which
the carrying value of the asset exceeds its fair value.
Depreciation and depletion of capitalized costs of oil and gas producing
properties are calculated using the unit of production method. Development and
exploration drilling and equipment costs are depleted over the remaining proved
reserves. Depreciation of other plant and equipment is provided on the declining
balance method. Declining balance depreciation is provided at 20 percent per
year, based on the estimated service life of the related assets.
Income taxes
The Company accounts for income taxes using the liability method. Under this
method, the Company records a future income tax asset or liability to reflect
any difference between the accounting and tax basis of assets and liabilities,
using substantively enacted income tax rates. The effect on future tax assets
and liabilities of a change in tax rates is recognized in net earnings in the
period in which the change is substantively enacted. Future income tax assets
are only recognized to the extent it is more likely than not that sufficient
future taxable income will be available to allow the future income tax asset to
be realized.
Asset retirement obligations
The Company recognizes an asset retirement obligation (ARO) in the period in
which it is incurred when a reasonable estimate of the fair value can be made.
On a periodic basis, management will review these estimates and changes, if any,
will be applied prospectively. The fair value of the estimated ARO is recorded
as a long-term liability, with a corresponding increase in the carrying amount
of the related asset. The capitalized amount is depleted on a unit-of-production
basis over the life of the reserves. The liability amount is increased each
reporting period due to the passage of time and this amount is charged to
earnings in the period. Revisions to the estimated timing of cash flows or to
the original estimated undiscounted cost would also result in an increase or
decrease to the ARO. Actual costs incurred upon settlement of the obligations
are charged against the ARO to the extent of the liability recorded and the
remaining balance of the actual costs is recorded in the income statement as a
credit or charge.
Stock-based compensation
The Company accounts for stock-based compensation using the fair-value method of
accounting for stock options granted to directors, officers, employees and other
service providers using the Black-Scholes option pricing model. Stock-based
compensation expense is recorded over the vesting period with a corresponding
amount reflected in contributed surplus. Stock-based compensation expense is
calculated as the estimated fair value of the options at the time of grant,
amortized over their vesting period. When stock options are exercised, the
associated amounts previously recorded as contributed surplus are reclassified
to common share capital. The Company has not incorporated an estimated
forfeiture rate for stock options that will not vest, rather, the Company
accounts for actual forfeitures as they occur.
Financial instruments
Financial instruments are measured at fair value on initial recognition of the
instrument, into one of the following five categories: held-for trading, loans
and receivables, held-to-maturity investments, available-for-sale financial
assets or other financial liabilities.
Subsequent measurement of financial instruments is based on their initial
classification. Held-for-trading financial instruments are measured at fair
value and changes in fair value are recognized in net earnings.
Available-for-sale financial instruments are measured at fair value with changes
in fair value recorded in other comprehensive income until the instrument is
derecognized or impaired. The remaining categories of financial instruments are
recognized at amortized cost using the effective interest rate method.
Cash is classified as held-for-trading and is measured at fair value which
equals the carrying value. Accounts receivable and loan to related party are
classified as loans and receivables which are measured at amortized cost.
Investments in related parties are classified as available-for-sale and are
measured at fair value. Accounts payable and accrued liabilities are classified
as other financial liabilities, which are measured at amortized cost.
Basic and diluted per share calculations
Basic earnings per share are computed by dividing earnings by the weighted
average number of shares outstanding during the year. Diluted per share amounts
reflect the potential dilution that could occur if options to purchase shares
were exercised. The treasury stock method is used to determine the dilutive
effect of common share options, whereby proceeds from the exercise of common
share options or other dilutive instruments are assumed to be used to purchase
common shares at the average market price during the period.
3. CHANGE IN ACCOUNTING POLICIES
Property and equipment
Petroleum and Natural Gas Properties and Related Equipment
On January 1, 2010, Geomark prospectively changed its policy of depreciating
petroleum and natural gas plant and equipment to using the declining balance
method at 20 percent per year, from the straight-line method. The change of
estimate was due to the declining balance method providing a better reflection
of the estimated service life of the related assets. Geomark incurred $52,000
less depreciation under the declining balance method, than under the
straight-line method.
