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а Thu Aug 26, 2004
Summary of Financial Statements for the Six Months Ended June 30, 2004

а News Release: 04-25

Vancouver, August 26, 2004 - Diamonds North Resources Ltd. ("the Company") (DDN - TSX Venture) is an exploration stage company engaged in the acquisition and exploration of diamond mineral properties in Canada. The principal properties are located in northern Canada throughout Nunavut ("NU") and the Northwest Territories ("NWT"). The following is a summary of the interim consolidated financial statements and the management discussion and analysis for the six months ended June 30, 2004 both of which can be found on the Company's website at diamondsnorthresources.com or on SEDAR at www.sedar.com.

Mineral Properties

As at June 30, 2004, the carrying value of the Company's mineral properties was $7,668,150, an increase of $1,893,161 from December 31, 2003. For the six months ended June 30, 2004, the Company's net mineral property expenditures include $1,724,930 in acquisition costs and $1,310,625 in exploration costs. Deductions from mineral property expenditures include $1,071,725 in recoveries from project partners and $70,669 in write downs.

During the quarter, the Company entered into two new property agreements for the Amaruk JV and the Manitoba NE Highlands. Subsequent to the quarter, the Company entered into an agreement with Kennecott Canada Exploration Inc., see Subsequent Events.

Amaruk JV, Nunavut

On May 10, 2004, the Company and BHP Billiton Diamonds Inc. ("BHP Billiton") entered into an agreement to merge the Amaruk and Pelly Bay JV Projects along with approximately 3.5 million acres of land held by BHP Billiton. The new project covers approximately 7.0 million acres around the town of Kugaaruk Nunavut with each party holding a 50% interest in the project.

BHP Billiton has initiated the first option which will allow BHP Billiton to earn an additional 10% interest (for an aggregate 60% interest) by sole funding the project to feasibility within seven years. After completing the first option, BHP Billiton can elect to earn an additional 5% interest (for an aggregate 65% interest) by arranging the Company's portion of financing to production.

As part of the agreement, BHP Billiton reimbursed the Company for $500,000 in land acquisition costs and for costs associated with a geophysical survey (payment received in July). In addition, BHP Billiton subscribed to a private placement of $500,000 consisting of 357,143 common shares at a price of $1.40 per share. Over the next three years and at the election of the Company, BHP Billiton may subscribe to three separate private placements of up to $1,000,000 each. Each private placement would consist of common shares at a price with a 20% premium to the market price.

Manitoba NE Highlands Project, Manitoba

On May 7, 2004, the Company entered into an agreement with Indicator Explorations Ltd. ("Indicator Explorations") to acquire three Mineral Exploration Licenses ("MEL") and interpretative geological data from Indicator Exploration. Based on this data, the Company acquired an additional five MEL resulting in a combined land position of approximately 873,000 acres. Under the agreement, the Company paid $10,000 in cash and issued 20,000 common shares to Indicator Explorations. Staged over a four year period and assuming the Company continues with the project, Indicator Explorations will receive cash payments totaling $530,000. A 1% royalty on any production from the property will be payable to Indicator Explorations.

Selected Financial Information

The table below includes selected quarterly information from the interim consolidated financial statements for the six months ended June 30, 2004 and 2003. The interim consolidated financial statements were not reviewed by an Auditor. For more detailed information, please refer to the Company's interim consolidated financial statements and notes included therein.




Results of Operations

General and administrative expenses of $582,377 (2003 - $530,841), represent a $51,536 increase over the comparative period which is largely due to a $58,099 increase in stock-based compensation expense. Other fluctuations include an increase in annual report and meeting costs that was partially off-set by a decrease in consulting expense.

The Company's annual general meeting was held on Tuesday May 11th, 2004 at the Crown Plaza Georgia Hotel in Vancouver BC. In addition, the Company prepared a Shareholder Report that was mailed along with the 2003 Annual Report. These added cost are reflected in the annual report and meeting expense of $33,086 (2003 - $16,882).

Consulting expense of $2,220 (2003 - $21,566) decreased as the 2003 expense included cost for a part-time controller that later became a part-time employee of the Company.

Stock-based compensation expense of $132,542 (2003 - $74,443) relates to the vesting of 220,000 stock options granted to employees of the Company.

Interest income of $30,321 (2003 - $23,272) reflects interest earned on deposit in the normal course of business. The increase reflects large amounts of cash held in deposits. The Company invests its excess cash in redeemable guaranteed investment certificates issued by Chartered Canadian banks.

Property investigation expense of $168,522 (2003 - 41,760) relates to grass roots exploration to identify new diamondiferous areas.

