XTSX:PL Annual Report 20-F Filing - 2/29/2012

Effective Date 2/29/2012

XTSX:PL (): Fair Value Estimate
Premium
XTSX:PL (): Consider Buying
Premium
XTSX:PL (): Consider Selling
Premium
XTSX:PL (): Fair Value Uncertainty
Premium
XTSX:PL (): Economic Moat
Premium
XTSX:PL (): Stewardship
Premium
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark One)

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 29, 2012

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report _______________________

For the transition period from ___________________to ____________________

Commission file number 000-54260

PAN AMERICAN LITHIUM CORP.
(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant’s name into English)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

Suite 110, 3040 N. Campbell Avenue
Tucson, Arizona USA 85719
(520) 989-0031
(Address of principal executive offices)

Andrew Brodkey, President,
Suite 110, 3040 N. Campbell Avenue
Tucson, Arizona USA 85719
(520) 989-0031
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class Name of each exchange on which registered
Not Applicable Not Applicable

Securities registered or to be registered pursuant to Section 12(g) of the Act.


Common Shares Without Par Value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Not Applicable
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

There were 55,003,592 common shares, without par value, issued and outstanding as of February 29, 2012.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[   ] YES     [X] NO

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[   ] YES     [X] NO

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] YES     [   ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[   ] YES     [   ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [   ] Accelerated filer [   ] Non-accelerated filer [X]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP [   ]
International Financial Reporting Standards as issued
by the International Accounting Standards Board [X]
Other [   ]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
[   ] Item 17     [   ] Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
[   ] YES     [X] NO

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
[   ] YES     [   ] NO


PART I

GENERAL

Certain statements in this annual report are forward-looking statements, which reflect the Company’s management’s expectations regarding the Company’s future growth, results of operations, performance and business prospects and opportunities including statements related to the development of existing and future property interests, availability of financing and projected costs and expenses. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. These forward-looking statements reflect management’s current views and are based on certain assumptions and speak only as of the date of this report. These assumptions, which include management’s current expectations, estimates and assumptions about current mineral property interests, the global economic environment, the market price and demand for lithium and other minerals and the Company’s ability to manage the Company’s property interests and operating costs, may prove to be incorrect. A number of risks and uncertainties could cause the Company’s actual results to differ materially from those expressed or implied by the forward-looking statements, including: (1) a downturn in general economic conditions, (2) a decreased demand or price of lithium and other minerals, (3) the inability to obtain equipment, materials, supplies or workforce, or other factors resulting in delays in the exploration or development of projects with respect to the Company’s property interests, (4) inability to locate and acquire additional property interests, (5) the uncertainty of government regulation and politics in North America and Chile regarding mining and mineral exploration, (6) the inability to obtain licenses, permits and governmental approvals necessary for exploration, or properties or the construction and operation of mining facilities, (7) potential negative financial impact from regulatory investigations, claims, lawsuits and other legal or regulatory proceedings and challenges, (8) uncertainties associated with negotiations, (9) assets of the Company may be nationalized, (10) the Company may be subject to increased taxation by foreign governments, and (11) other factors beyond the Company’s control.

There is a significant risk that such forward-looking statements will not prove to be accurate. Investors are cautioned not to place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future results. The Company disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additional information about these and other assumptions, risks and uncertainties are set out in the section entitled “Risk Factors” below.

Unless otherwise indicated, all dollar amounts referred to herein are in United States dollars. All references to CDN$ are to Canadian dollars and all references to US$ are to United States dollars.

EXPLANATORY NOTE REGARDING PRESENTATION OF FINANCIAL INFORMATION

The annual audited consolidated financial statements for the year ended February 29, 2012 are our first annual consolidated financial statements that have been prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board (‘‘IASB’’) and IFRS 1, First Time Adoption of International Financial Reporting Standards. See page 13 in our ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ included in this annual report on Form 20-F under ‘‘Item 5 — Operating and Financial Review and Prospects.’’

We have prepared the annual audited consolidated financial statements that comply with IFRS as described in the accounting policies in Note 4 of our annual audited consolidated financial statements. In preparing the annual audited consolidated financial statements, our opening statement of financial position was prepared at March 1, 2010, our date of transition to IFRS. Note 12 of our annual audited consolidated financial statements explains the principal adjustments we made in restating our Canadian generally accepted accounting principles (“GAAP”) statements of financial position as at March 1, 2010 and February 29, 2011 and our previously published Canadian GAAP consolidated statements of operations and comprehensive loss for the year ended February 29, 2011.

Please note that information relating to financial periods ended before February 29, 2011 were prepared in accordance with Canadian GAAP, which may not be comparable to IFRS.


ITEM 1                        Identity of Directors, Senior Management and Advisers

Not applicable.

ITEM 2                        Offer Statistics and Expected Timetable

Not applicable.

ITEM 3                        Key Information

A.                      Selected Financial Data

The following table sets out selected financial information prepared in accordance with IFRS as issued by ISAB for the year ended February 29, 2012 and February 28, 2011:



Year Ended
February 29, 2012
(audited)
Year Ended
February 28, 2011
(audited)
    ($)
Revenue Nil Nil
Expenses $1,494,737 $2,628,049
Net Loss $977,249 $2,741,536
Basic and Diluted Loss Per Share $0.021 $0.079



As at
February 29, 2012
(audited)
As at
February 28, 2011
(audited)
  ($) ($)
Mineral Properties 4,636,325 4,441,553
Total Assets 5,274,159 4,675,795
Long-Term Debt Nil Nil
Dividends Nil Nil

The following table sets out selected financial information prepared in accordance with Canadian GAAP for various periods from our inception to February 28, 2011:



Year Ended
February 28, 2010
(audited)
Year Ended
February 28, 2009
(audited)
Year Ended
February 29, 2008
(audited)
  ($) ($) ($)
Revenue Nil Nil Nil
Expenses 970,008 63,956 194,683
Net Loss 1,388,366 53,182 174,310
Basic and Diluted Loss Per Share 0.10 0.01 0.04



As at
February 28, 2010
(audited)
As at
February 28, 2009
(audited)
As at
February 29, 2008
(audited)
  ($) ($) ($)
Mineral Properties 3,727,127 139,775 138,915
Total Assets 5,706,053 237,236 163,400
Long-Term Debt Nil Nil Nil
Dividends Nil Nil Nil


The following is reconciliation from Canadian GAAP to U.S. GAAP:




Year Ended
February 28,
2010
(audited)
Year Ended
February 28,
2009
(audited)

Year Ended
February 29, 2008
(audited)
  ($) ($) ($)
Revenue per Canadian and US GAAP Nil Nil Nil
Expenses per Canadian and US GAAP 970,008 63,956 194,683
Net Loss per Canadian GAAP 1,388,366 53,182 174,310
Mineral properties written off 3,578,552 Nil 21,400
Mineral property and deferred acquisition costs expensed 524,439 860 117,515
Net loss per US GAAP 5,491,357 54,042 313,225
Basic and Diluted Loss Per Share per Canadian GAAP 0.10 0.01 0.04
Basic and Diluted Loss Per Share per US GAAP 0.39 0.01 0.08



As at
February 28, 2010
(audited)
As at
February 28, 2009
(audited)
As at
February 29, 2008
(audited)
  ($) ($) ($)
Mineral Properties per Canadian GAAP 3,727,127 139,775 138,915
Mineral property acquisition costs written off (3,578,552) (21,400) (21,400)
Mineral property costs expensed (148,575) (118,375) (117,515)
Mineral Properties – Foreign Exchange per Canadian GAAP - - -
Mineral Properties per US GAAP Nil Nil Nil
Total Assets per Canadian GAAP 5,706,053 237,236 163,400
Mineral property and deferred acquisition costs written off (3,727,127) (21,400) (21,400)
Mineral property costs expensed (262,825) (118,375) (117,515)
Total Assets per US GAAP Long-Term Debt per 1,716,101 97,461 24,485
Canadian and US GAAP Nil Nil Nil
Dividends per Canadian and US GAAP Nil Nil Nil

Please note that information relating to financial periods ended before February 29, 2011 were prepared in accordance with Canadian GAAP, which may not be comparable to IFRS.


Our selected financial information is presented in Canadian dollars. As of the closing on June 25, 2012, the exchange rate was 1.0292 CAD per 1USD, as stated by the Bank of Canada. The following are exchange rates for the high and low for the last six months, and the average annual rate for the last five financial years, using the last day of each month in each year: (Rates are stated as xCAD per 1USD and are as stated by the Bank of Canada)

High and low exchange rates observed - last six months
  High Low
June 2012 0.9837 0.9576
May 2012 1.0329 0.9858
April 2012 1.0204 0.9950
March 2012 1.0161 0.9965
February 2012 1.0158 0.9960
January 2012 1.0034 0.9713
December 2011 0.9948 0.9594

Average exchange rates - five years
Financial year ended: Average
February 29, 2012 0.9916
February 28, 2011 1.0204
February 28, 2010 1.1048
February 29, 2009 1.1151
February 28, 2008 1.0359

B.                      Capitalization and Indebtedness

Not applicable

C.                      Reasons for the Offer and Use of Proceeds

Not applicable

D.                      Risk Factors

Much of the information included in this report includes or is based upon estimates, projections or other forward-looking statements. Such forward-looking statements include any projections or estimates made by the Company and its management in connection with the Company’s business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect the Company’s current judgment regarding the direction of its business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. Except as required by law, the Company undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. The Company cautions readers of this report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements. In evaluating the Company, its business and any investment in its business, readers should carefully consider the following factors.

Risks Relating to the Early Stage of the Company and its Ability to Raise Capital

The Company is at a very early stage and its success is subject to the substantial risks inherent in the establishment of a new business venture.

The implementation of the Company’s business strategy is in a very early stage and subject to all of the risks inherent in the establishment of a new business venture. Accordingly, its intended business and prospective operations may not prove to be successful in the near future, if at all. Any future success that the Company might enjoy will depend upon many factors, many of which are beyond the Company’s control, or which cannot be predicted at this time, and which could have a material adverse effect upon the Company’s financial condition, business prospects and operations and the value of an investment in the Company.


The Company has no operating history and its business plan is unproven and may not be successful.

Although the Company' s business formed in September 2006, it has no commercial operations. None of its projects have proven or provable reserves, are built, or are in production. The Company has not licensed or sold any mineral products commercially and do not have any definitive agreements to do so. The Company has not proven that its business model will allow it to generate a profit.

The Company has suffered operating losses since inception and it may not be able to achieve profitability.

The Company had an accumulated deficit of $4,868,788 as of February 29, 2012 and it expects to continue to incur significant discovery and development expenses in the foreseeable future related to the completion of feasibility, development and commercialization of its projects. As a result, it will be sustaining substantial operating and net losses, and it is possible that it will never be able to sustain or develop the revenue levels necessary to attain profitability.

The Company may have difficulty raising additional capital, which could deprive it of necessary resources.

The Company expects to continue to devote significant capital resources to fund exploration and development of its properties. In order to support the initiatives envisioned in its business plan, it will need to raise additional funds through public or private debt or equity financing, collaborative relationships or other arrangements. Its ability to raise additional financing depends on many factors beyond its control, including the state of capital markets, the market price of its common stock and the development or prospects for development of competitive technology or competitive projects by others. Sufficient additional financing may not be available to it or may be available only on terms that would result in further dilution to the current owners of the Company' s common stock.

The Company expects to raise additional capital during 2012 but it does not have any firm commitments for funding. If it is unsuccessful in raising additional capital, or the terms of raising such capital are unacceptable, it may have to modify its business plan and/or significantly curtail its planned activities. If the Company is successful raising additional capital through the issuance of additional equity, its investor' s interest will be diluted.

There are substantial doubts about the Company' s ability to continue as a going concern and if it is unable to continue its business, its shares may have little or no value.

The Company' s ability to become a profitable operating company is dependent upon its ability to generate revenues and/or obtain financing adequate to explore and develop its properties. Achieving a level of revenues adequate to support its cost structure has raised substantial doubts about its ability to continue as a going concern. The Company plans to attempt to raise additional equity capital by issuing shares and, if necessary through one or more private placement or public offerings. However, the doubts raised relating to the Company' s ability to continue as a going concern may make its shares an unattractive investment for potential investors. These factors, among others, may make it difficult to raise any additional capital.

Risks Related To The Company' s Business

Because of the unique difficulties and uncertainties inherent in mineral exploration ventures, the Company faces a high risk of business failure.

Potential investors should be aware of the difficulties normally encountered by mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration programs that the Company intends to undertake on its properties and any additional properties that the Company may acquire. These potential problems include unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The expenditures to be made by the Company in the exploration of its properties may not result in the discovery of mineral deposits. Any expenditures that the Company may make in the exploration of any other mineral property that it may acquire may not result in the discovery of any commercially exploitable mineral deposits. Problems such as unusual or unexpected geological formations and other conditions are involved in all mineral exploration and often result in unsuccessful exploration efforts. If the results of the Company' s exploration do not reveal viable commercial mineralization, the Company may decide to abandon some or all of its property interests.

Because of the speculative nature of the exploration of mineral properties, there is no assurance that the Company' s exploration activities will result in the discovery of any quantities of mineral deposits on its current properties or any other additional properties the Company may acquire.


The Company intends to continue exploration on its current properties and the Company may or may not acquire additional interests in other mineral properties. The search for mineral deposits as a business is extremely risky. The Company can provide investors with no assurance that exploration on its current properties, or any other property that the Company may acquire, will establish that any commercially exploitable quantities of mineral deposits exist. Additional potential problems may prevent the Company from discovering any mineral deposits. These potential problems include unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. If the Company is unable to establish the presence of mineral deposits on its properties, its ability to fund future exploration activities will be impeded, the Company will not be able to operate profitably and investors may lose all of their investment in the Company.