Recent accounting pronouncements
The Canadian Accounting Standards Board has confirmed that International
Financial Reporting Standards (IFRS) will replace Canadian GAAP effective
January 1, 2011, including comparatives for 2010, for Canadian publicly
accountable enterprises.
4. TERM INVESTMENT
Term investment is a guaranteed investment certificate (GIC) that accrues
interest at 1.3% per annum, matures on November 8, 2011 and the GIC plus accrued
interest is redeemable on demand. Interest earned on the GIC for the year was
$24,000 (2009 - $Nil).
5. RELATED PARTY TRANSACTIONS
Geomark paid a management fee of $316,500 (2009 - $330,000) to Bonterra Energy
Corp. (Bonterra) a publically traded oil and gas corporation listed on the
Toronto Stock Exchange, that has common directors and management with Geomark.
Geomark also shares office rental costs with Bonterra and reimburses Bonterra
for costs related to employee benefits and office materials. These costs have
been included in general and administrative expenses. Services provided by
Bonterra include executive services (executive and finance duties), accounting
services, oil and gas administration and office administration.
During the year, Bonterra sold $102,000 (2009 - $102,000) of drilling royalty
credits to Geomark for $51,000 (2009 - $51,000). Drilling royalty credits will
be used to offset future crown royalties.
Bonterra owns 689,682 (December 31, 2009 - 689,682) common shares in Geomark.
As at December 31, 2010, Geomark had an account payable to Bonterra of $35,000
(2009 - $105,000).
As at December 31, 2010, Geomark has loaned Bonterra $20,000,000 (2009 -
$12,000,000). Effective May 1, 2010, interest is charged at a rate equal to a
Canadian Chartered Bank Prime rate less 5/8 percent. Prior to May 1, 2010,
interest was charged at a rate equal to a Canadian Chartered Bank Prime rate
less 0.25 percent. The loan is subordinated to Bonterra's bank debt and is
unsecured. The loan is payable upon demand subject to availability under
Bonterra's line of credit. As at December 31, 2010, Bonterra has sufficient room
under its line of credit to repay the loan. Interest earned on the loan during
the year was $313,000 (2009 - $194,000).
At December 31, 2010, Geomark owns 204,633 (December 31, 2009 - 204,633) shares
in Bonterra representing just over one percent of the outstanding shares of
Bonterra. The shares have a fair value of $10,569,000 (December 31, 2009 -
$7,093,000). In 2010, Geomark received dividend income of $510,000 (2009 -
$344,000) from this investment.
At December 31, 2010, Geomark also owns 346,000 (December 31, 2009 - 346,000)
common shares in Pine Cliff Energy Ltd. (Pine Cliff). Pine Cliff has common
directors and management with Geomark. Pine Cliff shares trade on the TSX
Venture Exchange. As of December 31, 2010, the common shares have a fair value
of $104,000 (December 31, 2009 - $100,000). Geomark's ownership of 346,000
common shares represents less than one percent of the total issued and
outstanding common shares of Pine Cliff.
All related party transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of the consideration
established and agreed to by the related parties.
6. INCOME TAXES
The Company has recorded a full valuation allowance for its future income tax
assets as it has been determined that their recoverability is not likely.
