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This is the 2009 annual report for Kent Exploration Inc 1 a publicly traded company. The report contains assessments of the year’s operations, business and financial highlights, company’s view of the upcoming year and their prospects in their industries.
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KENT EXPLORATION INC
116-744 West Hastings Street, Vancouver, BC V6C 1A5
Tel: 604-684-3394 Fax: 1-888-282-7763 Toll Free 1-866-399-6539
MANAGEMENT DISCUSSION and ANALYSIS
Accompanying the December 31, 2009 Audited Financial Statements
This Management Discussion and Analysis (“MD&A”), prepared as of March 4, 2010, is
intended to be read in conjunction with the Company’s audited financial statements
(“Financials”) for the year ending December 31, 2009, and related notes thereto, which have
been reported in Canadian dollars, and prepared in accordance with Canadian generally
accepted accounting principles (“GAAP”).
This discussion relates to the operations of Kent Exploration Inc. (the "Company") during the
period up to the date of this report, being March 4, 2009.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++
BUSINESS HISTORY AND OVERALL PERFORMANCE
The Company was incorporated under the Canada Business Corporations Act by Certificate of
Incorporation dated April 6, 2004. By Articles of Amendment dated January 31, 2006, the
common shares and warrants and special warrants of the Company were consolidated on the
basis of 1 new common share for each two old common shares.
The Company’s business is the acquisition, financing, and exploration of prospective mineral
properties in areas of low political risk, close to support facilities and with ready, all weather
access.
Up to the date of this report, the Company has acquired a 100% interest in the Ivanhoe Creek
mining lease and has 50% of a 100% interest in the Ivanhoe Creek placer claims covering a
bentonite deposit on the Ivanhoe Creek property located in Elko County, Nevada (see:
“Significant Acquisitions – Ivanhoe Creek Property”); has entered into a mining lease option
with North River Minerals LLC on the Flagstaff property located in Stevens County,
Washington, (see: “Significant Acquisitions – Flagstaff Property”); has a 100% interest in the
Courtney Lake property, a silver/lead/zinc prospect in north-east Saskatchewan; and a 100%
interest in Coal Prospecting Permits covering approximately 92,000 ha in east-central
Saskatchewan (see: “Significant Acquisitions – Saskatchewan”); an option to earn a 100%
interest in the Silver Hills property, a silver/lead/zinc prospect in south-eastern British Columbia,
(see: “Significant Acquisitions – Silver Hill Property”); has received prospecting permits for
three gold prospects in New Zealand, Alexander River, Paparoa, and Lyell, (see: “Significant
Acquisitions – New Zealand”), and has entered into an Option Agreement with Teck Australia
Pty, Ltd to earn 100% of Teck’s interest in Chalice Gold Mines Ltd.’s Gnaweeda Gold Project.
The Company has announced its intention to, through a plan of arrangement; create a separate
public company (“Archean Star”) to hold the Australian gold prospect.
The Company’s continued existence is dependent upon its ability to raise additional capital, the
continuing support of its creditors, and ultimately, the attainment of profitable operations and
positive cash flows. Based on current market conditions management is aware that material
uncertainties exist that could adversely affect the Company’s ability to continue as a going
concern. Recognizing that there are insufficient cash reserves to conduct planned programs and
continue operations for the ensuing twelve months, in order to carry out its operations and
administration, management is fully aware that the Company will need to generate working
capital through additional equity financing.
SELECTED ANNUAL INFORMATION
December 31, December 31, December 31,
2009 2008 2007
Revenues Nil Nil Nil
Net loss $ 1,276,171 $ 1,095,957 $ 1,427,859
Net loss per share basic and diluted $ (0.04) $ (0.05) $ (0.09)
Total Assets $ 35,786 $ 97,577 $ 329,374
Total Long-term Debt Nil Nil Nil
Cash dividends per share Nil Nil Nil
The overall net loss decreased by $331,902 from 2007 to 2008. This decrease was comprised of:
A $409,662 decrease in mineral property expenditures. In 2008, the Company completed
the Rosebud and Ivanhoe Creek drilling programs and reviewed the results. During this
review time, less overall exploration work was performed compared to 2007.
An offsetting increase of $77,760 in general and administrative expenses. This is
primarily due to a $10,000 increase in management fees and a $64,511 increase in non-
cash stock based compensation.
From 2008 to 2009, the net loss increased by $180,214. This overall increase is comprised of:
An offsetting $81,267 decrease in mineral property expenditures. In 2009, the Company
conducted preliminary programs on its newly acquired properties in Australia and New
Zealand, and continued to perform work on its Flagstaff property, located in Washington
State, USA. Flagstaff was the only North American property on which Kent incurred
significant exploration expenditures during 2009. In 2008, Kent had several North
American properties that incurred significant exploration expenditures, and it was this
decrease in the number of North American properties with active exploration programs
that resulted in the overall decrease in mineral property expenditures.