The potential profitability of mineral ventures depends in part upon factors beyond the control of the Company and even if the Company discovers and exploits mineral deposits, the Company may never become commercially viable and the Company may be forced to cease operations.

The commercial feasibility of an exploration program on a mineral property is dependent upon many factors beyond the Company' s control, including the existence and size of mineral deposits in the properties the Company explores, the proximity and capacity processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental regulation. These factors cannot be accurately predicted and any one or a combination of these factors may result in the Company not receiving an adequate return on invested capital. These factors may have material and negative effects on the Company' s financial performance and its ability to continue operations.

Exploration, development and exploitation activities are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing a material adverse effect on us.

Exploration and exploitation activities are subject to federal, provincial, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the ground and the discharge of materials into the environment. Exploration and exploitation activities are also subject to federal, provincial, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment.

Environmental and other legal standards imposed by federal, provincial, state or local authorities may be changed and any such changes may prevent us from conducting planned activities or may increase our costs of doing so, which would have material adverse effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Any laws, regulations or policies of any government body or regulatory agency may be changed, applied or interpreted in a manner which could materially alter and negatively affect our ability to carry on our business.

Title to mineral properties and related water rights is a complex process and the Company may suffer a material adverse effect in the event one or more of its property interests are determined to have title deficiencies.

Acquisition of title to mineral properties and related water rights is a very detailed and time-consuming process. Title to, and the area of, mineral properties may be disputed. Although the Company has obtained a title opinion in respect to its Chilean salar property interests, the Company cannot give an assurance that title to such property will not be challenged or impugned. Mineral properties sometimes contain claims or transfer histories that examiners cannot verify. A successful claim that the Company does not have title to one or more of its properties or lack appropriate water rights could cause the Company to lose any rights to explore, develop and mine any minerals on that property, without compensation for its prior expenditures relating to such property.

One of the Company' s material properties is located in Chile, and any material change to the laws of Chile affecting mineral properties may have a material adverse effect on the Company.

Chile is a developing country. As with any developing country, the Company will be subject to certain risks which may result from changes in Chilean law and politics, including expropriation, currency fluctuation and possible political instability which may result in the impairment or loss of mineral concessions or other mineral rights. Changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. Obtaining legal and accounting services in under-developed countries is difficult and may make implementation of proper controls difficult and assessment of the Company' s legal entitlements less certain. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and mine safety.


Chile' s status as a developing country may make it more difficult for the Company to obtain any required exploration, development and production financing for its projects. The Company does not maintain political risk insurance.

Current global financial conditions may adversely affect the Company.

Market events and conditions, including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions, could impede the Company' s access to capital or increase the cost of capital. These unprecedented disruptions in the current credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies. These disruptions could, among other things, make it more difficult for the Company to obtain capital, or increase its cost of obtaining capital and financing for its operations. The Company' s access to additional capital may not be available on terms acceptable to it or at all.

The Company is also exposed to liquidity risks in meeting its operating and capital expenditure requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the ability of the Company to obtain loans and other credit facilities in the future and, if obtained, on terms favourable to the Company. If these increased levels of volatility and market turmoil continue, the Company' s operations could be adversely impacted and the trading price of the common stock could be adversely affected. As a result of current global financial conditions, numerous financial institutions have gone into bankruptcy or have been rescued by government authorities. As such, the Company is subject to the risk of loss of its deposits with financial institutions that hold the Company' s cash.

Mineral concessions under Chilean law do not automatically vest title to lithium.

Under Chilean mining law, for mining concessions granted post-1979, lithium and certain other metals are technically reserved to the state of Chile for the Chilean National Nuclear Commission. As a consequence, and since the Company' s current mineral concessions all post-date 1979, the Company must apply through the Ministry of Mines for a special operating permit that allows it to process and export lithium products, or rely on some other provision of the Chilean Mining Code to produce lithium. A special operating permit is authorized and must be signed by the President of Chile. Although the Company is not aware of any current lithium project in Chile which upon application has not received this permit, the risk still remains that the application which may be submitted by the Company for this purpose could be rejected. In this event the failure to secure a lithium operating permit could materially and adversely affect the ability of the Company to carry on its business.

Because the Company' s property interests may not contain mineral deposits and because it has never made a profit from its operations, the Company' s securities are highly speculative and investors may lose all of their investment in the Company.

The Company' s securities must be considered highly speculative, generally because of the nature of its business and its stage of operations. The Company currently has exploration stage property interests which may not contain mineral deposits. The Company may or may not acquire additional interests in other mineral properties but, except as stated herein, the Company does not have plans to acquire rights in any specific mineral properties as of the date of this report. Accordingly, the Company has not generated significant revenues nor has it realized a profit from its operations to date and there is little likelihood that the Company will generate any revenues or realize any profits in the short term. Any profitability in the future from the Company' s business will be dependent upon locating and exploiting mineral deposits on the Company' s current properties or mineral deposits on any additional properties that the Company may acquire. The likelihood that any mineral properties that the Company may acquire or have an interest in will contain commercially exploitable mineral deposits is extremely remote. The Company may never discover mineral deposits in respect to its current properties or any other area, or the Company may do so and still not be commercially successful if the Company is unable to exploit those mineral deposits profitably. The Company may not be able to operate profitably and may have to cease operations, the price of its securities may decline and investors may lose all of their investment in the Company.


If we establish the existence of a mineral resource on any of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the resource, and our business could fail.

If we do discover mineral resources in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to explore and fully establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. Although we may derive substantial benefits from the discovery of a major deposit, there can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail.

Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the event of a cave-in or similar occurrence, our liability may exceed our resources, which would have an adverse impact on our company.

Mineral exploration, development and production involves many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our operations will be subject to all the geological, technical and operating hazards and risks inherent in the exploration for mineral resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence would have a material adverse impact on our company.

As the Company faces intense competition in the mineral exploration and exploitation industry, the Company will have to compete with the Company' s competitors for financing and for qualified managerial and technical employees.

The Company' s competition includes large established mining companies with substantial capabilities and with greater financial and technical resources than the Company. As a result of this competition, the Company may have to compete for financing and be unable to acquire financing on terms it considers acceptable. We also compete with other mineral resource exploration companies for financing from a limited number of investors that are prepared to make investments in mineral resource exploration companies. The presence of competing mineral resource exploration companies may impact on our ability to raise additional capital in order to fund our exploration programs if investors are of the view that investments in competitors are more attractive based on the merit of the mineral properties under investigation and the price of the investment offered to investors. We also compete with other mineral resource exploration companies for available resources, including, but not limited to, qualified managerial and technical employees (such as professional geologists), camp staff, helicopter or float planes, mineral exploration supplies and drill rigs. If we are unable to successfully compete for financing or for qualified employees, our exploration programs may be slowed down or suspended, which may cause us to cease operations as a company.

The Company may be exposed to environmental and occupational safety risks.

The Company' s operations use metals and other materials that may be hazardous if not handled appropriately. Inappropriate procedures or defective equipment could result in environmental damage or health risks resulting in chronic health conditions or death. The Company could be exposed to litigation as a result of any environmental or occupational safety breaches.

The Company' s future is dependent upon its ability to obtain financing and if the Company does not obtain such financing, the Company may have to cease its exploration activities and investors could lose their entire investment.

There is no assurance that the Company will operate profitably or will generate positive cash flow in the future. The Company requires additional financing in order to proceed with the exploration and development of its properties. The Company will also require additional financing for the fees it must pay to maintain its status in relation to the rights to the Company' s properties and to pay the fees and expenses necessary to operate as a public company. The Company will also need more funds if the costs of the exploration of its mineral claims are greater than the Company has anticipated. The Company will require additional financing to sustain its business operations if it is not successful in earning revenues. The Company will also need further financing if it decides to obtain additional mineral properties. The Company currently does not have any arrangements for further financing and it may not be able to obtain financing when required. The Company' s future is dependent upon its ability to obtain financing. If the Company does not obtain such financing, its business could fail and investors could lose their entire investment.


The Company' s directors and officers are engaged in other business activities and accordingly may not devote sufficient time to the Company' s business affairs, which may affect its ability to conduct operations and generate revenues.

The Company' s directors and officers are involved in other business activities and serve as officers and directors of other mineral exploration companies. As a result of their other business endeavours, the directors and officers may not be able to devote sufficient time to the Company' s business affairs, which may negatively affect its ability to conduct its ongoing operations and its ability to generate revenues. In addition, the management of the Company may be periodically interrupted or delayed as a result of its officers' other business interests.

Risks Relating to the Company' s Common Stock

There are a large number of unexercised share purchase warrants and stock options outstanding. If these are exercised, your interest in the Company will be diluted.

As of June 25, 2012, there were 57,749,783 shares of the Company' s common stock issued and outstanding. If all of the share purchase warrants and options that were issued and outstanding as of that date were to be exercised, including warrants and options that are not yet exercisable, the Company would be required to issue up to an additional 15,281,773 shares of the Company' s common stock, or approximately 26% of the Company' s issued and outstanding shares of common stock on June 25, 2012. This would substantially decrease the proportionate ownership and voting power of all other stockholders. This dilution could cause the price of the Company' s shares to decline and it could result in the creation of new control persons. In addition, the Company' s stockholders could suffer dilution in the net book value per share.

A decline in the price of the Company' s common stock could affect its ability to raise further working capital and adversely impact its ability to continue operations.

A prolonged decline in the price of the Company' s common stock could result in a reduction in the liquidity of its common stock and a reduction in its ability to raise capital. Because a significant portion of the Company' s operations have been and will be financed through the sale of equity securities, a decline in the price of its common stock could be especially detrimental to the Company' s liquidity and its operations. Such reductions may force the Company to reallocate funds from other planned uses and may have a significant negative effect on the Company' s business plan and operations, including its ability to develop new products and continue its current operations. If the Company' s stock price declines, it can offer no assurance that the Company will be able to raise additional capital or generate funds from operations sufficient to meet its obligations. If the Company is unable to raise sufficient capital in the future, the Company may not be able to have the resources to continue its normal operations.

Because the Company can issue additional shares of common stock, purchasers of its common stock may incur immediate dilution and may experience further dilution.

The Company is authorized to issue an unlimited number of shares of common stock, of which 57,749,783 shares were issued and outstanding as of June 25, 2012. The Company' s board of directors has the authority to cause the Company to issue additional shares of common stock without consent of any of the Company' s stockholders. Consequently, the stockholders may experience more dilution in their ownership of the Company' s stock in the future. At its annual and special shareholders' meeting held on August 5, 2011, the Company' s shareholders approved the alternation of the Company' s Notice of Articles and Article to amend and increase the authorized share structure of the Company to authorize an unlimited number of a new class of preferred shares without par value, issuable in series, with special rights and restrictions applicable to the preferred shares which permit the directors to affix specific rights and restrictions to each series if, as and when issued.

The Company' s stock is a penny stock. Trading of its stock may be restricted by the Securities and Exchange Commission' s penny stock regulations which may limit a stockholder' s ability to buy and sell its stock.

The Company' s common stock is expected to trade at a price substantially below $5.00 per share, which will make it a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.


The Company' s securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors" . The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer' s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer' s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser' s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade the Company' s securities. The Company believes that the penny stock rules discourage investor interest in and limit the marketability of its common stock.

FINRA sales practice requirements may also limit a stockholder's ability to buy and sell the Company' s stock.

In addition to the "penny stock" rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority ("FINRA" ) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer' s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy the Company' s common stock, which may limit your ability to buy and sell the Company' s stock.

An investor' s ability to trade the Company' s common stock may be limited by trading volume.

A consistently active trading market for the Company' s common stock may not occur on the OTC Bulletin Board. A limited trading volume may prevent the Company' s shareholders from selling shares at such times or in such amounts as they may otherwise desire. Further, while the Company' s common shares are traded on the TSX Venture Exchange, its common shares have historically been sporadically or thinly traded on the TSX Venture Exchange.

The Company has not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

Recent federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors independence, audit committee oversight and the adoption of a code of ethics. While the Company' s board of directors has formed an audit committee of which the majority are independent directors, and has adopted a set of corporate governance guidelines, the Company has not adopted a Code of Ethics and Business Conduct, and other relevant corporate governance measures and, since its securities are not listed on a national securities exchange or NASDAQ, the Company is not required to do so. It is possible that if the Company were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to its senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind its current lack of corporate governance measures in formulating their investment decisions.


Because the Company will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.

The Company has never paid dividends on its common stock and it does not intend to do so in the foreseeable future. The Company intends to retain any future earnings to finance its growth. Accordingly, any potential investor who anticipates the need for current dividends from his or her investment should not purchase the Company’s common stock.

ITEM 4                        Information on Company

A.                      History and Development

Name

The Company’s legal and commercial name is “Pan American Lithium Corp.”.

Principal Office

The Company’s head office is located at Suite 110, 3040 N. Campbell Avenue, Tucson, Arizona USA 85719.

The Company’s telephone number is (520) 989-0031 and facsimile number is 520 623-3326.

Corporate Information

The Company was incorporated under the laws of the Province of British Columbia on September 18, 2006. On January 20, 2010, the Company effected a name change to Pan American Lithium Corp. The Company is a mineral exploration company engaged in the business of acquiring, exploring and evaluating lithium properties in Latin America. The Company is currently listed for trading on the TSX Venture Exchange (the “Exchange”) under the symbol “PL” and has registered its common shares under Section 12(g) of the United States Securities Exchange Act of 1934 by filing a Form 8-A on January 26, 2011 with the United States Securities and Exchange Commission. It is listed under the symbol “PALTF” on both the OTCQB and OTCBB Exchanges.

The Company’s initial public offering in Canada was completed on July 28, 2009 and the Company has been listed for trading on the TSX Venture Exchange since July 28, 2009.