December 31, December 31,
2010 2009
($ 000s) Amount Amount
----------------------------------------------------------------------------
Future income tax assets (liabilities):
Capital assets 1,049 28
Investments (452) (228)
Asset retirement obligations 72 46
Loss carry-forward 82 -
Other - 32
Attributed crown royalty income - 102
Valuation allowance (751) -
----------------------------------------------------------------------------
- (20)
----------------------------------------------------------------------------
Income tax expense varies from the amounts that would be computed by
applying Canadian federal and provincial income tax rates as follows:
($ 000s) 2010 2009
----------------------------------------------------------------------------
Earnings (loss) before income taxes 12,760 (1,451)
Combined federal and provincial income tax
rates 28.0% 29.0%
----------------------------------------------------------------------------
Income tax expense (recovery) calculated
using statutory tax rates 3,573 (421)
Increase (decrease) in taxes resulting from:
Receipt of non-taxable contingent
consideration (3,780) -
Permanent differences on capitalization of
Geomark (1,303) -
Stock-based compensation 232 265
Change in estimates and other - 266
Change in valuation allowance 751 -
----------------------------------------------------------------------------
Income tax expense (recovery) (527) 110
----------------------------------------------------------------------------
The Company has the following tax pools which may be used to reduce taxable
income in future years, limited to the applicable rates of utilization:
Rate of Amount
Utilization (%) ($ 000s)
----------------------------------------------------------------------------
Undepreciated capital costs 30 1,159
Canadian oil and gas property expenditures 10 4,733
Canadian development expenditures 30 61
Canadian exploration expenditures 100 165
Non-capital loss carryforward (1) 100 330
----------------------------------------------------------------------------
6,448
----------------------------------------------------------------------------
(1) Expires 2030.
7. PROPERTY AND EQUIPMENT
2010 2009
----------------------------------------------------------------------------
Accumulated Accumulated
Depletion, Depletion,
Depreciation and Depreciation and
($ 000s) Cost Amortization Cost Amortization
----------------------------------------------------------------------------
Mineral properties and
related equipment 669 442 442 442
Petroleum and natural
gas properties and
related equipment 9,970 8,273 9,730 7,872
----------------------------------------------------------------------------
10,639 8,715 10,172 8,314
----------------------------------------------------------------------------
During the year, $94,000 (2009 - $Nil) of general and administrative expenses
related to mineral exploration were capitalized. No general and administrative
expenses related to oil and gas operations have been capitalized.
The Company has capitalized $227,000 (2009 - $Nil) related to its mineral
exploration properties, which have been excluded from costs subject to depletion
and depreciation.
During 2010, one of the Company's oil and gas properties had an impairment
provision of $77,000 (2009 - $252,000), due to a significant decrease in
estimated reserves. The decrease in reserves was mainly due to continuing low
natural gas prices.
8. ASSET RETIREMENT OBLIGATIONS
As at December 31, 2010, the estimated total undiscounted amount required to
settle the asset retirement obligations was $425,000 (2009 - $326,000). Costs
for asset retirement have been calculated assuming a one and a half percent
inflation rate. These obligations will be settled based on the useful lives of
the underlying assets, which extend up to 27 years into the future. This amount
has been discounted using a credit-adjusted risk-free interest rate of five
percent (2009 - five percent).
Changes to asset retirement obligations were as follows:
($ 000s) 2010 2009
----------------------------------------------------------------------------
Asset retirement obligations, beginning of
year 179 172
Adjustment to asset retirement obligations 129 26
Liabilities settled during the year (29) (28)
Accretion 9 9
----------------------------------------------------------------------------
Asset retirement obligations, end of year 288 179
----------------------------------------------------------------------------
9. SHARE CAPITAL
Authorized
Unlimited number of common shares without nominal or par value
Unlimited number of first preferred shares
Issued
2010
Amount
Number ($ 000s)
----------------------------------------------------------------------------
Common Shares
Balance, January 1(1) 52,039,760 21,152
Additional net investment to Comaplex (641)
----------------------------------------------------------------------------
Balance, December 31 52,039,760 20,511
----------------------------------------------------------------------------
(1) Geomark issued one common share upon incorporation on April 20, 2010,
and on July 6, 2010 issued 52,039,760 common shares as consideration for
the net investment in Geomark Operations with an ascribed net book value
of $21,152,000 as at December 31, 2009 and cancelled the original common
share. For purposes of the earnings per share calculation, it was
assumed that all 52,039,760 shares issued have been outstanding since
January 1, 2009.