A $261,481 increase in general and administrative expenditures. Communication,
investor relations and promotion expenses increased by $189,731, as the Company
budgeted a greater amount of resources to improving market awareness of its projects and
prospects and to prepare for the proposed creation of Archean Star Resources Inc. as a
separate public company. Transfer agent and exchange filing fees increased by $57,525,
due to the Company’s increased financing activities. Professional fees increased by
$14,119 due to greater regulatory activity and the costs of a corporate secretary.
[2]
FOURTH QUARTER RESULTS
During the period from October 1, 2009 to December 31, 2009, the Company raised capital
through the exercise of 2,136,571 share purchase warrants for total cash consideration of
$265,823.
General and administration expenses during the fourth quarter totaled $261,045, and acquisition,
holding, and exploration costs totaled $270,865. Exploration expenditures for the quarter were
higher by $84,868 than the $185,997 incurred in the fourth quarter of 2008 due to the Company
conducting a drill program at its Flagstaff property.
General and administrative costs for the fourth quarter were higher by $155,239 from the prior
year period due to the following:
Travel was higher from the prior year amount as trips to Australia and New Zealand properties
were undertaken.
Communication, promotion and investor relations expenses increased from the prior year amount
due to increased investor relations activity related to the Company’s proposed plan of
arrangement and property acquisitions in New Zealand and Australia.
Directors’ fees increased from the prior year due to increased directors meetings dealing with the
proposed plan of arrangement and property acquisitions in New Zealand and Australia.
Professional fees increased from the prior years’ period due to the New Zealand and Australian
property acquisitions and the hiring of a corporate secretary.
RESULTS OF OPERATIONS
A summary of financial results by quarter in the previous two years is as follows:
General and Exploration
Quarter ended administrative and Expenses Net Loss Loss per Share
other expenses
31 Dec 2009 261,045 270,865 531,910 0.02
30 Sep 2009 149,132 50,807 199,939 0.005
30 June 2009 221,322 112,300 333,622 0.01
31 Mar 2009 127,181 83,519 210,700 0.005
31 Dec 2008 105,806 185,997 291,803 0.05
30 Sep 2008 87,899 120,889 208,788 0.04
30 Jun 2008 131,010 208,486 339,496 0.03
31 Mar 2008 161,068 82,620 243,688 0.01
INTERESTS IN MINERAL EXPLORATION PROPERTIES
The Company has entered into agreements to acquire interests in a number of exploration stage
mineral properties:
A 100% interest in a mining lease option on the Flagstaff Mountain property, a
gold/silver/zinc/barite prospect in eastern Washington State, USA.
[3]
A 100% interest in the mining lease option on the Ivanhoe Creek property, a Midas-style
gold/silver target in Nevada’s Carlin Trend; 50% of a 100% interest in the Ivanhoe Creek
placer claims covering a bentonite deposit.
A 100% interest in the Courtney Lake property, a silver/ lead/ zinc prospect in north-east
Saskatchewan.
A 100% interest in a Mining Lease Option in the Silver Hills property, a silver/ lead/ zinc
prospect in south-eastern British Columbia.
A 100% interest in Coal Prospecting Permits, covering approximately 92,000 ha in east-
central Saskatchewan.
The Company has entered into an Option Agreement with Teck Australia for 100% of
Teck’s interest in Chalice Gold’s Gnaweeda gold property.
The Company has received Prospecting Permits on the Alexander River, Paparoa and
Lyell gold prospects from Crown Minerals NZ.
Gnaweeda Gold Project
On May 22, 2009, the Company executed an agreement with Teck Australia Pty, Ltd, to enter
into an Option Agreement, whereby the Company can earn 100% of Teck’s interest in Chalice
Gold Mines Ltd.’s, Gnaweeda Gold Property. The Option Agreement was executed between
Teck and the Company, effective November 2009.
In order to earn the interest, the Company has to spend AUD$3,000,000 over a four year period
at a rate of AUD$750,000 per year. The terms of the agreement call for a phase I property
expenditure prior to March 31, 2010 of AUD$200,000. A payment ofAUD$50,000 was made to
Teck as part of this agreement.
Gnaweeda Exploration
Up to the date of this report, Teck expended the AUD$50,000, while the Company conducted a
mapping and sampling program, commissioned and received a NI 43-101-compliant technical
report and a Geophysical Report, and commenced a diamond drill program on the property.
These items totaled approximately AUD$150,000, and have been applied against the required
AUD$200,000 phase I property expenditure.
Alexander River Gold Project
The Company applied to Crown Minerals New Zealand, through its wholly owned subsidiary
Kent Exploration NZ Limited, for a prospecting permit over the historic Alexander River gold
mine. The permit was granted on July 22, 2009.
The Company has received access permits to the property, and a mapping and sampling program
commenced November, 4, 2009.
Kent Exploration NZ Limited, the Company’s wholly owned New Zealand subsidiary, recently
completed a first phase trench sampling program. Significant assay results include trench “F”,
3.2 meters at 24.6 g/t AU, trench “A” 6.4 meters at 6.87 g/t AU, trench “K” 8 meters at 10.56 g/t
AU and trench “M” 12.8 meters at 4.5 g/t AU.