Important Events

On December 4, 2009, we acquired 99% of South American Lithium Company S.A. Cerrada (“Salico”) which, in turn, held interests in a total of nine lithium properties in Chile as depicted in the table below. Salico obtained its rights in the concessions at these properties from Sociedad Gareste Ltda. (“Gareste”), a Chilean limited liability company. We acquired our 99% interest in Salico in connection with the closing of an Amended and Restated Securities Exchange Agreement dated October 18, 2009. Pursuant to the terms of the Amended and Restated Securities Exchange Agreement, and at the closing thereof, we purchased 99% of the interests of Salico from the owners in consideration for us issuing 10,494,000 common shares to such holders at a fair value of $3,148,200. Acquisition costs also included $184,000 which is the fair value of 613,333 finders shares issued. We also agreed to pay US$50,000 to the former holder of the property interests on signing to cover costs incurred in connection with the formation and organization of Salico and a monthly fee of US$25,000 to compensate general and administrative costs of the former holder from the execution date to the closing date. The closing of the agreement occurred on December 4, 2009.

On February 14, 2011, we entered into agreements with Garesteto acquire interests through joint ventures in two new lithium brine projects—the Salar de Maricunga and the Llanta Project, and additional rights via a purchase agreement in one existing brine project—the Salar de Pedernales—all in Atacama Region III, Chile. The details of these transactions are described below.

On September 14, 2011, the Company closed a private placement with POSCO Canada, Ltd. (“POSCAN”). The Company issued 10,522,090 common shares to POSCAN at a price of CDN$0.136 per common share, resulting in gross proceeds to the Company of $1,431,004. Following the closing, POSCAN held 19.87% of the issued and outstanding common shares.

The Company granted POSCAN a right until expiry on December 31, 2012 to construct a production or R&D facility, at POSCAN’s expense, for the extraction of lithium or other minerals from brines at one of the Company's Chilean brine properties, on terms to be mutually agreed upon. If POSCAN elects not to exercise the right by this date, POSCAN’s pre-approval rights on certain corporate actions discussed below will terminate and the Company will not be required to nominate a POSCAN nominee to the Company’s board at future annual general meetings.


In connection with the closing, the Company increased the size of its board to four directors and appointed Mr. Hyundae Kim as a director as a nominee of POSCAN. Mr. Kim’s appointment, including his Personal Information Form, is currently being reviewed by the TSXV. The Company has agreed to nominate the POSCAN nominee to its board at annual general meetings so long as POSCAN owns no less than 10% of the Company’s issued and outstanding common shares and so long as POSCAN exercises its right to build the pilot plant on or prior to December 31, 2012. During the period in which the nominee is appointed to the Company’s board, the Company will not be permitted to carry out certain corporate actions without the prior approval of the nominee, including certain corporate reorganizations, a sale of all assets, a change of business, the alteration of the Company’s constating documents (with the exception of the creation of a class or series of preferred shares) and the Company incurring debt that exceeds $1 million (except non-recourse project financing, the issuance of convertible debt or preferred securities, or debt owed to trade creditors or to officers, directors and consultants for unpaid salaries and expenses).

The Company also granted POSCAN a pre-emptive right to purchase a pro rata share of any new securities offered by the Company for such period of time that POSCAN owns no less than 10% of the Company’s issued and outstanding common shares. Under such circumstances, POSCAN is entitled to participate in such new offerings to maintain its percentage of common shares. Certain issuances are exempted from the pre-emptive right such as securities issued to insiders, consultants and employees for compensation purposes, the issuance of common shares on the exercise of securities outstanding on the closing date of the financing, the issuance of securities for the settlement of certain debts, the issuance of securities to brokers, agents and finders in connection with any financings and the issuances of securities in connection with business combinations.

On September 23, 2011, the Company amended its Notice of Articles to authorize a class of preferred shares without par value. Following the amendment, the Company is authorized to issue an unlimited number of common shares without par value and an unlimited number of preferred shares without par value. The preferred shares may be issued in series on such terms as determined by the directors of the Company.

On November 10, 2011, the Company engaged Zone Capital Partners, LLC (“Zone Capital”) to provide financial consulting services for a period of six months in exchange for compensation of $5,000 per month and issuance of 300,000 3-year warrants subject to TSXV approval. The Company amended the terms of the agreements to provide up to one million restricted common shares of the Company in lieu of any warrants. The common shares will be delivered to Zone on a bi-monthly basis by dividing (a) $20,000 (for each bi-monthly period); by (b) the closing price of the Shares on the Exchange on the last trading day of each bi-monthly period, applying the maximum discount allowable under TSXV policies. The Shares issued under the agreement will be subject to a 4-month hold period in accordance with the policies of the TSXV.

On January 16, 2012, the Company closed a private placement with Andrew Brodkey, the Company’s President, Chief Executive Officer and Director. The Company issued 1,000,000 common shares to Mr. Brodkey at a price of CDN$0.06 per common share, resulting in gross proceeds to the Company of $60,000.

B.                      Business Overview

General

We currently has one set of lithium exploration properties consisting of interests or rights to acquire interests in eleven lithium brine salars in Atacama Region III, Chile, and an option to acquire an indirect interest in the Cerro Prieto geothermal brine project in Baja California Norte, Mexico. We have not yet determined whether our property interests contain reserves that are technically or economically recoverable. The recoverability of amounts shown for resource properties and related deferred exploration expenditures are dependent upon the discovery of economically recoverable reserves, confirmation of our interest in the underlying mineral claims, our ability to obtain necessary financing to complete the development of the resource at such property and upon future profitable production or proceeds from the disposition thereof.

If payments to maintain exploration concessions are not actually made in a timely manner, the concessions technically expire but titles are not automatically lost. Chilean law provides for a grace period to make the payments, which include some penalty interest, but (provided there has been no overstaking) titles are not divested from the holder until and unless the concessions are taken to auction by the government. To the extent that the mineral concession tables below reflect that titles have reached an expiration date, the Company has taken steps to pay and renew such titles, or has otherwise taken steps to convert to manifestacion and mensura (described below) any concessions that have been overstaked by third-parties. If the Company is unable to renew its mineral claims, it may have a material adverse affect on the Company' s operations.


CHILEAN SALARS - ATACAMA REGION III,

General

The existing portfolio of rights in the eleven properties includes surface brine lakes or surface flow at Laguna Verde, Laguna Brava and Rio de la Sal /Pedernales, and eight additional lithium brine salar projects, all located in the mineral-rich Atacama Region III. The rights in these lithium projects cover a cumulative area in excess of 20,000 hectares. Nine of these properties are accessible by passenger car and are adjacent to serviceable roads, while two of the salars (Salar de Wheelwright and Lagunas Jilgueros) are primarily accessible by passenger car, but require a short (under 5 km) traverse, using four wheel drive vehicles, from serviceable roads. It is believed that the salars collectively carry the potential to host lithium in three distinct brine types: surface water, shallow and deep brines. None of these projects is past the exploration stage, and we have not yet identified reserves at any of these properties.

The following two maps depict the locations of and access to each of the nine properties in Chile Atacama Region III in which Salico owns or has rights in mineral concessions.


We consider only the Laguna Verde property to be material as of the date of this filing.

Laguna Verde property

Location and Access

The Laguna Verde property is depicted on Property Location Map 1 above and the property map below, and at this time is the only property considered to be material by us.


The Laguna Verde property is accessible via paved International Highway (“Camino Internacional”) C31 from Copiapo (the capital of Atacama Region III) leading northeasterly and easterly 161 kilometers to the border station at Maricunga, then south and east 80 kilometers to Laguna Verde. The roads are all well maintained by the local provincial authorities and accessible via 2 wheel drive vehicles. Travel time from Copiapo to Laguna Verde is about 4 hours. Although lithium has been identified in both the brines and the sediments in the Laguna Verde salar, there has been no known production. There is no record or visible sign of production of any salts from either the brines or the salar sediments at this property. There are no physical improvements at the site other than a small stone structure adjacent to a geothermal bathing spring on the periphery of the surface lake.

Titles and Nature of Concessions; Royalties

Pertinent data relating to the nature of the mineral concessions comprising Laguna Verde is contained in the following table:

MINERAL CONCESSION DATA—LAGUNA VERDE (UTM coordinates—WGS84 Datum)


The Laguna Verde Project comprises 13 mineral exploration claims, which are pedimentos, totalling 3,400 hectares. The pedimentos were staked in April 2009, constituted earliest in November of 2009, and are valid for two years. The pedimentos are maintained by yearly payments of approximately U.S. $3.00 per hectare, which in the aggregate total US$10,166 per year, the responsibility for which belongs to Salico and ultimately our company. At the end of two years, the claims must be converted to exploitation claims. Our intent is to pay all annual fees and hold the concessions in exploration status for the complete period allowed under Chilean law. The claims protect the claimant as to all mineral rights, and a right of surface access upon agreement with the surface owner. As the surface owner at Laguna Verde is the state of Chile, we, through Salico, will solicit a surface rights agreement with the government of Chile at the time of and in connection with a feasibility study.

In connection with the closing of the December, 2009 acquisition of Laguna Verde and the other 8 properties, Salico granted a 2% net smelter return royalty to the vendor on future production from Laguna Verde, payable following commencement of commercial production, to a maximum of US$6 million. Prior to commencement of commercial production at Laguna Verde, Salico may re-purchase one-half of this net smelter return royalty (1%) for US$2 million.

Geology and Mineralization

Laguna Verde has the following physical characteristics:

  1. Altitude 4350 m
  2. Catchment basin size 1075 km2
  3. Lake surface area 15 km2
  4. Annual Precipitation 170 mm/yr
  5. Evaporation potential 2000 mm/yr
  6. Water temperature (surface) 1oC

The catchment basin draining into Laguna Verde is dominated entirely by young andesitic and dacitic volcanic rocks. Young volcanic cones and vents surround the entire basin, and in most instances constitute the divides separating the basin from other valleys and nearby salars. Elevations surrounding Laguna Verde reach 6,800 meters and more. The lake is fed by active hot springs, and is thought to be of geothermal origin. The volcano Ojo del Salado forms a significant and commanding divide to the south. The high elevations around the basin are all volcanic cones and vents. Figure 1 is illustrative of the young volcanism at Laguna Verde.


Figure 1. View of Volcanic Cones at Laguna Verde

Lithium and associated elements (potassium, magnesium, boron, and sodium) occur in salar brines as complex salts, fluorides, and sulfates. Lithium also occurs as lithium dioxide. The high solubility of lithium allows for dispersion in water of the ion Li+.

Work completed at Laguna Verde

Laguna Verde was examined in detail by the French Institut de Recherche pour le Development (IRD) in 1995 as part of a program to evaluate the high Andes salars for potable water. Their sample results and chemistry (in Mg/liter) are presented below:

Smpl PH Cl SO4 B Si Na K Li Ca Mg
Lav 1 7.56 92500 13800 513 13.3 57700 5400 204 533 2380
(8+2+3)E 7.89 90800 14700 494 13.7 56400 7660 318 441 1960
Lav-8E 7.79 83400 21600 674 16.2 58400 6400 229 674 532
Lav-3E 7.63 100000 6500 594 14.1 50200 7260 453 2210 5140
Lav-6E 8.98 84800 20200 358 18.3 61000 6360 186 9.23 32.3
Lav-7E 9.77 75500 21200 562 31.5 60000 7200 185 0.526 1.80
Lav-2E 10.1 41200 23300 396 54.7 62100 5950 155 0.372 1.33

In March of 2010, we undertook a work program at Laguna Verde to determine the depth and volume of the surface lake. Based on bathymetric measurements taken from a Zodiac boat, water depths vary from 0.5m to in excess of 60m, and the mean lake depth is 33m. The lake is perennial and water levels vary seasonally by only a half meter or so, judging by stone wall construction and thermal spring usage by travelers through the area.

We initiated a comprehensive lake brine sampling program on our Laguna Verde Project in April 2010. This sampling program, conducted under the supervision of John Hiner, L.P. Geo, an independent professional geologist, entailed the collection of brine lake water samples from surface and at various depths on a pre-established grid at 500 m or less designed in consultation with Mr. Hiner. Access to sample points was achieved using a 4m Zodiac boat. Grid sampling across the lake was undertaken for the purpose of determining lateral and vertical distribution of lithium and other elements in the lake waters. The sample points were located by GPS and samples were then taken at surface and at depth.

Samples taken at depth were collected using a Van Dorn Vertical Water Sampling Bottle – Type Beta Plus. This device is a weighted elongated cylinder with valves at the top and bottom that allow the device to pass through water to the desired depth. On reaching the targeted depth a weighted control is sent down the line and on reaching the device triggers the closure of the valves, thereby collecting an “undisturbed water sample” at depth. Due to high winds and rough water collection at depths greater than 15m were not possible due to the angle on the sampler control lines caused by wind drifting which made closing the sampler valves difficult.

Sample Preparation, Analyses and Security

For the grid sample program, water samples were collected in sterilized plastic bottles. The bottles were labeled with felt marker pen, double-rinsed and submerged to collect a sample with as little entrained oxygen as possible. None of the samples were acidized, as all of the waters had pH levels above 7.0, and because the high solubility of lithium in water renders such buffering unnecessary. Sample locations were noted by GPS and noted in field notebook. Where possible, photographs of sample sites were taken.


No employee, officer, director, or associate of our company or Salico was involved in the selection of samples to be taken, the collection of the samples, or the preparation of the samples. For the grid sampling program, independent contractors were interviewed, selected, and trained by Mr. Hiner, who was on site during sample collection. The samples remained in the possession of Mr. Hiner until delivered to a common carrier overnight shipping facility in Copiapo, Chile

Brine samples were collected in sterilized plastic bottles under the supervision of Mr. Hiner, sealed on site, and shipped by common carrier to an independent certified laboratory--ALS Chemex Environmental laboratories in Burnaby, British Columbia, Canada, for analysis. The samples were analyzed directly as submitted by inductively coupled plasma-mass spectrometry (“ICP”). Any over limit results were subsequently reanalyzed by ICP methods using higher limit standards. Two control samples consisting of distilled water were inserted into the sample stream. No geochemical lithium standard is yet available commercially in either liquid or solid form.