Contributed surplus consists of $254,000 of stock-based compensation on the
stock options issued by Geomark after July 6, 2010. Prior to July 6, 2010,
Geomark Operations expensed a further $575,000 of Comaplex stock options that
vested and were exercised. This expense was booked as a capital contribution to
Geomark.
The number of weighted average basic and diluted shares outstanding for the
years ended December 31:
2010 2009
----------------------------------------------------------------------------
Basic shares outstanding(1) 52,039,760 52,039,760
Dilutive share options 261,454 -
----------------------------------------------------------------------------
Diluted shares outstanding 52,301,214 52,039,760
----------------------------------------------------------------------------
(1) Basic shares outstanding are used to calculate basic and diluted loss
per share when the Company is in a loss position.
The Company provides a stock option plan for its directors, officers, employees
and consultants. Under the plan, the Company may grant options for up to 10
percent of the outstanding common shares which as of December 31, 2010 was
5,203,976. The exercise price of each option granted equals the market price of
the Company's stock on the date of grant and the option's maximum term is five
years. Options generally vest one-third each year for the first three years of
the option term.
A summary of the status of the Company's stock option plan as of December 31,
2010 and changes during the year ended December 31, 2010 is as follows:
----------------------------------------------------------------------------
Weighted-
Average
Exercise
Options Price
----------------------------------------------------------------------------
Outstanding at beginning of year - $ -
Options issued 3,009,000 0.80
Options exercised - -
Options cancelled - -
----------------------------------------------------------------------------
Outstanding at end of year 3,009,000 $ 0.80
----------------------------------------------------------------------------
Options exercisable at end of year - $ -
----------------------------------------------------------------------------
The following table summarizes information about options outstanding at
December 31, 2010:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices At 12/31/10 Life Price At 12/31/10 Price
----------------------------------------------------------------------------
$ 0.80 to $ 1.00 2,997,000 2.8 years $ 0.80 - $ -
1.05 to 1.25 12,000 3.5 years 1.25 - -
----------------------------------------------------------------------------
$ 0.80 to $ 1.25 3,009,000 2.8 years $ 0.80 - $ -
----------------------------------------------------------------------------
The Company records compensation expense over the vesting period based on the
fair value of options granted to employees, directors and consultants. The
Company issued 3,009,000 stock options with an estimated fair value of $984,000
($0.33 per option) using the Black-Scholes option pricing model with the
following key assumptions:
2010
----------------------------------------------------------------------------
Weighted-average risk free interest rate (%) 1.8
Dividend yield (%) 0.0
Expected life (years) 3.3
Weighted-average volatility (%) 57.0
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10. ACCUMULATED OTHER COMPREHENSIVE INCOME
Other
January 1, Comprehensive December 31,
($ 000s) 2010 Income 2010
----------------------------------------------------------------------------
Unrealized gains on available-
for-sale investments 4,495 2,587 7,082
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Other
January 1, Comprehensive December 31,
2009 Income 2009
----------------------------------------------------------------------------
Unrealized gains on available-
for-sale investments 931 3,564 4,495
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11. BUSINESS SEGMENT INFORMATION
Geomark's activities are represented by two industry segments comprised of
mineral exploration and oil and gas production:
Years ended December 31
----------------------------------------------------------------------------
($ 000s) 2010 2009
----------------------------------------------------------------------------
Gross revenue
Mineral exploration 13,958 247
Oil and Gas 2,378 2,046
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16,336 2,293
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Depletion, depreciation, accretion, and impairment
Mineral exploration - -
Oil and Gas 410 583
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410 583
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Net earnings (loss)
Mineral exploration 12,465 (1,927)
Oil and Gas 822 366
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13,287 (1,561)
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Property and equipment expenditures
Mineral exploration 226 -
Oil and Gas 166 604
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392 604
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Total assets
Mineral exploration 40,382 28,241
Oil and Gas 12,623 9,466
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53,005 37,707
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12. FINANCIAL AND CAPITAL RISK MANAGEMENT
Financial Risk Factors
Geomark undertakes transactions in a range of financial instruments
including:
-- Cash deposits;
-- Term investment;
-- Receivables;
-- Loan to related party;
-- Investments;
-- Payables;
Geomark's activities result in exposure to a number of financial risks including
market risk (commodity price risk, interest rate risk and foreign exchange risk)
credit risk and liquidity risk. Financial risk management is carried out by
senior management under the direction of the Board of Directors.