[4]
Lyell Gold Project
The Company applied to Crown Minerals New Zealand, through its wholly owned subsidiary
Kent Exploration NZ Limited, for a prospecting permit over the historic Lyell gold district. The
permit was granted on July 28, 2009.
The Company has received access permits to the property, and commenced a mapping and
sampling program in late November, 2009.
A reconnaissance program of rock chip sampling at the historic Red Queen and Nile mines has
been completed and, up to the date of this report, additional assay results are pending.
Paparoa Gold Project
The Company applied to Crown Minerals New Zealand, through its wholly owned subsidiary
Kent Exploration NZ Limited, and was granted a prospecting permit covering a number of
historic gold mines, including the Croesus and Minerva, and has potential for intrusive related
gold mineralization. According to historic records filed with Crown Minerals New Zealand the
property contained two of the largest nuggets found in New Zealand, one of 79 ounces and one
of 78 ounces.
Reefton Gold Project
On February 8, 2009, the Company announced that it had entered into an Option Agreement with
CanAlaska Uranium to earn 70% of the approximately 14,000 ha Reefton Gold Project, located
on the west coast, south Island, New Zealand in the Reefton gold belt. The Company terminated
the Agreement on August 28, 2009.
Ivanhoe Creek
The Ivanhoe Creek property consists of approximately 920 acres, and is situated in the Northern
Nevada Rift area, approximately 48 miles northwest of Elko, Nevada. The area hosts several
current and past producing mines and is prospective for Midas-style mineralization.
On August 24, 2009, Senator advised RMIC Gold, the Ivanhoe Creek property owner, that it had
dropped the Ivanhoe Creek claims due to financial considerations. Accordingly, the agreement
between Senator and the Company is of no force or effect. The Company has entered into an
mining lease option agreement with RMIC for a 100% interest in the Ivanhoe Creek property, net
of a 1.5% Net Smelter Return (“NSR”).
Ivanhoe Creek Exploration Activities
No exploration work was performed on the Ivanhoe Creek property during 2009. A revised
independent NI 43-101-compliant report on the property was commissioned on October 26,
2009.
Flagstaff
In November 2006, the Company entered into a mining lease option (the “Agreement”) with
North River Minerals LLC (“North River”) on the Flagstaff property in eastern Washington
State.
[5]
The Flagstaff property, consisting of 30 claims totaling approximately 600 acres, is accessible by
forest service roads and is approximately 12 km west of Northport, Washington, and
approximately 15 km south of Rossland, British Columbia.
The Agreement is for a period of twenty years. The annual lease payment of US$35,000 was
due November 30, 2009. The Company paid US$15,000 and issued 100,000 shares as
consideration for original exploration data of the property.
During the term of the Agreement, the Company agreed to pay a production royalty equal to 3%
of the NSR on all bullion products produced, and 5% on all barite products produced. The
Agreement was amended in respect of production royalties on July 29, 2009, whereby the
production royalty was amended to cap the barite production royalty of 4.1 SG barite at
US$2.00/ton.
The Company retains the option of purchasing the 1% Bullion NSR for a lump sum payment of
US$100,000 at any time after three years of the Agreement date. An additional 1% NSR point
may be purchased upon payment of a lump sum of US$500,000 at any time during the term of
the Agreement.
The Company retains the option of purchasing the 1% Barite NSR for a lump sum payment of
US$200,000 any time after three years of the dated Agreement. An additional 1% NSR point
may be purchased upon payment of a lump sum of US$500,000 any time during the term of the
Agreement.
On August 25, 2008 after reviewing historic data on the Flagstaff property developed by
Houston Mining and Minerals (“HIMMCO”), the Company elected to not renew 18 of these
claims, leaving 30 claims in good standing, which were renewed August 13, 2009.
Flagstaff Exploration Activities
Previously, on January 8, 2007, the Company made Notice of Work applications to the Spokane
office of the BLM for the removal of a 1,000 ton bulk sample of barite, an IP survey, and a drill
program to follow up the drill holes where CE Minerals reported high grade gold intercepts, and
where Houston Oil and Minerals reportedly intersected zinc mineralization.
During the fourth quarter the Company completed a 12 short-hole drill program on the Flagstaff
property to explore for extensions to previously reported high grade gold and silver veins. The
approximately 1300 foot drill program was completed in late October and the results were unable
to duplicate the prior high grade results, however, significant intercepts included hole DDH 09-
04 63.1 grams per tonne silver over 1 foot, and DDH 09-04 with .11 grams gold per tonne over 2
feet and .14 grams per tonne over 6 feet.
Subject to financing, the Company intends to continue with planning barite mining operations on
this property.
On July 12, 2008, the Company applied to the US BLM for a permit to mine the barite deposit.
The Company based all the data in the application on the CE results from 1981, and on the
diamond drilling results from the 2007 diamond drill program. The mining permit application
[6]
was approved by the US BLM on May 5, 2009 subject to the Company placing a US$140,000
reclamation bond with the US BLM.
On August 2, 2008 the Company retained George Rodger, B.Sc. Metallurgical Engineering, to
oversee the beneficiation testing and make final recommendations for processing the barite.