A total of 78 brine samples were collected at Laguna Verde, two of which were control samples of distilled water. All samples were tested using ICP for total dissolved solids and a suite of 30 metals. Sulphates were analyzed via a turbid metric method.

The average chemical composition (in mg/l) of elements of interest at Laguna Verde is shown in the following table.



Element/Metal

Detection Limits
(mg/l)
Laguna Verde
Average
Grade
Standard
Deviation
Boron mg/l 10 522 15
Calcium mg/l 5 899 24
Lithium mg/l 1 213 14
Magnesium mg/l 10 2545 76
Potassium mg/l 200 4881 299
Sodium mg/l 200 64887 3742
Total Dissolved Solids 200 194052 8042
Sulfates (SO4) 50 15985 569
Density   1.14 0

An analysis of the values for lithium, magnesium and potassium throughout the lake and at depth indicated that the standard deviation of no more than 6% of the average grade at Laguna Verde. The density of the lake waters was found to be constant from surface to a depth of 15m at 1.14 and consequently there did not appear to be any notable increase amount of dissolved solids or grades of metals with depth.

The results of this sampling program compare favorably with water chemistry results taken by IRD in the 1990s, supporting the proposition that water chemistry is consistent over time.

Laguna Verde has no known reserves reportable under US securities laws, and the programs carried out on the property to date have been simply exploratory in nature. However, on June 14, 2010, we filed on SEDAR a National Instrument 43-101 technical report, compliant with Canadian law, for an inferred resource estimates for our Laguna Verde property. The inferred resource estimate was determined using a volumetric calculation for water volume in the lake, and calculations of contained metals and elements based on average grades. The following criteria were utilized:

  • The surface area of the lake was established by both polygonal method, and confirmed by planimetric measurement to be 15.2 square kilometers.
  • The mean average depth of the lake was determined by a bathymetric survey using a weighted rope line to be 33 meters with a maximum measured depth of 60 meters.
  • Based on the results of 78 samples, lithium and potassium values are consistent throughout the lake. Average grades have a standard deviation of 14 mg/l for lithium and 299 mg/l for potassium, a difference of +/- 7%. The brines are uniformly consistent based on available data. Therefore the average grades for Li of 213 mg/l and K of 4881 mg/l were used over the total volume.
  • Spacing of sample points were on a grid at an interval of 500 m between points. At each sample point vertical samples were taken.

The formula used for calculating lithium carbonate equivalent is 1 tonne of lithium metal equals 5.285 tons of lithium carbonate. The formula used for calculating potash equivalent is 1 tonne of potassium metal equals 1.910 tonnes of potassium chloride. Industrial markets ordinarily trade lithium and construct off take agreements as lithium carbonate equivalent. Likewise, potassium chloride is generally the stated media for both spot sales and off take agreements. It is therefore common in initial resource evaluations by industrial mineral companies to utilize these terms as part of the measurement of tonnages of product under evaluation.

The inferred resource estimate at the Laguna Verde surface lake was computed at an average grade of 212.40 mg/litre to be 512,960 tons of lithium carbonate equivalent, and at an average potassium grade of 4,881 mg/litre computed to be 4,223,134 tons of potassium chloride equivalent. For more information, see the technical report filed on SEDAR on June 14, 2010. Cautionary Note to U.S. Investors-The United States Securities and Exchange Commission permits U.S. mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We use certain terms in our press releases, on its website, and herein such as "measured," "indicated," or "inferred" "resources, which the SEC guidelines strictly prohibit U.S. registered companies from including in their filings with the SEC. U.S. investors are urged to consider closely the disclosure in this Annual Report.

Exploration Status, Costs and Budget

We have completed our initial exploration efforts, described above, which have resulted in the calculation of a Canadian law-compliant inferred resource estimate at Laguna Verde for contained tonnes of both lithium carbonate equivalent and potassium chloride equivalent. Costs incurred in connection with this exploration and calculation totaled approximately US$185,000.

The sequential phases of investigation for Laguna Verde are (1) a scoping study to select the optimal processes through which to recover lithium and other metals from the lake brines, followed by (2) a pre-feasibility study to evaluate preliminary economics for the selected process methodology, and (3) a full, bankable feasibility study accompanied by final exploration and reserve calculations, initial process engineering and permitting. Estimated costs for each of these phases are as follows:

  • Scoping Study—US$300,000
  • Pre-Feasibility Study—US$1,700,000
  • Full Feasibility, Permitting, etc.—US$8 million

Upon successful permitting and production of a bankable feasibility study, we anticipate that, subject to available financing, we would engineer and construct the facilities and improvements reflected by the feasibility study.

On September 29, 2010 and October 4, 2010, we closed two private placement financing for total gross proceeds of CDN$814,931. On June 16, 2011, we completed a private placement financing for total gross proceeds of $611,500. On September 14, 2011, we closed a private placement for total gross proceeds of $1,431,004. On January 16, 2012, we closed a private placement for total gross proceeds of $60,000. We intend to use some portion of the proceeds from these financings for scoping and the commencement of pre-feasibility studies at Laguna Verde, and the additional exploration, but this work has yet to commence.

Improvements, Infrastructure and Utilities

Road access to the Laguna Verde salar property is reflected in the maps found above.

Power transmission lines, on the Chilean electric power grid, are closest at Maricunga, and on a straight-line are approximately 50 km from the project. Should the costs to extend power lines to the property prove not to be economical, we would either (1) import diesel fuel which can be stored on-site in tanks, (2) import compressed natural gas which can be stored on-site in tanks, or (3) investigate the use of solar power which can be generated on site.

Water-containing lithium brines are expected to be drawn directly from the Laguna Verde Lake as operational process feed. To the extent that fresh water is needed for operations, we will investigate during the scoping study the use of a reverse osmosis/membrane circuit, vapor condensers, or other technology to generate fresh water while simultaneously upgrading the metal concentration of the brines.


Permitting and Environmental Issues at Laguna Verde

The Laguna Verde project is expected to have minimal impact on any existing community or significant environmental parameter. No towns or populated areas fall within the boundaries of the property and the nearest significant community is Inca de Oro, which is over 38 km to the southwest and located in a separate and distinct hydrologic basin. The area in the vicinity is unpopulated, and in general any transient local residents have a long history of subsistence living from transient goat herding. In general the local communities have a very favorable attitude towards mining and resource extraction, particularly in terms of the possibility of future employment. Laguna Verde is located in an isolated setting far from any significant population, and a Declaration (“DIA”) is not required at the present stage of exploration whereby the existence of potentially economic mineralization or an ore body is still being determined by phased exploration efforts.

There is no record of any exploration work having been performed in this area in the past. There is a thermal spring on the shore of Laguna Verde that has been used locally for recreational soaking and other activities, and stone fences have been constructed as a shield from the prevalent winds in the area. There are no permanent structures or other facilities at the lake. Because there is no requirement by the Chilean regulatory agencies regarding the reclamation of such workings by subsequent lessees, there is no known environmental liability associated with the claims.

We have applied for water exploration permits for the Laguna Verde project. At present, there are no other third-party applications pending for water rights or permits at this property.

Economic and Market Factors

As per our technical report filed on SEDAR, the average chemical composition of lithium at Laguna Verde is 212.40 mg/liter. Several lithium brine operations in different countries, utilizing conventional solar evaporation recovery circuits, are economically profitable and currently active today, processing brines with lithium grades comparable to Laguna Verde. One such operation is the Chemetall-Foote brine facility at Silver Peak, in the Clayton Valley of Nevada, which pumps and processes underground brines which contain lithium grades as low as 60 mg/liter and an average grade of around 240 mg/liter, and which has been operating since 1967. The current price for lithium carbonate is U$ 5,120/tonne, and the average price on long-term contracts for the last 3 years has been in excess of US 5,000/tonne of lithium carbonate.

We intend to evaluate, through a scoping study, the optimal processing technologies to utilize for recovering lithium from brines at Laguna Verde at a targeted rate of 10,000 tonnes/year of lithium carbonate equivalent. These will include an analysis of conventional solar evaporative methodology (which has average lithium recoveries at around 40%), newer, commercially available ion exchange technology, which can achieve higher lithium recoveries, and processes for the increasing the grade of lithium and other metals in brines. Lithium recovery through two separate conventional solar evaporation pond operations at the Salar de Atacama, located several hundred kilometers to the north of Laguna Verde, are understood to be in the operating cost range of US$1500/tonne lithium carbonate. These facilities, owned and managed independently by SQM and Chemetall, collectively produce over 60,000 tonnes/year of lithium carbonate equivalent.

Rio de la Sal/Pedernales

The Rio de la Sal/Pedernales property is depicted on Property Location Map 1 above. We do not currently consider this property to be material.

Titles and Nature of Concessions; Royalties

Pertinent data relating to the nature of the mineral concessions comprising Rio de la Sal/Pedernales is contained in the following table:

MINERAL CONCESSION DATA—RIO DE LA SAL/PEDERNALES (UTM coordinates—WGS84 Datum)


In connection with the closing of the December, 2009 acquisition of 4 pedimentos at the Rio de la Sal/Pedernales and the other 8 properties, Salico granted a 2% net smelter return royalty to the vendor on future production from the property, payable following commencement of commercial production, to a maximum of US$6 million. Prior to commencement of commercial production at Rio de la Sal/Pedernales, Salico may re-purchase one-half of this net smelter return royalty (1%) for US$2 million.

On April 30, 2012, the Company entered into a definitive agreement with Sociedad Gareste, Limitada (“Gareste”) for the acquisition of 15 additional exploration concessions totaling 4,200 hectares, plus water rights applications at the Pedernales salar owned by Gareste. The mineral concessions covered by this agreement are denoted with an asterisk in the table above. In connection with the entry into of the definitive agreement, the Company issued 2 million common shares to Gareste and granted a 2% NSR to Gareste, capped at US$6 million, one-half of which can be repurchased by Pan American for US$2 million prior to commercial production.

Geology, Geochemistry and Exploration Justification

The mineral concessions owned by Salico and subject to the February, 2011 Purchase Agreement cover portions of the actual Salar de Pedernales, and parts of the Rio de la Sal stream originating from this salar. The Salar de Pedernales is the second-largest salar in Chile. Around the year 1920, the company owning and managing the Pedernales salar constructed a tunnel through which this salar was allowed to drain. The Rio de la Sal stream, originating from this tunnel, then transported lithium-bearing solutions from the salar downstream.

The French Institut de Recherché pour le Development (IRD), in 1995 as part of its potable water investigation program to evaluate the high Andes salars, visited the Salar de Pedernales, but not the actual Rio de la Sal. Results of their sampling program at the Salar de Pedernales demonstrated average lithium values of 326 ppm. Subsequently, in connection with an initial NI 43-101 Technical Report we filed on SEDAR on November 13, 2009 and compliant under Canadian law, our independent technical expert, John Hiner, L.P. Geo., visited the Rio de la Sal property and took four water samples from the flowing stream. Under Mr. Hiner’s typical sample collection, custody and transmission protocol, two samples were sent to and analyzed by ALS Chemex in Burnaby, B.C., while Mr. Hiner hand-transported two others to Exact Scientific in Bellingham, Washington for analysis. These samples yielded Li values as high as 391 mg/liter.

In November of 2010, the Company and Gareste jointly began a trenching exploration program on the combined Pedernales property position. The table below summarizes results from 12 brine samples taken from six trenches of approximately 3 meters in depth from the concessions at the Salar de Pedernales.




TRENCH NO.

SAMPLE NO.

LI (MG/L)

K (MG/L)
MG/LI
RATIO
1
1
2
890
930
8200
8700
7.81
7.77
2
1
2
310
280
3000
2700
8.90
9.29
3
1
2
270
260
2800
2800
7.70
7.77
8
1
2
290
300
2700
2800
9.59
10.1
9
1
2
60
50
<500
<500
10.4
11.8
10
1
2
1070
1070
8100
8000
9.32
9.26

Based on these results which show high lithium and potassium grades, we have re-evaluated our exploration priorities and intend, pending adequate funding, to design and implement an exploration program at this salar during calendar year 2012. On June 16, 2011, we completed a private placement financing for total gross proceeds of $611,500, some of the proceeds of which will be used in connection with the exploration program at Pedernales.

Laguna Brava property

Location and Access

The Laguna Brava property is depicted on Property Location Map 1 above and the property map below. Although we have expended some exploration effort at this property, at this time, we do not consider Laguna Brava to be material.

The Laguna Brava Salar is situated near Maricunga, a noted mining district, in the same general region of the central Andes, near the Argentine border. The property is accessible via paved International Highway (Camino Internacional) C31 from Copiapo, leading north-easterly and easterly 161 kilometres to the border station at Maricunga. At the north end of the Salar Maricunga, provincial road C173 leads north to about 40 kilometres to the southwest side of the Salar Pedernales. Numerous access and bulldozer drill roads lead easterly around the south end of Pedernales approximately 50 kilometers to Piedra Parada. Laguna Brava is reached from Piedra Parada by traveling about 15 kilometers on dirt roads leading east and northeast across young volcanic terrain to the closed basin that constitutes Laguna Brava. The project is accessible via 2 wheel drive vehicles. Travel time from Copiapo to Laguna Brava is about 4 hours. Although lithium has been identified in the brines in the Laguna Brava salar, there has been no known production.