Geomark does not enter into risk management contracts to sell its oil and gas
commodities. Commodities are sold at market prices at the date of sale in
accordance with the Board directive.
Capital Risk Management
Geomark's objectives when managing capital, which Geomark defines to include
equity and working capital balances, are to safeguard Geomark's ability to
continue as a going concern, so that it can continue to provide returns to its
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. Geomark has a large working
capital balance to fund its future exploration activities.
Geomark believes that it is adequately capitalized to allow it to continue its
future mineral exploration and oil and gas activities.
The following section (a) of this note provides a summary of the underlying
economic positions as represented by the carrying values, fair values and
contractual face values of the financial assets and financial liabilities.
The following section (b) addresses in more detail the key financial risk
factors that arise from Geomark's activities including its policies for managing
these risks.
a) Financial assets, financial liabilities
The carrying amounts, fair value and face values of Geomark's financial assets
and liabilities are shown in Table 1.
Table 1
As at December 31, 2010 As at December 31, 2009
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Carrying Fair Face Carrying Fair Face
($ 000s) Value Value Value Value Value Value
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Financial assets
Cash 8,110 8,110 8,110 16,051 16,051 16,051
Term investment 12,000 12,000 12,000 - - -
Accounts receivable 265 265 269 359 359 453
Loan to related party 20,000 20,000 20,000 12,000 12,000 12,000
Investments 10,673 10,673 - 7,193 7,193 -
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Financial liabilities
Accounts payable and
accrued liabilities 485 485 485 763 763 763
----------------------------------------------------------------------------
Financial instruments consisting of accounts receivable, loan to related party
and accounts payable and accrued liabilities are carried on the consolidated
balance sheet at amortized cost. Cash, term investment and investments are
carried at fair value. All of the fair value items are transacted in active
markets. Geomark classifies the fair value of these transactions according to
the following hierarchy based on the amount of observable inputs used to value
the instrument.
Level 1 - Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level 2 - Pricing inputs are other than quoted prices in active markets included
in Level 1. Prices in Level 2 are either directly or indirectly observable as of
the reporting date. Level 2 valuations are based on inputs, including quoted
forward prices for commodities, time value and volatility factors, which can be
substantially observed or corroborated in the marketplace.
Level 3 - Valuations in this level are those with inputs for the asset or
liability that are not based on observable market data.
Geomark's cash and term investment have been assessed on the fair value
hierarchy described above and are all considered Level 1.
b) Risks and mitigations
Market risk is the risk that the fair value or future cash flow of Geomark's
financial instruments will fluctuate because of changes in market prices.
Components of market risk to which Geomark is exposed are discussed below.
Commodity price risk
Geomark's principal operation is the exploration of mineral properties. Geomark
also engages in the production and sale of oil and natural gas. Fluctuations in
prices of these commodities may directly impact Geomark's performance and
ability to continue with its operations.
The Company's management, at the direction of the Board of Directors, currently
does not use risk management contracts to set price parameters for its
production.
Sensitivity Analysis
Geomark is still in the exploration stage of development of its mineral
exploration properties and therefore generates nominal cash flow or earnings
from these properties. In addition, Geomark's petroleum and natural gas
operations provide only moderate cash flow and as such, changes of $1.00 U.S.
per barrel in the price of crude oil, $0.10 per MCF in the price of natural gas
and $0.01 change in the Cdn/U.S. exchange rate would have no significant impact
on net earnings or comprehensive income.
Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument
or cash flows associated with the instrument will fluctuate due to changes in
market interest rates. Interest rate risk arises from interest bearing financial
assets and liabilities that Geomark uses. The principal exposure to Geomark is
on its cash and its loan to related party which have a variable interest rate
which gives rise to a cash flow interest rate risk.