On November 18, 2008, the Company reported it had entered into an agreement with Matovich
Mining Industries Limited (“MMIL”) to provide MMIL approximately 20,000 tons of 4.1
specific gravity (“SG”) barite per year from the Flagstaff property (the “MMIL Agreement”).
The terms of the MMIL Agreement call for a US$10,000 payment on signing the MMIL
Agreement (paid), and US$30,000 paid into escrow, with US$10,000 paid upon mine plan
approval (paid) and the balance being paid upon issuance of the mining permit. The Company
estimates there is a stockpile of 30,000+ tons of ore from prior mining operations ready for
processing.
Up to the date of this report, $160,121 has been paid for acquisition and holding costs including
BLM fees, and $510,345 has been incurred for staking and exploration expenses.
Silver Hill
On May 21, 2008, the Company entered into a 20 year mining lease option (the “Lease Option”)
with T. Christianson on the Silver Hill property in south-eastern British Columbia.
The Silver Hill property, consisting of 5 claims totaling approximately 1,000 acres, is accessible
by forest service roads and is approximately 18 km east of Crawford Bay on Kootenay Lake,
British Columbia.
The Lease Option is for a period of 20 years. The first lease payment of $1,000 has been paid.
During the term of the Lease Option, the Company agrees to pay a production royalty equal to
3% of the NSR on all bullion products produced and 2% on all other mineral products produced.
The Company issued 100,000 common shares for the Lease Option.
Silver Hill Exploration Activities
In August 2008, a four day field visit and sampling program was conducted on the Silver Hill
property and a recommendation was made to clear the existing trail for quad access, which was
subsequently completed. Samples were submitted to IPL Labs of Richmond, British Columbia.
Significant sample results are detailed in a table in the Company’s KEX2008-27 news release,
which is filed on SEDAR and on the Company’s web site at http://www.kent-exploration.com.
Up to the date of this report, $9,875 has been paid for acquisition and holding costs and $14,981
has been incurred for staking and exploration expenses. No work was performed on the Silver
Hill property during this period.
Courtney Lake Property
On September 8, 2008, the Company announced that it had staked 7 claims totaling
approximately 1,300 ha in north-east Saskatchewan. The staking costs were $25,000. No
exploration work has been performed on the claims.
[7]
All reports are posted on the Company’s web site http://www.kent-exploration.com, which is
operational and kept up to date.
FINANCING
As of the date of this report, four private placements have been completed.
On February 19, 2009 the Company completed a private placement of 2,741,571 units at $0.07
per unit. Each unit consists of one common share and one common share purchase warrant,
exercisable into one common share of the Company for 12 months at $0.11 per common share.
The Company received gross proceeds of $191,910. In connection with the private placement,
finders’ fees in the amount of $4,288 were paid.
On April 15, 2009 the Company completed a private placement of 1,300,000 units at $0.10 per
unit. Each unit consists of one common share and one common share purchase warrant,
exercisable into one common share of the Company for 12 months at $0.15 per common share.
The Company received gross proceeds of $130,000.
On July 23, 2009 the Company completed a private placement of 2,450,000 units at $0.10 per
units. Each unit consists of one common share and one common share purchase warrant,
exercisable into one common share of the Company for 24 months at $0.15 per common share.
The Company received gross proceeds of $245,000.
On September 11, 2009, the Company completed a private placement of 1,250,000 units at $0.10
per unit. Each unit consists of one common share and one common share purchase warrant,
exercisable for one year at $0.15 per common share. On September 22, 2009, the Company
increased the private placement to 2,000,000 units and closed the first tranche of the placement
for gross proceeds of $150,450.
On October 14, 2009, the Company completed the second tranche of the private placement of
575,500 units at $0.10 per unit. Each unit consisted of one common share and one common
share purchase warrant. Each common share purchase warrant is exercisable into one common
share of the Company for 12 months at a price of $0.15 per share. The Company received gross
proceeds of $57,550.
Since its inception, the Company has relied upon the proceeds from private placements and the
Initial Public Offerings to fund its operating and exploration expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the mineral exploration and development business and is exposed to a
number of risks and uncertainties inherent to the mineral resource industry. This activity is
capital intensive at all stages and subject to fluctuations in metal prices, market sentiment,
currencies, inflation and other risks. The Company currently has no source of material revenue,
and relies primarily on equity financings to fund its exploration, development and administrative
activities. Material increases or decreases in the Company’s liquidity will be substantially
determined by the success or failure of its exploration and development activities, as well as its
continued ability to raise capital. The current recessionary credit conditions have severely
limited the Company’s ability to raise financing through its usual methods and if these conditions
persist they will materially decrease the Company’s liquidity and capital resources.
[8]
As of the date of this report, the Company had a working capital deficit of approximately
($96,000). The Company’s current working capital commitments include $3,000 per month for
rent, $10,000 per month for management and consulting fees, and $9,500 per month for
administrative support. Total general and administrative costs for the next 12 months are
budgeted to be $550,000. Any new exploration programs, however, will require additional
equity funding. Currently, the 12 month exploration budget of the Company is about $500,000.