Titles and Nature of Concessions; Royalties

Pertinent data relating to the nature of the mineral concessions comprising Laguna Brava is contained in the following table:

MINERAL CONCESSION DATA—LAGUNA BRAVA (UTM coordinates—WGS84 Datum)

The Laguna Brava Project is comprised of 16 mineral exploration claims, which are pedimentos, totalling 4,400 hectares. Seven of the pedimentos were originally staked in May 2009, constituted in January of 2010, and before expiration, were converted to manifestaciones in January 2011. In April 2010, Salico staked an additional nine pedimentos to cover the remainder of the Laguna Brava basin, which concessions expire in September of 2012. The pedimentos are maintained by yearly payments of approximately U.S. $3.00 per hectare, and mensuras roughly three times that amount, the responsibility for which belongs to Salico and ultimately Pan American. At the end of two years all pedimentos must be either converted to mensuras/exploitation claims or restaked. Our intention is to pay all annual fees and hold the concessions in exploration status for the complete period allowed under Chilean law. The claims protect the claimant as to all mineral rights, and a right of surface access upon agreement with the surface owner. As the surface owner at Laguna Brava is the state of Chile, we will solicit a surface rights agreement with the government of Chile at the time of and in connection with a feasibility study.

In connection with the closing of the December, 2009 acquisition of Laguna Brava and the other 8 properties, Salico granted a 2% net smelter return royalty to the vendor on future production from Laguna Brava (which agreement extends to all after-acquired claims), payable following commencement of commercial production, to a maximum of US$6 million. Prior to commencement of commercial production at Laguna Brava, Salico may re-purchase one-half of this net smelter return royalty (1%) for US$2 million.

Geology and Mineralization

Laguna Brava has the following physical characteristics:


Salar Name
Catchment
Basin size

Salar Size

Lake area
Annual
Precip.
Evaporation
Potential
Water
Temp.
L. Brava 545 km2 unknown 8.2km2 140mm/yr 2000 mm/yr -2oC


The Laguna Brava salar is situated in a region of young and active volcanoes and obvious geothermal activity. The entire catchment area is dominated by Cenozoic dacite and andesite volcanic rocks, many of which have been altered by hydrothermal fluids associated with volcanism. The lake is fed by active hot springs, which appears to be the principal source of lithium, potassium, and other metallic salts. Seasonal runoff probably contributes a small component of the metals budget via leaching and groundwater inflow. To the immediate north of Laguna Brava are two smaller lakes, neither of which exhibit geochemically anomalous lithium or potassium content. We believe that the geothermal sources that feed Laguna Brava occur in close proximity to the lake.

Mineralization at Laguna Brava consists of lithium in brine. The brine is rich in sodium, potassium, and sulphate, as well as chloride. Lithium occurs in the brine as lithium chloride, as a component of potassium chloride, and as a component of other complex soluble salts.

Work completed at Laguna Brava

Laguna Brava was examined in detail by the French Institut de Recherche pour le Development (IRD) in 1995 as part of a program to evaluate the high Andes salars for potable water. Their sample results and chemistry (in Mg/liter) are presented below:

Smpl No. pH  Alk Cl SO4 B Si Na K Li    Ca      Mg
Bra-2EQ 7.59 5.2 63700 10200 550 15.8 40000 2300 231 787 1750
BRA-1E 7.58 4.87 63100 10100 809 19.5 38200 2570 244 1380 1970
BRA-3E 7.71 6.12 49600 23900 911 21.1 38000 3160 275 392 1400

We initiated a comprehensive lake brine sampling program at the shallow Laguna Brava surface lake in April 2010. This sampling program, conducted under the supervision of John Hiner, L.P. Geo, an independent professional geologist, entailed the collection of brine lake water samples from surface and at various depths on a pre-established grid designed in consultation with Mr. Hiner. Access to sample points was achieved on foot and by using a 4m Zodiac boat. Grid sampling across the lake was undertaken for the purpose of determining lateral and vertical distribution of lithium and other elements in the lake waters. The sample points were located by GPS and samples were then taken at surface and at depth. Samples taken at depth were collected using a Van Dorn Vertical Water Sampling Bottle – Type Beta Plus. This device is a weighted elongated cylinder with valves at the top and bottom that allow the device to pass through water to the desired depth. On reaching that depth a weighted control travels down the line and on reaching the device closes the valves thereby collecting an “undisturbed water sample” at depth.

Sample Preparation, Analyses and Security

For the grid sample program, water samples were collected in sterilized plastic bottles. The bottles were labeled with felt marker pen, double-rinsed and submerged to collect a sample with as little entrained oxygen as possible. None of the samples were acidized, as all of the waters had pH levels above 7.0, and because the high solubility of lithium in water renders such buffering unnecessary. Sample locations were noted by GPS and noted in field notebook. Where possible, photographs of sample sites were taken.

No employee, officer, director, or associate of our company or Salico was involved in the selection of samples to be taken, the collection of the samples, or the preparation of the samples. For the grid sampling program, independent contractors were interviewed, selected, and trained by Mr. Hiner, who was on site during sample collection. The samples remained in the possession of Mr. Hiner until delivered to a common carrier overnight shipping facility in Copiapo, Chile

Brine samples were collected in sterilized plastic bottles under the supervision of Mr. Hiner, sealed on site, and shipped by common carrier to an independent certified laboratory--ALS Chemex Environmental laboratories in Burnaby, British Columbia, Canada, for analysis. The samples were analyzed directly as submitted by inductively coupled plasma-mass spectrometry (“ICP”). Any over limit results were subsequently reanalyzed by ICP methods using higher limit standards. Two control samples consisting of distilled water were inserted into the sample stream. No geochemical lithium standard is yet available commercially in either liquid or solid form.


Thirty-two samples were collected at Laguna Brava, as well as two control samples. Analysis of the values for lithium, magnesium, and potassium throughout the lake indicates that the standard deviation for each of the elements is no more than 7%, indicating very homogeneous concentration levels in lake waters. The density of the lake waters was determined to be constant from surface to bottom at 1.14 (the measurement of mass per unit volume). Consequently there does not appear to be any notable increase amount of dissolved solids or grades of metals with depth. The average chemistry (in mg/l) is shown in the table below.


Element/Metal
Detection Limits
mg/l
Laguna Brava
Average Grade Standard Deviation
Boron mg/l 10 699 42
Calcium mg/l 5 1074 38
Lithium mg/l 1 310 23
Magnesium mg/l 10 2367 138
Potassium mg/l 200 2997 197
Sodium mg/l 200 54128 3834
Total Dissolved Solids 200 162875 9954
Sulfates (SO4) 50 12866 855
Density   1.12 0

Laguna Brava has no known reserves reportable under US securities laws, and the programs carried out on the property to date have been simply exploratory in nature. However, on June 14, 2010, we filed on SEDAR a National Instrument 43-101 technical report, compliant with Canadian law, for inferred resource estimates for lithium carbonate equivalent and potassium chloride equivalent for the shallow surface lake at the Laguna Brava property. The inferred resource estimates were determined using a volumetric calculation for water volume in the lake, and calculations of contained metals and elements based on average grades. Since the estimates derived for the shallow surface lake are relatively nominal and we do not have any information as to the underground brine potential of this salar, we do not consider the Laguna Brava property to be material at this time. However, this position could change if and as more exploration of the underground brine potential is undertaken at Laguna Brava. At the current time, there are no plans for any additional exploration at Laguna Brava.

Salar de Maricunga

The Maricunga salar property is depicted on Property Location Map 1 above. We do not currently consider this property to be material.

Titles and Nature of Concessions; Royalties

Pertinent data relating to the nature of the mineral concessions comprising the property position at the Salar de Maricunga is contained in the following table:

On April 30, 2012, the Company entered into a joint venture agreement with Gareste for the Salar de Maricunga. This agreement contemplates that Pan American will perform certain tasks, issue common shares to Gareste, and pay certain cash amounts to Gareste in order to obtain up to 80% of the project. These amounts are set out in the following table:



MILESTONE

CASH
PAYMENT
SHARES

INCREMENTAL
% INTEREST
EARNED
Regulatory approval of Agreement   200,000  
One year from execution of Agreement US$100,000 100,000  
Two years from execution of Agreement US$100,000 100,000  
Three years from execution of Agreement US$100,000 100,000  
Delivery of scoping study   100,000 10
Delivery of pre-feasibility study (”PFS”)   100,000 20
180 days after Delivery of PFS US$ 100,000    
Delivery of bankable feasibility study (“BFS”)   300,000 40
180 days after Delivery of BFS US$ 100,000    
Receipt of actual funds from project debt financing
to build production facility based on BFS
US$1 million
1,000,000
10
TOTALS US$1.5 million 2 million 80

The Company can earn a 70% interest in Maricunga by delivering the three studies, paying the first three cash payments and issuing the Share as set out in the preceding tables. The Company has the right to terminate the earn-in at any time at its sole discretion. The Company can earn a further 10% in the Maricunga project by providing financing for the debt portion of the capital to build the project, and an additional 6% of the project by providing Gareste with a full carry through production. Gareste also was granted a 2% NSR royalty capped at US$6 million, one-half of which can be repurchased by the Company for US$2 million prior to commercial production. All common shares issued to Gareste will be subject to a hold period in accordance with applicable securities laws.

Geology, Geochemistry and Exploration Justification

The Salar de Maricunga is the third-largest salar in Chile and is a typical high Andes salar with a surface salt crust found in a closed basin, which contains subsurface brines with lithium and other light metals occurring as salts.

The French Institut de Recherche pour le Development (IRD), in 1995 as part of its potable water investigation program to evaluate the high Andes salars, visited Maricunga. Results of their sampling programs for surface waters and inflow streams demonstrated lithium values as high as 300 ppm at this salar.

Our outside independent expert geologist, John Hiner, has visited Maricunga but has not yet sampled the claims or has been able to recommend an exploration program or other work at these concessions.

Piedra Parada Property

The Piedra Parada property is depicted on Property Location Map 1 above. At this time, we do not consider Piedra Parada to be material.

Titles and Nature of Concessions; Royalties

At the closing of the Amended and Restated Securities Exchange Agreement in December of 2009, we obtained through our acquisition of Salico contractual rights in the concessions at Piedra Parada owned by Sociedad Gareste Ltda. (“Gareste”), a Chilean limited liability company. These rights include Salico’s right to extract and exploit lithium and light metals (“Lithium Rights”) from the brines at Piedra Parada, Subsequent to the closing referred to above, Gareste conveyed its rights in the underlying concessions, subject to the Lithium Rights of Salico, to Zoro Mining Corp. (“Zoro”), a publicly-traded Nevada company (OTCBB: ZORM) which shares two officers and one director in common with our company.

The Lithium Rights of Salico pertain to the mineral concessions at Piedra Parada owned by Zoro described in the following table:


MINERAL CONCESSION DATA—PIEDRA PARADA (UTM coordinates—WGS84 Datum)

At the Piedra Parada salar, in connection with its receipt of contractual Lithium Rights in the concessions, Salico granted a 2% net smelter return royalty to the vendor, Gareste, on the proceeds from the sale of lithium and light metals to a maximum of US$6 million. Prior to commencement of commercial production at Piedra Parada, Salico may re-purchase one-half of the net smelter return royalty for US$2 million. Salico is obligated to pay the vendor a payment of US$2,000 per month as a lease and rental remittance fee, and to cover overhead and ancillary expenses, to maintain the Piedra Parada concessions through the exploration stage, which payments will increase to US$5,000 per month at such time as these concessions are converted to exploitation status. Gareste conveyed to Zoro these rights to receive payments and other rights under the agreement with Salico for Lithium Rights, along with the underlying concessions.

Geology, Geochemistry and Exploration Justification

Rotational block faulting associated with Andean uplift created the framework for the creation of the closed basins that occur in the Andes. Fault structures in the vicinity of active volcanoes provided the plumbing for geothermal systems, whose waters contributed lithium and other elements to these basins. High evaporation rates generally exceed inflow rates so water bodies become playa lakes or salt flats. Piedra Parada is a typical high Andes salar with a surface salt crust found in a closed basin, which contains subsurface brines with lithium and other light metals occurring as salts.

Piedra Parada was examined in detail by the French Institut de Recherche pour le Development (IRD) in 1995 as part of a program to evaluate the high Andes salars for potable water. Results of their sampling program demonstrated lithium values of as high as 100 ppm in surface water brine pools. Subsequently, in connection with an initial NI 43-101 Technical Report, filed on SEDAR by us on November 13, 2009, our independent technical expert, John Hiner, L.P. Geo., visited the Piedra Parada salar site and took several samples at the edges of a pool, a shallow pit, and from the inflow stream to the salar. Under Mr. Hiner’s typical sample collection, custody and transmission protocol, these samples were sent to and analyzed by ALS Chemex in Burnaby, B.C., and yielded Li values as high as 92 ppm.

Although Mr. Hiner recommended an exploration program and additional work at Piedra Parada, at this time, we have no plans for any exploration at this property, and we do not consider the Piedra Parada property to be material.

Lagunas Jilgueros Property

The Lagunas Jilgueros property is depicted on Property Location Map 1 above. We do not currently consider Lagunas Jilgueros to be material.


Titles and Nature of Concessions; Royalties

Pertinent data relating to the nature of the mineral concessions comprising Lagunas Jilgueros is contained in the following table:

MINERAL CONCESSION DATA—LAGUNAS JILGUEROS (UTM coordinates—WGS84 Datum)

In connection with the closing of the December, 2009 acquisition of Lagunas Jilgueros and the other 8 properties, Salico granted a 2% net smelter return royalty to the vendor on future production from Lagunas Jilgueros, payable following commencement of commercial production, to a maximum of US$6 million. Prior to commencement of commercial production at Lagunas Jilgueros, Salico may re-purchase one-half of this net smelter return royalty (1%) for US$2 million.

Geology, Geochemistry and Exploration Justification

Rotational block faulting associated with Andean uplift created the framework for the creation of the closed basins that occur in the Andes. Fault structures in the vicinity of active volcanoes provided the plumbing for geothermal systems, whose waters contributed lithium and other elements to these basins. High evaporation rates generally exceed inflow rates so water bodies become playa lakes or salt flats. Lagunas Jilgueros is a typical high Andes salar with a surface salt crust found in a closed basin, which contains subsurface brines with lithium and other light metals occurring as salts.