Geomark's cash consists of Canadian and U.S. investment chequing accounts. In
order to achieve a higher interest rate on a portion of its excess funds,
Geomark has purchased a one year redeemable GIC thereby reducing its exposure to
interest rate risk.
Sensitivity Analysis
Based on historic movements and volatilities in the interest rate markets and
management's current assessment of the financial markets, Geomark believes that
a one percent variation in the Canadian prime interest rate is reasonably
possible over a 12-month period.
A one percent change in the Canadian prime rate would increase or decrease
annual net earnings and comprehensive income by $202,000.
Foreign exchange risk
Geomark has no foreign operations and currently makes all of its product sales
in Canadian currency. Geomark has an insignificant U.S. cash balance. Geomark
does not mitigate Cdn $/U.S. $ exchange rate risk by using risk management
contracts.
Credit risk
Credit risk is the risk that a contracting party will not complete its
obligations under a financial instrument and cause Geomark to incur a financial
loss. Geomark is exposed to credit risk on all financial assets included on the
balance sheet. To help mitigate this risk:
-- Geomark only maintains its cash balances with low risk exposure which
frequently results in receiving lower interest rates on investments.
-- Equity investments are only with entities that have common management
with Geomark.
Accounts receivable balance at December 31, 2010 ($265,000) and December 31,
2009 ($359,000) primarily consist of product sales with major oil and gas
marketing companies, all of which have generally paid within 30 days, federal
and provincial government refunds and credits, and interest from a major
Canadian Bank.
Geomark assesses its financial assets quarterly to determine if there has been
any impairment. No impairment provision was required on the mineral and oil and
gas financial assets. Geomark does not have any significant credit risk exposure
to any single counterparty or any group of counterparties having similar
characteristics.
The maximum exposure to credit risk is represented by the carrying amount on the
balance sheet. There are no material financial assets that Geomark considers
past due.
Liquidity risk
Liquidity risk includes the risk that, as a result of Geomark's operational
liquidity requirements:
-- Geomark will not have sufficient funds to settle a transaction on the
due date;
-- Geomark will not have sufficient funds to continue with its exploration
projects;
-- Geomark will be forced to sell assets at a value which is less than what
they are worth; or
-- Geomark may be unable to settle or recover a financial asset at all.
To help reduce these risks, Geomark:
-- Has a significant working capital base;
-- Holds current investments that are readily tradable should the need
arise; and
-- Maintains a continuous evaluation approach as to the financing
requirements for its exploration programs.
The Company's financial liabilities consist of accounts payable and accrued
liabilities due within a year which are recognized on the financial statements.
13. CONTINGENT CONSIDERATION
In December 2009, Comaplex acquired Meliadine Resources Ltd. from Perfora
Investments S.a.r.l. (Perfora) (a wholly owned subsidiary of Resource Capital
Fund III L.P.), by issuance of 12,750,000 common shares of Comaplex. As part of
the Purchase and Sale Agreement, Perfora was required to pay additional
consideration to Comaplex for the issued common shares upon their sale to a
maximum of $13,500,000.
On July 6, 2010, Agnico-Eagle acquired all of the issued and outstanding common
shares of Comaplex on the basis of one Comaplex share for 0.1576 of an
Agnico-Eagle share, pursuant to an acquisition agreement between Comaplex,
Agnico-Eagle and Geomark (the "Arrangement"). As part of the Arrangement, the
right to the contingent consideration was transferred to Geomark. Perfora sold
all of its 2,009,400 Agnico-Eagle common shares (12,750,000 times 0.1576
exchange ratio) in the third quarter of 2010. Geomark has received the maximum
consideration of $13,500,000 and has recorded the amount as income.
Grafico Azioni Geomark Exploration Ltd. (TSXV:GME)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni Geomark Exploration Ltd. (TSXV:GME)
Storico
Da Giu 2023 a Giu 2024