The Company must raise about $1,000,000 in new equity to complete its planned development
over the next 12 months. Up to the date of this report and subsequent to the year end, 2,560,000
warrants were exercised for gross proceeds to the Company of $329,000.
The Company’s ability to continue as a going concern is dependent on continued financial
support from its shareholders, the ability of the Company to raise equity. While management has
been successful in obtaining additional sources of finance in the past, there can be no assurance
that it will be able to do so in the future.
CORPORATE GOVERNANCE
The Board of Directors is authorized for no more than seven people and during the period
consisted of four independent directors, Marvin A. Mitchell, John Cerenzia, Michael England,
and Donald A. Simon, who tendered his resignation to the Board effective August 26, 2009, and
one non-independent director, Graeme O’Neill, the Company CEO. There are currently three
vacancies on the Board. Directors of the Company have other directorships in reporting issuers
as follows: Michael England; president, director and CEO of Alix Resources Corp. (AIX),
president, director and CEO of Geo Minerals Ltd. (GM), president, director and CEO of
Ashburton Ventures Inc. (ABR), director of Alston Ventures Inc., (ALO.P), director of Abbastar
Resources Corp (ABA), director of Zone Resources Inc. (ZNR), director of BTU Capital Corp.
(BTU.P), and director of Aintree Resources Inc. (AIN.P); John Cerenzia, director of Greenock
Resources Inc. (GKR) [formerly Simberi Gold (SAU)], Talware Networx Inc. (JBS), and
director of EFT Canada Inc.; Marvin A. Mitchell, director of Snowfield Development Corp.
(SNO), Geo Minerals Ltd. (GM), Ashburton Ventures Inc., (ABR) Island Arc Exploration Corp.
(IAX), Cloudbreak Resources Ltd., (CDB), Touchdown Resources Inc. (TDW), and Challenger
Development Corp (CDQ.H).
All expenditures have been made pursuant to specific contractual arrangements that have
previously been authorized by the Board and/or the TSX-V, or for activities authorized by the
Board in principle but not in detail.
The Company’s Audit Committee consists of three financially literate directors, Michael
England, Graeme O’Neill, and Marvin A. Mitchell. Michael England and Marvin A. Mitchell
are independent, while Graeme O’Neill is not, being an officer of the Company. Mr. Greg.
Amor was appointed Chief Financial Officer of the Company June 30, 2009, upon the
resignation of Mr. Minaz Dhanani, who served as the Company’s Chief Financial Officer up to
June 30, 2009.
Effective from the beginning of operations in April 2006, the Company's policy related to
accounting for exploration expenses is to be consistent with both US GAAP and an alternative
available under Canadian generally accepted accounting principles (“GAAP”).
[9]
Acquisition and exploration expenditures relating to unproven mineral properties will be
expensed as they are incurred. Acquisition, exploration, and development costs incurred for a
property will be capitalized only when proven or probable reserves can be determined for that
property.
The Company does not have regular employees. For most efficient use of resources, the
Company enters into contractual arrangements on an as-needed basis with people able to handle
administrative, compliance, and general business activities. All phone inquiries are handled in-
house.
Company management is aware of the approaching deadlines associated with the replacement of
Canadian GAAP with International Financial Reporting Standards (“IFRS”). In addition to
attending relevant seminars, management has carried out a line-by-line review of the Company’s
financial statements and assessed IFRS and their adoption for 2011, and is of the opinion that,
given the relative simplicity of the Company’s balance sheet, the transition to IFRS will not
cause significant changes to preparation or presentation of the Company’s financial statements.
(See First Time Adoption of IFRS below).
In January 2010, Charlton and Company, Chartered Accountants, was retained as independent
auditors to the Company.
FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL AND FINANCIAL RISK
Industry Risk: The Company is engaged primarily in the mineral exploration field and manages
related industry risk issues directly. The Company is potentially at risk for environmental
reclamation and fluctuations in commodity based market prices associated with resource
property interests. Management is of the opinion that the Company addresses environmental risk
and compliance in accordance with industry standards and specific project environmental
requirements.
Credit Risk: Credit risk is the risk that one party to a financial instrument will fail to discharge
an obligation and cause the other party to incur a financial loss. The Company's primary
exposure to credit risk is in its cash accounts and its receivables. This risk is managed through
the use of a major bank that is a high credit quality financial institution as determined by rating
agencies. The Company’s receivables relate to GST recoverable from the Governments of
Canada, New Zealand and Australia. The risk associated with its receivable is minimal.
Currency Risk: The Company's functional currency is the Canadian dollar. There is moderate
foreign exchange risk to the Company as it incurs significant mineral property-related
expenditures in the USA, Australia and New Zealand as well as Canada. The Company does not
engage in any hedging activities to reduce its foreign currency risk. A 10% variance in the
foreign exchange rates would expose the Group to a positive or negative impact on its
Comprehensive Loss of approximately $50,000 per year.
Interest Rate Risk: Interest rate risk is not significant as the Company’s assets and liabilities do
not bear any interest.