Lagunas Jilgueros was examined in detail by the French Institut de Recherche pour le Development (IRD) in 1995 as part of a program to evaluate the high Andes salars for potable water. Results of their sampling program demonstrated lithium values of as high as 18 ppm in surface water brine pools. Subsequently, in connection with an initial NI 43-101 Technical Report we filed on SEDAR on November 13, 2009, our independent technical expert, John Hiner, L.P. Geo., visited the Lagunas Jilgueros salar site and took one water samples at the edge of a small surface lake. Under Mr. Hiner’s typical sample collection, custody and transmission protocol, this sample was sent to and analyzed by ALS Chemex in Burnaby, B.C., and yielded a Li value of 24 ppm.

Although Mr., Hiner recommended an exploration program and additional work at Lagunas Jilgueros, at this time we have no plans for any exploration at this property, and do not consider it to be material.

La Laguna, Laguna Escondida, Salar Ignorado and Salar de Wheelwright

The La Laguna, Laguna Escondida, Salar Ignorado and Salar de Wheelwright properties are depicted on Property Location Maps 1 and 2 above. We do not currently consider any of these properties to be material. These four properties are summarized together in this section because we have not done any work at or taken any samples from these sites. They are generally among the smallest in size of the nine projects and there is minimal historical and anecdotal information available for these properties.

Titles and Nature of Concessions; Royalties

Pertinent data relating to the nature of the mineral concessions comprising La Laguna, Laguna Escondida, Salar Ignorado and Salar de Wheelwright is contained in the following table:


MINERAL CONCESSION DATA—LA LAGUNA, LAGUNA ESCONDIDA, SALAR IGNORADO AND SALAR DE WHEELWRIGHT (UTM coordinates—WGS84 Datum)

These four properties aggregate 3,100 hectares, and concessions at each individual property total the following:

  • La Laguna—400 hectares
  • Laguna Escondida—900 hectares
  • Salar Ignorado—600 hectares
  • Salar de Wheelwright—1,200 hectares

In connection with the closing of the December, 2009 acquisition of La Laguna, Laguna Escondida, Salar Ignorado, Salar de Wheelwright and interests in the other 5 properties, Salico granted a 2% net smelter return royalty to the vendor on future production from each of La Laguna, Laguna Escondida, Salar Ignorado and Salar de Wheelwright, payable following commencement of commercial production at each of these properties, to a maximum of US$6 million at each property. Prior to commencement of commercial production at each of La Laguna, Laguna Escondida, Salar Ignorado and Salar de Wheelwright, Salico may re-purchase one-half of this net smelter return royalty (1%) for US$2 million at each property.

Geology, Geochemistry and Exploration Justification

La Laguna, Laguna Escondida, Salar Ignorado, Salar de Wheelwright are typical high Andes salars with a surface salt crust found in closed basins, which contains subsurface brines with lithium and other light metals occurring as salts.

The French Institut de Recherche pour le Development (IRD), in 1995 as part of its potable water investigation program to evaluate the high Andes salars, visited each of these sites. Results of their sampling programs for surface waters and inflow streams demonstrated lithium values as high as the following:

  • La Laguna—23 ppm
  • Laguna Escondida—9 ppm
  • Salar Ignorado—14 ppm
  • Salar de Wheelwright—127 ppm

Our outside independent expert geologist, John Hiner, did not visit any of these properties. Mr. Hiner has consequently not been able to recommend an exploration program or other work at any of these properties at this time. We currently have no plans for any exploration at any of these projects and do not consider them to be material.

Llanta Project

On February 14, 2011, the Company signed a binding letter of intent with Gareste to acquire interests in these concessions, and related water rights applications, through an earn-in/joint venture arrangement to be negotiated and executed by the parties. This agreement contemplates that Pan American will perform certain tasks, issue common shares to Gareste, and pay certain cash amounts to Gareste in order to obtain up to 80% of the project. Effective December 23, 2011, the parties extended the closing dates for Maricunga and Llanta from December 31, 2011 to June 30, 2012 and all other terms remained unchanged. The Company anticipates that it will not proceed with the acquisition of the Llanta property.


Mineral Title in Chile

Chile' s current mining policy is based on legal provisions founded in Spanish law with modifications via a series of prior Mining Codes leading to the revised Mining Code of 1982. These were established to stimulate the development of mining and to guarantee the property rights of both local and foreign investors. According to the law, the state owns all mineral resources, but exploration and exploitation of these resources by private parties is permitted through mining concessions, which are granted, to any claimant to mineral rights who follows the required procedures. An exploration claim can be placed on any area, whereas the survey to establish a permanent exploitation claim ("mensura" ) can only be effected on "free" areas which have no valid claims in place or in process of constitution.

The concessions have both rights and obligations as defined by a Constitutional Organic Law as enacted in 1982. Concessions can be mortgaged or transferred and the holder has full ownership rights and is entitled to obtain the rights of way for exploration and exploitation. The concession holder has the right to use, for mining purposes, any water flows which infiltrate any mining workings. In addition, the concession holder has the right to defend his ownership against state and third parties. An exploration concession is obtained by a claims filing and includes all minerals that may exist within its area. Exploration and exploitation mining rights in Chile are acquired in the following stages:

Pedimento: A pedimento is an initial exploration claim whose position is well defined by UTM coordinates which define north-south and east-west boundaries. The minimum size of a pedimento is 100 hectares and the maximum is 5,000 hectares with a maximum length-to-width ratio of 5:1. The duration of validity is for a maximum period of 2 years from the date of constitution, however at the end of this period it may a) be reduced in size by at least 50% and renewed for an additional 2 years or b) entered in the process to establish a permanent claim by converting to a "manifestation" . New pedimentos are allowed to overlap with pre-existing ones; however the pedimento with the earliest filing date always takes precedence, providing the claim holder continues the process of constitution in accordance with the Mining Code and the applicable regulations. Pedimentos are maintained by yearly payments of approximately U.S. $3.00 per hectare. If payments to maintain pedimentos are not actually made in a timely manner, the concessions technically expire but titles are not automatically lost. Chilean law provides for a grace period to make the payments, which includes some penalty interest, but (provided there has been no overstaking) titles are not divested from the holder until and unless the concessions are taken to auction by the government. To the extent that the mineral concession tables above reflect that titles have reached an expiration date, the Company has taken steps to pay and renew such titles, or has otherwise taken steps to convert to manifestacion and mensura (described below) any concessions that have been overstaked by third-parties.

Manifestacion: Before a pedimento expires, or at any stage during its two year life, it may be converted to a manifestacion which lasts for 220 days.

Mensura: Prior to the expiration of a manifestacion, the owner of a manifestacion must request a survey ("mensura" ). After acceptance of the "Survey Request" (solicitud de Mensura), the owner has approximately 12 months to have the claim surveyed by a government licensed surveyor. The surrounding claim owners may witness the survey, which is subsequently described in a legal format and presented to the National Mining Service ("SERNAGEOMIN" ) for technical review which includes field inspection and verification. Following the technical approval by SERNAGEOMIN, the file returns to the judge of the appropriate jurisdiction who must dictate the constitution of the claim as a "mensura" (equivalent of a patented claim in the United States). Once constituted, an abstract describing the claim is published in Chile' s official mining bulletin, which is published weekly, and 30 days later the claim can be inscribed in the appropriate Mining Registry (referred to as "Conservador de Minas" ).

Once constituted, a "mensura" is a permanent property right, with no expiration date. So long as the annual fees (referred to as "patentes" ) are paid in a timely manner, (from March to May of each year) clear title and ownership of the mineral rights is assured in perpetuity. Currently, the patentes are the equivalent of US$7.33 per hectare per year. Failure to pay the annual patentes for an extended period can result in the claim being listed for "remate" , which is an Auction Sale, wherein a third party may acquire a claim for the payment of back taxes owed plus a penalty payment. In such a case, the claim is included in a list published 30 days prior to the Auction and the owner has the possibility of paying the back taxes plus penalty and thus removing the claim from the Auction List.

Mineral concessions under Chilean mining law provide for direct exploitation of mineral salts like potassium, magnesium, calcium, and sodium. Under Article 7 of the Chilean Mining Code, lithium, uranium, and thorium are technically reserved to the state of Chile for the Chilean National Nuclear Commission. As a consequence, under Articles 8 through 10 of the Chilean Mining Code, there are three alternative approaches, under each of which Salico could produce and market lithium minerals:



  1.

Salico can secure through the Ministry of Mines a special operating permit that allows it to process and export lithium products. This permit is authorized and signed by the President of Chile. This procedure has been used for all contracts under which existing lithium production companies operate in Chile. We are not aware of any lithium exploitation project wherein the special operating permit was not granted. Salico expects to apply for and receive such special permits on its projects that are subsequently shown to be economically feasible. We consider this special operating permit scenario to be a reasonable expectation, given prior precedents set by Soquem Inc., Chemetall Foote Corp, and other lithium operations in Chile, all of which operate under the special permit process.

     
  2.

Alternatively, Salico may process lithium as a by-product in a conventional salt recovery circuit. The lithium products must then offered to the Chilean National Nuclear Commission, which then must elect whether or not to take delivery. If the Commission decides not to take delivery, then by default Salico will be at liberty to commercialize the lithium products with third parties.

     
  3.

If the Commission elects to take delivery of the lithium products under scenario 2, Salico is obligated to deliver the lithium at its cost. Before taking delivery, however, the Commission is required to pay, in advance, for all infrastructure and operational costs related to the separation and delivery of the lithium product. In a typical lithium recovery system, where evaporation ponds are used to sequentially separate out various non-lithium salts, and where lithium is the last salt processed, the Commission would have to pay a large portion of the infrastructure and operational costs, resulting in recovery of all non-lithium by- products at a drastically reduced capital and operational cost to Salico.

We are not aware of any instance whereby the Commission has required delivery of lithium or of any research or development by the government of Chile that would require the acquisition and use of lithium. We do not know of any special appropriation or line-item in the national Chilean budget that would allow for the Commission to purchase lithium and pay for corresponding infrastructure and operational costs.

Permitting, Environmental and Water Issues in Chile

The following summary is based upon Chile’s Environmental Law 19.300 and the Regulations regarding environmental impact studies, as posted on the web site of Chile’s Regional Commission for the Environment (“CONAMA”) (http://www.conama.cl/portal/1255/channel.html).

Chile’s environmental law (referred to as “Law Nº 19.300”), which regulates all environmental activities in the country, was first published on March 9th, 1994. An exploration project or field activity cannot be initiated until its potential impact to the environment is carefully evaluated. This is documented in Article 8 of the environmental law and is referred to as the Sistema de Evaluación de Impacto Ambiental (“SEIA”).

The SEIA is administered and coordinated on both regional and national levels by the Comisión Regional del Medio Ambiente (“COREMA”) and the Comisión Nacional del Medio Ambiente (“CONAMA”), respectively. The initial application is generally made to COREMA, in the corresponding region where the property is located, however in cases where the property might affect various regions the application is made directly to the CONAMA. Various other Chilean government organizations are also involved with the review process, however most documentation is ultimately forwarded to CONAMA, which is the final authority on the environment and is the organization that issues the final environmental permits.

There are two types of environmental review; an Environmental Impact Statement (Declaración de Impacto Ambiental, or “DIA”), and an Environmental Impact Assessment (Evaluación de Impacto Ambiental, or “EIA”). As defined in the SEIA, a Declaration (DIA) must be prepared prior to starting detailed drilling for a mining project (defined as the stage of reducing “uncertainty” in the quantification of mineral resources and for purposes of defining a mining plan). The regulations provide an exemption from the need to prepare a DIA during the “exploratory stage” when the extent of the ore body is being determined. A DIA is prepared in cases when the applicant believes that there will be no significant environmental impact or social controversy as a result of the proposed drilling and advanced exploration activities. The potential impacts include areas such as health risks, contamination of soils, air and/or water, relocation of communities or alteration of their ways of life, proximity to “endangered” areas or archaeological sites, alteration of the natural landscape, and/or alteration of cultural heritage sites. The DIA will include a statement from the applicant declaring that the project will comply with the current environmental legislation, and a detailed description of the type of planned activities, including any voluntary environmental commitments that might be completed during the project.


For any detailed drilling phase, a DIA will be required. A full Environmental Impact Study (“EIA”) will only be required in connection with permitting process when the project moves forward to approval for construction. The EIA report is much more detailed and includes a table of contents, an executive summary, a detailed description of the design of the project facilities and operating parameters, a program for compliance with the environmental legislation, a detailed description of the possible impacts and an assessment of how they would be dealt with and repaired, a baseline study, a plan for compensation (if required), details of a follow-up program, a description of the EIA presentation made to COREMA or CONAMA, and an appendix with all of the backup documentation. Once an application is made, the review process by COREMA or CONAMA will take a maximum of 120 days. Question and answer cycles typically delay this process. After the basic environmental approval is given a number of construction/operating permits may be granted by the appropriate authorities allowing the mine development and facilities construction to commence. If, however, COREMA or CONAMA comes back with additional questions or deficiencies, an equal period of time is granted to the applicant to make the appropriate corrections or additions. Once re-submitted and a 60 day period has elapsed, if no further notification from COREMA or CONAMA is received, the application is assumed to be approved.

Presentation of a pre-feasibility or scoping study to the General Direction of Waters (“DGA”) that indicates the scope of the project and related criteria are a requirement in order to obtain final water usage permits for a project. These studies also determine which of the projects require consumptive water usage permits, versus non-consumptive water usage permits.

Under the Chilean mining law, mineral concessions carry the right to exploit all potential surface and subsurface mineral assemblages including rock, salt crusts, muds, clays, unconsolidated and consolidated erosional material and sediments, and other salt depositional complexes. Processing of brines and other waters contained within the Pan American mineral concessions will require additional permits as granted by the Chilean General Direction of Waters, which has a Regional office in Copiapo.