Write-down of mineral properties expense of $70,669 (2003 - $23,206) includes $1,314 for the Banning Lake, NU Project, $51,588 for the Blue Nose, NU Project and $17,767 for the Stefansson, NU Project. The grass roots projects did not warrant further exploration and accordingly the projects have been written off.

The Company's loss for the six months before taxes was $767,322 (2003 - $491,878). A future income tax credit of $45,372 (2003 - $Nil) due to the renunciation of flow-through expenditures reduced the loss for the period to $721,950 (2003 - $491,878).

From the Company's statement of cash flow for the six months ended June 30, 2004, cash and cash equivalents decreased by $836,928 to $3,198,007. Operating activities cash requirements of $674,600 was the largest factor in the Company's decrease in cash. Investing activities cash requirements of $1,714,163 consisted of mineral property expenditures of $1,943,030, which was offset by a $254,891 increase in accounts payables related to mineral properties. Mineral property expenditures were funded by cash received from financing activities of $1,524,835 which related to shares issued for cash.

Liquidity

At June 30, 2004, the Company had $3,718,807 in working capital, which is sufficient to achieve the Company's planned business objectives for fiscal 2004. The Company's major exploration objectives for 2004 will be funded by project partners. Teck Cominco will fund the 2004 Blue Ice, Hadley Bay and White Ice exploration programs and BHP Billiton will fund the Amaruk/Pelly Bay exploration program. The Company's Northern Recon Initiative will be funded by a brokered private placement completed after the quarter, see Subsequent Events.

On May 28, 2004, the Company reported a non-brokered private placement of 392,857 common shares at $1.40 per share for gross proceeds of $550,000. BHP Billiton subscribed to 357,143 common shares and Teck Cominco subscribed to 35,714 common shares under it's financing right in the Blue Ice participation agreement, see Subsequent Events.

During the six months ended June 30, 2004, the exercise of stock options and warrants provided $978,085 in cash, see Subsequent Events.

Subsequent Events
  1. On July 2, 2004, the Company completed a brokered private placement of 2,400,000 flow-through common shares at a price of $1.25 per share for gross proceeds of $3,000,000. An aggregate of 168,000 Agents' Warrants to purchase up to 168,000 common shares at a price of $1.35 per share for a period of one year were granted to a syndicate led by Canaccord Capital Corporation and included Dundee Securities Corporation. Cash fees totaling $185,000 were paid in connection with the financing. All the securities are subject to a hold period and may not be traded until November 3, 2004.

  2. On July 8, 2004, the Company entered into a joint venture agreement with Kennecott Canada Exploration Inc. ("Kennecott") to merge land holdings in Nunavut. The 956,000-acre property, named "Arnak" is located immediately south of the Company's Amaruk project in the eastern Arctic. The Arnak property now includes 616,000 acres of permits acquired by Kennecott, approximately 140,000 acres of claims (subject to a 2% royalty payable to BHP Billiton) staked at the Company's cost and 200,000 acres of claims acquired at a cost to Kennecott. Under the terms of the agreement, Kennecott holds 74% and the Company holds 26% of the Arnak property. Kennecott must sole fund the first $5,500,000 in exploration costs over the next four years or its entire interest reverts to a 1% royalty on the 616,000 acres of permits only. Upon Kennecott completing their commitment, the Company will be required to pay its pro-rata share or be subject to dilution.

    During the first year of the joint venture, Kennecott has committed to spending a minimum of $1,000,000 on the property. Work will include airborne geophysical coverage of the entire property and heavy mineral sampling. This agreement is subject to the Nunavut Mining Recorder awarding the Company 80% or more of the 140,000 acre claim block.

  3. On July 28, 2004, the Company completed a non-brokered private placement with Teck Cominco for 144,000 flow-through common shares at a price of $1.25 per share. The shares are subject to a hold period and may not be traded until November 23, 2004

  4. On August 9, 2004, the Company granted stock options to directors, employees and consultants for the acquisition of up to 645,000 common shares at a price of $1.10 per share exercisable for a period of five years. The grant is subject to the policies of the TSX Venture Exchange.

  5. Subsequent to June 30, 2004, the Company issued 90,500 common shares for proceeds of $70,350 pursuant to the exercise of stock options and also issued 115,237 common shares for proceeds of $96,190 pursuant to the exercise of warrants. In addition, 38,250 warrants with an exercise price of $0.80 expired on August 22, 2004
Diamonds North is a dynamic exploration team focused on strategically advancing diamond opportunities and is determined to discover Canada's next diamond mine.


ON BEHALF OF THE BOARD OF DIRECTORS



Mark Kolebaba
President


For further information, please contact:

Corporate Communications: Nancy Curry
Diamonds North Resources Ltd.
Telephone:
Facsimile:
Website: diamondsnorthresources.com
Email:

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy of this news release
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