Liquidity and Funding Risk: Liquidity risk arises through the excess of financial obligations due
over available financial assets at any point in time. The Company's objective in managing
liquidity risk is to maintain sufficient readily available capital in order to meet its liquidity
[10]
requirements. Funding risk is the risk that market conditions will impact the Company's ability
to raise capital through equity markets under acceptable terms and conditions. Under current
market conditions, both liquidity and funding risk are assessed as high.
The Company is not subject to externally imposed capital requirements but must maintain the
minimum listing requirements in order to maintain its TSX-V listing. The Company manages its
capital structure based on the funds available to the Company, in order to fund its general and
administration expenses, support acquisition, maintenance, exploration, and development of
mineral properties.
The Board of Directors has not established any quantitative return on capital criteria for
management, instead relying on the expertise of the Company's management to sustain future
development of the business.
The properties in which the Company currently has interests are in the exploration stage so the
Company is dependent on external financing to fund its activities. In order to carry out activities
and administration, the Company will spend its existing working capital and raise additional
amounts as needed.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
LEGAL COUNSEL
On December 27, 2008, the Company changed its legal counsel from DuMoulin Black LLP of
Vancouver, British Columbia, to Boughton Law Corporation of Vancouver, British Columbia.
There are no material legal matters outstanding.
INVESTOR RELATIONS
The Company entered into an Investor Relations consultancy agreements (the “IR Agreement”)
with D. Kerr (“Kerr”) and Market Smart Communications (“Market Smart”) of Vancouver, BC
on March 2, 2009, whereby Kerr was paid $1,000 per month for a period of 4 months and
Market Smart was paid $4,000 per month for a period of 3 months. Following a review, the Kerr
Agreement was extended for an additional term until to November 2, 2009, which was
subsequently extended on a month by month basis, while the Market Smart was renewed for a
one month period, after which time it was terminated.
The Company entered into a Market Maker Agreement with J. Watson on May 20, 2009. This
Agreement has expired. To ensure accessibility to management by investors and brokers, the
Company has established an office at 116 – 744 West Hastings Street, Vancouver, BC, V6C
1A5.
PROMOTIONAL ACTIVITIES
During 2009, the Company participated in the Cambridge House Resource and Investor
Conferences in Vancouver in January and June, in Phoenix in February, in Calgary in April, in
Saskatoon in early May, and in Toronto in September. During 2010, up to the date of this report,
[11]
the Company participated in the Cambridge House conferences in Vancouver in January and
Phoenix in February.
RELATED PARTY TRANSACTIONS
(a) The Company has entered into management services agreements with a company
controlled by a director and president of the Company requiring annual payments
aggregating $124,000 (2008: $112,800). The terms of the agreements require the
Company to pay $8,000 (2008: $8,000) per month for management and advisory
services and $3,000 (2008: $1,400) per month for occupancy costs. The term of the
agreements are tied to the president’s tenure.
The Chief Financial Officer receives $1,000 per month plus additional expenses. Total
remuneration for the CFO in 2009 was $ 19,085 (2008: $ 24,000).
The Company’s corporate secretary receives a salary of $6,000 per month. Total
remuneration for 2009 was $36,000. This was an unpaid position is 2008.
(b) Director fees paid during the year ended December 31, 2009 totaled $24,000 (2008-
$19,001) and were paid to the following Directors:
DIRECTOR 2009 2008
Mr. Graeme O’Neill $ 5,450 $
4,360
Mr. Marvin Mitchell 4,650 3,810
Mr. Michael England 4,650 3,810
Mr. Donald Simon 3,800 4,410
Mr. John Cerenzia 4,650 3,411
Other 800 (800)
Total $ 24,000 $ 19,001
These transactions are in the normal course of operations and are measured at the
exchange amount that is the amount of consideration established and agreed to by the
related parties. Management believes the rates set are within industry standard ranges for
compensation and benefits.
At December 31, 2009, $13,060 (2008: $15,007) is owing to related parties and $3,467
(2008: $4,185) is owing from a former related party. Amounts due to/from related parties
are non-interest bearing, unsecured, and have no fixed terms of repayment. The fair
value of amounts due to related parties is not determinable as they have no specified
repayment terms.
(c) Directors and Officers have received the following incentive stock options under the
Company’s stock compensation plan. The options vest when granted and the exercise
price is set equal to, or above the market price on the date the options are granted.
Type Price Number of Options
Directors 0.18 1,000,000
Officers 0.18 250,000
[12]
(d)Directors and Officers have participated in funding the Company in the following private
placements or warrant exercises:
Number of Units
Type Financing Date Price or Shares
Directors February 2009 $0.07 308,571
April 2009 $0.10 351,000
July 2009 $0.10 1,250,000
September 2009 $0.10 189,500
Officers February 2009 $0.07 130,000
July 2009 $0.10 49,000
PROPOSED TRANSACTIONS
With the receipt of a 43-101 report on the Gnaweeda Gold Project, Kent proposes, subject to
shareholder approval, through a plan of arrangement (the “Plan”), to split the Company into two
separate entities: Kent Exploration Inc., and a new gold-focused, listed company (“Archean
Star”) to advance and develop projects in Australia. Under this Plan, the Company intends to
distribute to shareholders, on a record date yet to be determined, one common share of Archean
Star for every four common shares of Kent Exploration Inc. Upon approval and completion of
the Plan, Archean Star proposes to fund and advance exploration on the Australian properties,
while Kent proposes to continue advancing exploration on its North American and New Zealand
properties.