OPTION TO ACQUIRE ESCONDIDAS – MEXICO

On December 18, 2009, we entered into a Share Option Agreement (the “Option Agreement”) with Escondidas Internacional S.A. de C.V., a privately-held Mexican corporation (“Escondidas”) and the shareholders of Escondidas. Following the entry into the option agreement, the shareholders granted an option to us to acquire 76% of the issued and outstanding shares of Escondidas. The primary asset of Escondidas is a joint venture and development agreement with CPI Internacional S.A. de C.V., a privately-held Mexican corporation (“CPI”), whereby CPI and Escondidas agreed to jointly process lithium and precious metals in the Cierro Prieto geothermal brine concessions that are owned by CPI and located in Baja California, Mexico, roughly 30 km south of the city of Mexicali.

Effective March 29, 2010, the parties extended the termination date of the Option Agreement to June 30, 2010. On June 30, 2010 the parties extended the termination date of the Option Agreement to October 31, 2010 and substantially changed the terms of the agreement to those reflected above. On October 28, 2010 we extended the termination date of the Option Agreement to April 30, 2011 and all other terms remained unchanged. On April 30, 2011, the Company extended the termination date of the Option Agreement to October 31, 2011 and reduced the amount payable monthly to US$1,000. On October 31, 2011, we extended the termination date of the Option Agreement to April 30, 2012. The closing date for the Option Agreement has not been extended and the Company anticipates that it will not complete the acquisition of Escondidas.

C.                      Organizational Structure

The Company currently owns 99% of South American Lithium Company S.A. Cerrada, a company governed by the laws of Chile.

D.                      Property, Plant and Equipment

We currently occupy and sublease office space at Suite 110, 3040 N. Campbell Avenue, Tucson, Arizona USA 85719, as our principal offices and pay the lessee approximately $1,000 per month. We believe these facilities are in good condition, but that we may need to expand our leased space as our research and development efforts increase.

We also have an interest in the mineral properties, as described in more detail under the heading “Business Overview”.


ITEM 4A                   Unresolved Staff Comments

Not applicable.

ITEM 5                      Operating and Financial Review and Prospects

The annual audited consolidated financial statements for the year ended February 29, 2012 are our first annual consolidated financial statements that have been prepared in accordance with International Financial Reporting Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board (‘‘IASB’’) and IFRS 1, First Time Adoption of International Financial Reporting Standards. See page 13 in our ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ included in this annual report on Form 20-F under ‘‘Item 5 — Operating and Financial Review and Prospects.’’

We have prepared the annual audited consolidated financial statements that comply with IFRS as described in the accounting policies in Note 3 of our annual audited consolidated financial statements. In preparing the annual audited consolidated financial statements, our opening statement of financial position was prepared at March 1, 2010, our date of transition to IFRS. Note 12 of our annual audited consolidated financial statements explains the principal adjustments we made in restating our Canadian generally accepted accounting principles (“GAAP”) statements of financial position as at March 1, 2010 and February 29, 2011 and our previously published Canadian GAAP consolidated statements of operations and comprehensive loss for the year ended February 29, 2011.

Please note that information relating to financial periods ended before February 29, 2011 were prepared in accordance with Canadian GAAP, which may not be comparable to IFRS.

A.                      Operating Results

Year ended February 29, 2012

During the year ended February 29, 2012, the Company incurred expenses of $1,494,737, primarily consisting of management fees of $523,084, investor communications of $440,579, share based payments of $128,519 and professional fees of $192,697. Net loss for the year ended February 29, 2012 was $977,249 consisting of net loss before other items of $1,622,512 and other items of $645,263. During the year ended February 28, 2011, the Company incurred expenses of $2,628,049, primarily consisting of management fees of $941,697, investor communications of $599,172, share based payments of $685,315 and professional fees of $209,375. Net loss for the year ended February 28, 2011 was $2,741,536 consisting of net loss before other items of $2,628,049 and other items of ($113,487). Share based payments during the year ended February 29, 2012 decreased over the same period the prior year due to fewer options vesting. Advertising and promotion expenses decreased due to fewer media placements. Investor communications expenses decreased due to fewer consultants hired. Management fees decreased due to fewer consultants hired. Stock transfer and filing fees expenses increased due to expenses related to stock transactions. Travel expenses increased due to increased support of South American operations.

Following the disposition of its Aspen Grove Property and additional mineral claims located in British Columbia, Canada, the Company holds property interests in Chile as described under the heading “Description of Business”. On June 10, 2010, the Company entered into a Termination Agreement with two individuals to terminate the Option Agreement dated May 28, 2007 and to release its option on the 17 mineral claims that comprise the Aspen Grove copper property. As the Company is focussed on the exploration and development of properties containing lithium and light metals, the Company decided to release its option on the Aspen Grove property and transfer all interest in such property back to the original optionors. Following the agreement, the Company wrote off $393,689 with respect to the Aspen Grove Property.

SUMMARY OF QUARTERLY RESULTS

The following table provides quarterly financial information for the prior eight quarters:





Description
Three
Months
Ended
February
29, 2012
Three
Months
Ended
November
30, 2011
Three
Months
Ended
August 31,
2011
Three
Months
Ended
May 31,
2011
Three
Months
Ended
February
28, 2011
Three
Months
Ended
November
30, 2010
Three
Months
Ended
August 31,
2010
Three
Months
Ended
May 31,
2010
  ($) ($) ($) ($) ($) ($) ($) ($)
Revenue Nil Nil Nil Nil Nil Nil Nil Nil







Description
Three
Months
Ended
February
29, 2012
Three
Months
Ended
November
30, 2011
Three
Months
Ended
August 31,
2011
Three
Months
Ended
May 31,
2011
Three
Months
Ended
February
28, 2011
Three
Months
Ended
November
30, 2010
Three
Months
Ended
August 31,
2010
Three
Months
Ended
May 31,
2010
  ($) ($) ($) ($) ($) ($) ($) ($)
Net loss before other items 206,470 565,530 392,905 329,832 831,193 530,452 546,334 720,070
Net loss(income) (97,690) 445,291 390,977 238,671 906,307 545,343 548,236 741,650
Comprehensive Loss 47,060 256,449 345,582 264,401 1,244,856 545,343 548,236 741,650
Basic and fully-diluted loss(income) per share (0.003) 0.009 0.009 0.006 0.026 0.015 0.017 0.023

During the three months ended May 31, 2010, expenses were $720,070 as the Company continued to focus on increased development of its mineral properties and increased fund raising efforts. During this time, investor communications accounted for $132,941, management fees were $147,908, share based payments increased to $305,122, professional fees were $62,482, and advertising was $33,433. During the three months ended August 31, 2010, expenses were $546,334 as the Company continued to focus on increased development of its mineral properties and increased fund raising efforts. During this time, investor communications accounted for $114,781, management fees were $181,057, share based payments expense was $169,058, professional fees were $46,237, and travel expenses were $20,402. During the three months ended November 30, 2010, expenses were $530,452 as the Company continued to focus on continued development of its mineral properties and increased fund raising efforts. During this time, investor communications accounted for $146,451, management fees were $153,929, share based payments expense was $134,197, and professional fees were $53,374. During the three months ended February 28, 2011, expenses were $831,193 as the Company continued to focus on continued development of its mineral properties and increased fund raising efforts. During this time, investor communications accounted for $204,999, management fees were $458,803, share based payments expense was $76,938, and professional fees were $47,282. During the three months ended May 31, 2011, the Company incurred expenses of $329,832 primarily consisting of management fees of $142,992, investor communications of $70,395, share based payment of $45,810 and professional fees of $34,898. Expenses decreased during the three months ended May 31, 2011 due to management’s efforts to reduce costs. During the three months ended August 31, 2011, the Company incurred expenses of $392,905 primarily consisting of share based payments of $4,455, management fees of $138,029, investor communications of $103,961, office and miscellaneous expenses of $14,806, professional fees of $69,747, stock transfer and filing fees of $27,186 and travel expenses of $30,056. Expenses increased during the three months ended August 31, 2011 due primarily to increased professional fees on higher legal costs. During the three months ended November 30, 2011, the Company incurred expenses of $565,530 primarily consisting of share based payments of $178,058, management fees of $135,188, investor communications of $154,980, office and miscellaneous expenses of $12,286, professional fees of $55,108, stock transfer and filing fees of $3,583 and travel expenses of $21,452. Expenses decreased during the three months ended November 30, 2011 due primarily to share based payments on new stock option issuances. During the three months ended February 29, 2012, the Company incurred expenses of $334,245 primarily consisting of share based payments of $27,971, management fees of $106,875, investor communications of $111,243, office expenses of $25,223, professional fees of $32,944, stock transfer and filing fees of $7,877 and travel expenses of $14,096. Expenses decreased during the three months ended February 29, 2012 due primarily to fewer options vesting and lower investor communications expense.

Currency Fluctuations

The Company’s currency fluctuation exposure is primarily to the U.S. Dollar and the Canadian Dollar. The Company does not use derivative financial instruments for speculative trading purposes, nor does the Company hedge its foreign currency exposure to manage the Company’s foreign currency fluctuation risk. Fluctuations in and among the currencies in which the Company operates could have a material effect on the Company’s operations and its financial results.


B.                      Liquidity and Capital Resources

LIQUIDITY

The Company had cash of $537,722 at February 29, 2012 and $165,165 at February 28, 2011, and the Company had working capital of $285,016 at February 29, 2012 as compared to working capital deficit of $162,504 at February 28, 2011.

On June 16, 2011 the Company completed a non-brokered private placement of 4,076,667 units at $0.15 per unit for gross proceeds of $611,500. Each unit consists of one common share and one common share purchase warrant, entitling the purchaser to acquire one additional common share at an exercise price of $0.25 per common share until June 16, 2013. In connection with the offering, the Company paid a cash finder’s fee of $40,150, incurred share issuance cost of $6,144 and issued 267,666 warrants, which each warrant entitles the finder to acquire one additional common share at an exercise price of $0.25 per common share until June 16, 2013.

On September 15, 2011 the Company completed a non-brokered private placement with POSCAN of 10,522,090 common shares at the price of CDN$0.136 per common share, resulting in gross proceeds to the Company of $1,431,004. The Company also agreed that while POSCAN owns more than 10% of the Company’s issued and outstanding common shares, the Company will appoint a director nominated by POSCAN; the Company will require approval from the nominee for certain corporate actions; and POSCAN will have a pre-emptive right to purchase a pro rata share of any new securities offered by the Company.

On October 11, 2011 the Company entered into debt settlement agreements with Gareste Limitada, Pro Business Trust, and Boulder Design LLC to settle outstanding debt in the amount of CDN$200,365 (the “Debt”). The Debt was incurred by the Company under a Consulting and Professional Services Agreement with each of Pro Business Trust and Boulder Design LLC, and an Operator Agreement with Sociedad Gareste Limitada. Under the terms of the debt settlement agreements, the Company will satisfy the Debt with the issuance of 1,335,768 common shares of the Company at a deemed issuance price of $0.15 per common share. These shares for debt transactions are subject to the approval of the Exchange. As of June 27, 2012 the TSXV has not approved these transactions.

On October 11, 2011, the Company issued 350,082 common shares under the Consulting Agreement with PBT. PBT provided services and expenditures for a Chilean exploration program at several of the Company’s brine projects in the Atacama Region III. The Company satisfied US$41,631 of expenditure incurred under the Consulting Agreement through the issuance of common shares.

On January 16, 2012, the Company closed a private placement with Andrew Brodkey, the Company’s President, Chief Executive Officer and Director. The Company issued 1,000,000 common shares to Mr. Brodkey at a price of CDN$0.06 per common share, resulting in gross proceeds to the Company of $60,000.

The Company anticipates that it currently does not have sufficient capital in order to meet its requirements for the next twelve month period. These costs include the proposed scoping and feasibility studies at Laguna Verde, the proposed exploration program at several of its properties, general and administrative costs and costs associated with keeping the Chilean salars in good standing during the next twelve months. The Company plans to raise such funds primarily through the private placement or registered offering of its equity securities. Under such circumstances, there is no assurance that the Company will be able to obtain further funds required for the Company’s continued working capital requirements. Any issuance of the Company’s equity securities in the near future may result in substantial dilution to the Company’s existing shareholders.

CAPITAL RESOURCES

The Company has capital commitments in connection with its Chilean properties. The Company indirectly holds interests in its Chilean lithium salars through its 99% owned subsidiary Salico. . The Company estimates that Salico is required to pay $80,000 during the next twelve months to keep the property interests in good standing. The Company is also required to pay to a third-party US$2,000 per month as a lease and rental remittance fee to maintain the Piedra Parada concessions through the exploration stage, which payments will increase to US$5,000 per month at such time as these concessions are converted to exploitation status.

Operating Activities

The Company used cash of $1,209,572 in operating activities during the year ended February 29, 2012 and used cash of $1,524,546 during the year ended February 28, 2011. This decrease is due lower management and investor communications expenditures.


Financing Activities

The Company received total cash of 2,034,013 in financing activities during the year ended February 29, 2012. During such time, the Company received cash of $2,102,504 from the issuance of shares, less $83,491 for share issuance costs and $15,000 from subscriptions received. The Company received total cash of $786,416 in financing activities during the year ended February 28, 2010. During such time, the Company received cash of $883,994 from the issuance of shares, less $97,578 for share issuance costs.

Investing Activities

The Company used cash of $430,298 in investing activities during the year ended February 29, 2012 due to deferred exploration expenses. The Company used cash of $691,522 in investing activities during the year ended February 28, 2011 due to the acquisition of mineral properties and deferred exploration expenditures.