CRITICAL ESTIMATES
In expensing stock we have estimated a risk-free interest rate ranging from 1.63% to 2.64%,
expected volatilities ranging from 84.97% to 90.23%, an expected life of five years for the
options and a dividend yield of Nil. These estimates are based on the best information available
to management. Valuations of stock options are particularly sensitive to changes in the estimates
for volatility and expected life.
ACCOUNTING POLICIES
The Accounting Standards Board (AcSB) has issued new accounting standards relating to the
recognition, measurement, disclosure and presentation of financial instruments. The new
standards adopted by the Company include:
Adoption of New Accounting Standards
On January 1, 2008, the Company adopted the new accounting standards issued by the CICA
relating to goodwill and intangible assets and to mining and exploration costs. These standards
were adopted on a prospective basis and are primarily related to disclosures. There were no
adjustments recorded to opening balance sheet items or deficit as a result of the adoption of
these standards.
Section 3064 Goodwill and intangible assets
In February 2008, the CICA issued Section 3064, “Goodwill and Intangible Assets” replacing
Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and
Development Costs”. Various changes have been made to other sections of the CICA Handbook
[13]
for consistency purposes. The new Section is applicable to financial statements relating to fiscal
years beginning on or before October 1, 2008. Accordingly, the Corporation adopted the new
standards for its fiscal years beginning January 1, 2009. It establishes standards for the
recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented enterprises. Standards concerning
goodwill are unchanged from the standards included in the previous Section 3062. The adoption
of this section does not have a significant impact on the financial statements.
EIC – 174 Mining Exploration Costs
On March 27, 2009, the CICA issued EIC 174. In this EIC, the Committee reached a consensus
that an enterprise that has initially capitalized exploration costs has an obligation in the current
and subsequent accounting periods to test such costs for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be recoverable. The EIC is
effective for periods ending after the issuance date and the Company has adopted the EIC – 174.
This accounting standard has no effect on the Company’s financial statements, as the Company
already expenses all of its mineral property expenditures.
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities – EIC 173
In January 2009, the CICA issued EIC 173, Credit Risk and the Fair Value of Financial Assets
and Liabilities. This guidance clarified that an entity’s own credit risk and the credit risk of the
counterparty should be taken into account in determining the fair value of financial assets and
financial liabilities including derivative instruments.
This guidance is applicable to fiscal periods ending on or after January 12, 2009. Management
does not expect that this will have significant impact on the Company’s financial statements.
Future Accounting Pronouncements
Convergence with International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that
will significantly affect financial reporting requirements for Canadian companies. The AcSB
strategic plan outlines the convergence of Canadian generally accepted accounting principles
with IFRS over an expected five year transitional period. In February 2008, the AcSB
announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing
Canada’s own generally accepted accounting principles. The date is for interim and annual
financial statements relating to fiscal years beginning on or after January 1, 2011. The transition
date of January 1, 2011 will require the restatement for comparative purposes of amounts
reported by the Company for the year ended December 31, 2010.
The Company has carried out a line-by-line review of its financial statements and assessed IFRS
and its adoption for 2011, and it is management’s opinion that, with the possible exception of
additional notes and possible format changes, the financial reporting impact of the transition to
IFRS will not cause significant changes in the preparation and presentation of the Company’s
financial statements.
Business Combinations – Section 1582
In January 2009, the CICA issued Section 1582, Business Combinations, which will provide the
Canadian equivalent to International Financial Reporting Standard IFRS 3, Business
Combinations, and replace the existing Section 1581, Business Combinations. The new standard
will apply prospectively to business combinations for which the acquisition date is on or after
January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year, in which case
[14]
an entity would also early adopt Section 1601, Consolidated Financial Statements and Section
1602, Non-controlling Interests. Management does not expect that the adoption of this new
standard will have significant impact on the Company’s financial statements.
Consolidated Financial Statements – Section 1601
In January 2009, the CICA issued Section 1601, Consolidated Financial Statements, which
establishes standards for the preparation of consolidated financial statements and will replace the
existing Section 1600, Consolidated Financial Statements. The new standard is effective for
interim and annual consolidated financial statements relating to fiscal years beginning on or after
January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year, in which case
an entity would also early adopt Section 1582, Business Combinations, and Section 1602, Non-
Controlling Interests. Management does not expect that the adoption of this new standard will
have significant impact on the Company’s financial statements.
Non-Controlling Interests – Section 1602
In January 2009, the CICA issued Section 1602, Non-Controlling Interests, which establishes
standards for accounting for a non-controlling interest in a subsidiary in consolidated financial
statements subsequent to a business combination. It is equivalent to the corresponding provisions
of International Financial Reporting Standard IAS 27, Consolidated and Separate Financial
Statements. The new standard is effective for interim and annual consolidated financial
statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is
permitted as of the beginning of a fiscal year, in which case an entity would also early adopt
Section 1582, Business Combinations, and Section 1601, Consolidated Financial Statements.
Management does not expect that the adoption of this new standard will have significant impact
on the Company’s financial statements.
PREPARING FOR FIRST TIME ADOPTION OF IFRS
The Company will adopt IFRS on December 31, 2010, with a transition date of January 1, 2008.
Under IFRS 1 “First-time Adoption of International Financial Reporting Standards”, the IFRS
are applied retroactively at the transition date with all adjustments to assets and liabilities as
stated under GAAP taken to retained earnings unless certain exemptions are applied. The
Company is not currently planning on applying any exemptions on first-time adoption of IFRS
except to transfer all foreign currency translation differences, recognized as a separate
component of equity, to deficit as at the transition date including those foreign currency
differences which arise on the adoption of IFRS.
Management has determined that the transition to IFRS will have minimal impact on the
Company’s financial statements except in the following areas:
-reclamation provision, and
-stock-based compensation where the incentive option in question vests over time.
IFRS requires earlier recognition of reclamation provision than Canadian GAAP. Under
Canadian GAAP, a reclamation provision is only recognized when the amount can be reliably
measured. In many cases, due to uncertain timing of reclamation work and the amount of
exploration and/or development that will occur, it is difficult to measure future reclamation costs.
Under IFRS, the fair value of the costs at the end of the reporting period is considered a reliable
measure. The net impact to Kent’s financial statements is currently estimated by management to
be a less than $100,000 increase in assets (mineral property bonds), and a corresponding
$100,000 increase in liabilities (reclamation provisions).
[15]
IFRS 2-19 requires that stock-based incentive awards that vest over a period of time be
recognized as individual awards as the options vest, and have the fair value of the options
measured for the options that vest at each date. This is different to Canadian GAAP, which
measures the fair value of the entire award at the grant date, and records stock option expense on
a straight-line basis over the vesting period. As the Company has only 100,000 stock options,
granted in 2009, which do not vest immediately, it is estimated that the change in the valuation
method of these options will not have a significant impact.
INTERNAL CONTROLS
Disclosure controls and procedures are designed to provide reasonable assurance that material
information is gathered and reported to senior management to permit timely decisions regarding
public disclosure. Management has reviewed the effectiveness of the design and operation of the
Company’s disclosure controls and has concluded that the Company’s disclosure controls and
procedures were operating effectively as at December 31, 2009. Management maintains a
system of internal controls to assure that the Company’s assets are safeguarded, transactions are
authorized and financial information is complete and reliable. Management’s review of its
internal controls led it to conclude that the internal controls are effective in ensuring the
reliability of the financial information for the quarter.
The Company has a limited number of employees therefore internal controls that rely on
segregation of duties are not possible in many cases. In these instances, the Company relies on
senior management review and approval to ensure that the controls are as effective as possible.
This Management Discussion and Analysis contains several forward-looking statements. The
forward-looking statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect Management’s analysis
only as of the date hereof. Readers should be aware the Company is under no obligation to
publicly release the results of any revision to these forward-looking statements, which may not
reflect circumstances, or occurrences of unanticipated events after the date of this document.
Additional information is available on SEDAR at www.sedar.com and at the Company’s web
site at http://www.kent-exploration.com.
[16]
ADDITIONAL INFORMATION FOR VENTURE ISSUER’S WITHOUT SIGNIFICANT
REVENUE
Exploration Expenses by Property
PROPERTY 2009 2008
Ivanhoe Creek Property $ 6,281 $ 115,274
Rosebud 9,912 64,185
Flagstaff 149,526 229,144
Silver Hill 4,375 21,190
Saskatchewan Coal 10,913 124,415
Courtney Lake - 25,280
Reefton 136,932 17,566
Gnaweeda Gold Project 113,513 -
Alexander River 74,507 -
Lyell 5,694 -
Paparoa Gold District 5,838 -
Unassigned - 1,704
Total $ 517,491 $ 598,758
[17]
ADDITIONAL INFORMATION FOR VENTURE ISSUER’S WITHOUT SIGNIFICANT
REVENUE (continued)
Expenses 2009 2008
Communications 53,699 5,963
Consulting fees 14,484 29,850
Directors’ fees 24,000 19,001
Foreign exchange 11,485 -
Investor relations 129,051 71,874
Management fees 36,890 13,163
Office and other 96,000 96,000
Office rent 64,033 30,330
Professional fees 30,919 16,800
Promotion 156,091 71,273
Transfer, listing and filing fees 68,415 39,654
Travel 7,668 16,560
692,735 410,468
Other income/expense (11,622) (12,182)
Stock-based compensation (Note 5) 77,567 98,913
Net loss for the year 1,276,171 1,095,957
Schedule of Share Capital
As of the date of this Management Discussion
and Analysis
Common Shares outstanding 37,254,187
Options outstanding 2,400,000
Warrants outstanding 12,144,999
Fully diluted share capital 52,369,186
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