Anticipated Cash Requirements

At Laguna Verde, subject to adequate funding, the Company is planning to engage a professional chemistry and engineering consulting firm to undertake scoping and pre-feasibility studies. Such studies are expected to take 12 months to complete and cost in the range of $1.5 to $2 million, of which the scoping study portion is expected to be around $200,000. The Company, pending adequate funding, anticipates hiring this consultant during calendar year 2012. Thereafter, the Company intends to commence a full feasibility study, permitting and preliminary engineering, which could cost in total upwards of $8 million. The Company announced on June 17, 2011 that it had entered into an agreement with the University of Nevada-Reno to conduct research on the concentration of lithium from brines provided by the Company from several of its lithium-potassium brine properties in Chile. This study, which is estimated to cost in the range of US$10,000, is effectively a pre-scoping exercise which should allow the Company to identify additional processing methodologies which can be incorporated into the full scoping study planned for Laguna Verde.

Subject to adequate funding, the Company is planning to undertake a conditional three stage exploration program at Laguna Brava. Stage 1 would include a bathymetry and geochemical program estimated to cost $150,000 which is anticipated to commence sometime during 2012 and last 3 months. Following successful results, Stage 2 would include a hydrologic program and metallurgy and evaporation test work to cost $176,500 which is anticipated to take 9 months. Following successful results, Stage 3 would include a drilling and aquifer evaluation to cost $455,000 which is anticipated to last an additional 6 months. Total cost for the three stages, including a 15% contingency, is approximately $900,000.

As to the other salar properties in Region III Chile, subject to adequate funding, the Company has designed and intends to implement exploration programs at Salar de Pedernales and Salar de Maricunga during 2012. The Company announced on June 14, 2011 that PBT is providing the funds for and is commencing an initial 300 meter drilling exploration program at the Llanta project. This program was expanded to provide for geophysical testing of the Llanta valley, and the completion of at least one potential production well in the Llanta aquifer. The first phase of this program was completed in December of 2011. Although the Company’s independent hydrologists recommended a Phase 2 program, the Company has elected not to pursue such activity at Llanta. Accordingly, as of June 30, 2012, the agreement between Gareste and the Company was not closed and has lapsed. The Company has no immediate plans for exploration or development for the upcoming fiscal year at any of the other properties not specifically mentioned. The Company intends to spend only necessary property holding costs for these other sites, in the approximate amount of $50,000 per year.

The Company is also evaluating the merits of converting its exploration concessions at each of the properties to full “mensura” or exploitation status, thereby avoiding third-party overstaking and challenges to mining titles. The estimated total cost of such conversions amounts to $600,000.


The Company estimates its minimum operating expenses, excluding any exploration expenses, for the next 12 month period to be as follows:

Expense   Estimated Amount  
Advertising and promotion $  12,000  
Bank charges   5,000  
Investor communications   180,000  
Management fees   564,000  
Office and miscellaneous   50,000  
Professional fees   240,000  
Rent   17,000  
Transfer agent and filing fees   36,000  
Travel   60,000  
Total $  1,164,000  

If the Company does not raise any additional funds, it will not have enough working capital to follow its projected costs for the next 12 month period.

The Company plans to raise its required funds primarily through the private placement of its equity securities. Under such circumstances, there is no assurance that it will be able to obtain further funds required for its continued working capital requirements. Any issuance of its equity securities in the near future may result in substantial dilution to its existing shareholders.

C.                      Research and Development, Patents and Licenses etc.

We do not currently, and did not previously, have research and development policies in place. Over the past three fiscal years, no funds were expended by our company on research and development activities.

D.                      Trend Information

We do not currently know of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

E.                      Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

F.                      Contractual Obligations

The following table describes the contractual obligations incurred by us as of the date of the financial statements for the period ended February 29, 2012:

      Payments due by period  
            less                 more  
            than 1           3-5     than 5  
      Total     year     1-3 years     years     years  
  Contractual Obligations   -     -     -     -     -  
  Long-Term Debt Obligations   -     -     -     -     -  
  Capital (Finance) Lease Obligations   -     -     -     -     -  
  Operating Lease Obligations   -     -     -     -     -  
  Purchase Obligations*   20,000     20,000     -     -     -  
  Other Long-Term Liabilities Reflected on our Balance Sheet under the GAAP of the primary financial statements   -     -     -     -     -  
  Total   20,000     20,000     -     -     -  


*Purchase obligations include scheduled payments to various related and third party consultants and companies for which there is a valid and binding contract.

ITEM 6                      Directors, Senior Management and Employees

A.                      Directors and Senior Management

The following table sets forth the names and business experience of each of our directors and officers, as of the date hereof:

Name
Province/State
Country of Residence

Position(s)
with the Company

Period Served
with the Company
Andrew Brodkey(2)
Tucson, Arizona, USA
President, Chief Executive
Officer and Director
December 4, 2009 to
present
Dr. David Terry(2)(3) , PhD.,
P.Geo
West Vancouver, BC, Canada
Director

May 30, 2008
to present
Dr. Ronald Richman(2)(3)
Tucson, Arizona, USA
Director
April 14, 2010
to present
Hyundae Kim(3)
Seoul, Korea
Director
September 15, 2011
to present
Dr. David Hackman
Tucson, AZ
Vice President Exploration
December 4, 2009 to
present
Frank Garcia
Tucson, Arizona, USA
Chief Financial Officer
April 14, 2010
to present
Jodi Henderson
Tucson, Arizona, USA
Secretary
December 4, 2009 to
present

(1)

Information has been furnished by the respective nominees individually.

   
(2)

Denotes a member of the Audit Committee of the Company.

   
(3)

Denotes an independent director.

Andrew Brodkey

Andrew Brodkey is a mining engineer and a lawyer. He graduated with distinction with a B.S. in Mining Engineering from the University of Arizona in 1979. Mr. Brodkey earned a law degree, cum laude, from Creighton University in 1982. He worked at the Denver, Colorado law firm of Gorsuch, Kirgis, Campbell, Walker and Grover as an associate specializing in natural resources and environmental law from 1982 until 1987. Subsequently, Mr. Brodkey joined Magma Copper Company, a NYSE-traded mining company in 1987, where he held various positions, eventually succeeding to the role of Vice President and General Counsel in 1992. Following Magma’s acquisition by BHP in 1996, he remained in a senior legal position with BHP Copper Inc., and in 2000 moved to the position of Vice President, Business Development for BHP Copper. Following his departure from BHP in 2002, Mr. Brodkey held the position of Managing Director of the International Mining & Metals Group of CB Richard Ellis, Inc (“CBRE”), where he was responsible for creating and building the mining property practice of CBRE. Currently, Mr. Brodkey is the President, CEO and Director of Titan Iron Ore Corp. (OTCBB: TFER), and President and Director of Zoro Mining Corp. (OTCBB/OTCQB: ZORM). His is also the Manager of Kriyah Consultants LLC, which has a contractual relationship with the Company.

Dr. David Terry

Dr. David Terry holds a BSc and a PhD in Geology from the University of Western Ontario and a P. Geo. license in the Province of British Columbia. Dr. Terry has over 20 years of experience in the resource sector focused primarily on exploration for a wide spectrum of mineral deposits throughout North and South America. He has held numerous senior positions with both large mining companies and junior exploration companies, including IMA Exploration Inc., Boliden Limited, Westmin Resources Limited, Hemlo Gold Mines Inc., Cominco Limited and Gold Fields Mining Corporation. Dr. Terry currently serves as a director and officer of several publicly-listed mineral exploration companies.


Dr. Ronald Richman

Dr. Ronald Richman from 2008 to the present was a co-director at Arid Lands Bioenergy Institute at the University of Arizona responsible for developing industrial liaison program, and reviewing programs for potential commercialization responsible for developing industrial liaison program, and reviewing programs for potential commercialization. From 2003 to the present, Dr. Richman was Director and Chief Executive Officer of Innovative Technology Development Center in Tucson, AZ a Not-for-Profit organization promoting sustainable economic development across Southern Arizona with focus on renewable resources. Prior to this, Dr. Richman held senior executive positions with IBM where he worked for 35 years. Dr. Richman received a Bachelor of Science Degree in Chemistry from New York University, a Master of Science in Chemistry at the University of Colorado, a Doctor of Philosophy in Chemistry from the University of Colorado, the Wharton Executive Program, Wharton School, Senior Management Development at Sands Point IBM. Dr. Richman is also a Director of Titan Iron Ore Corp. (OTCBB: TFER).

Hyundae Kim

Mr. Kim was a director of POSCO in Seoul, Korea from November 2009 to September 2011. He was the Managing Director of ILJIN Group of Seoul, Korea from July 2006 to October 2009 and a Vice Director with the Korean Government from September 2001 to June 2006.

Dr. David Hackman

Dr. David Hackman is a geologist and a registered professional engineer with over 35 years international experience specializing in the evaluation of leachable and other metal deposits. He has worked as a geologist for Mobil Oil Company and ALCOA. From 1990 to 1995, he was the president, of Liximin, Inc., a mineral exploration and mine development company based in Tucson, Arizona. From 1996 to 2000, he was an officer and director of Silver Eagle Resources Ltd. Currently, Dr. Hackman is the V.P of Exploration and a Director of Zoro Mining Corp. and Pacific Copper Corp., and is also the V.P. of Exploration for Titan Iron Ore Corp.

Frank Garcia

Frank Garcia from 2007 to the present has worked as Accounting Manager for Kriyah Consultants LLC providing accounting services for mining exploration companies. From 1997 to 2006, Mr. Garcia was employed in senior management positions by Misys PLC, a global software and solutions company serving customers in international banking and securities, international healthcare, and UK retail financial services. Prior to 1997 Mr. Garcia held executive positions with CEMEX, a world leader in the construction materials industry. Mr. Garcia is currently the CFO of two publicly-traded mining companies-- Zoro Mining Corp. (OTCBB/OTCQB: ZORM) and Titan Iron Ore Corp. (OTCBB: TFER ). Mr. Garcia received his Bachelor of Science –Business Administration—Major in Accounting from the University of Arizona in 1981.

Jodi Henderson

Jodi Henderson is currently the Director of Operations for Kriyah Consultants, LLC an administration company that manages publicly held mining exploration companies. Prior to her September 2007 appointment to Kriyah she managed the administration and marketing for the International Mining & Metals Group of CB Richard Ellis, Inc. After she received her degree in Applied Mathematics from the Indiana State University she gained 10 years of board, administration and finance management experience which included a tenure as a Director for the Tucson Museum of Art from 2002 to 2005. Currently, Ms. Henderson is the Secretary and Treasurer for Zoro Mining Corp. (OTCBB/OTCQB: ZORM) and Secretary of Pacific Copper Corp. (OTCBB: PPFP) and Titan Iron Ore Corp. (OTCQB: TFER ).

Relationships

There are no family relationships between any of the directors or executive officers of our company.

There are no arrangements or understandings between any of the directors and/or executive officers and any other person pursuant to which that director and/or executive officer was selected.


B.                      Compensation

General

For the purpose of this annual report on Form 20-F:

CEO” of the Company means each individual who acted as chief executive officer of the Company or acted in a similar capacity for any part of the most recently completed financial year;

CFO” of the Company means each individual who acted as chief financial officer of the Company or acted in a similar capacity for any part of the most recently completed financial year; and

“Named Executive Officers” or “NEO” means:

(a)

the Company’s CEO,

   
(b)

the Company’s CFO,

   
(c)

each of the Company’s three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year and whose total compensation was, individually, more than $150,000 as determined in accordance with applicable securities laws, and

   
(d)

any individual who would be a NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity at the end of the most recently completed financial year.

Compensation Discussion and Analysis

The overall objective of the Company’s compensation strategy is to offer medium-term and long-term compensation components to ensure that the Company has in place programs to attract, retain and develop management of the highest calibre and has in place a process to provide for the orderly succession of management, including receipt on an annual basis of any recommendations of the chief executive officer, if any, in this regard. The Company currently has medium-term and long-term compensation components in place, such as the stock options granted which have expiry dates in 2015 and 2020, respectively. The Company intends to further develop these compensation components. The objectives of the Company’s compensation policies and procedures are to align the interests of the Company’s employees with the interests of the Company’s shareholders. Therefore, a significant portion of the total compensation is based upon overall corporate performance. The Company relies on Board discussion without a formal agenda for objectives, criteria and analysis when determining executive compensation. There are no formal performance goals or similar conditions that must be satisfied in connection with the payment of executive compensation.

The Company does not have in place a Compensation and Nominating Committee. All tasks related to developing and monitoring the Company’s approach to the compensation of officers of the Company and to developing and monitoring the Company’s approach to the nomination of directors to the Board are performed by the members of the Board. The compensation of the NEOs and the Company’s employees are reviewed, recommended and approved by the Board.

The Company directly, or indirectly through companies managed by NEOs, pays management fees to NEOs. The Company also chooses to grant stock options to NEOs and directors to satisfy the long-term compensation component. The Board may consider, on an annual basis, an award of bonuses to key executives and senior management. The amount and award of such bonuses is discretionary, depending on, among other factors, the financial performance of the Company and the position of a participant. The Board considers that the payment of such discretionary annual cash bonuses satisfies the medium term compensation component. In the future, the Board may also consider the grant of options to purchase common shares of the Company with longer future vesting dates to satisfy the long term compensation component.

Risk Management Disclosure

The Board of Directors has reviewed the elements of compensation of the Company to identify any risks arising from the Company's compensation policies and practices that could reasonably be expected to have a material adverse effect on the Company as well as the practices used to mitigate any such risks. The Board of Directors concluded that the compensation program and policies of the Company did not encourage its executives to take inappropriate or excessive risks. This assessment was based on a number of considerations, including, without limitation, the following: (i) the Company's compensation policies and practices are generally uniform throughout the organization; (ii) in exercising its discretion under its compensation policies the Board of Directors reviews individual and corporate performance taking into account the long-term interests of the Company; and (iii) the results of annual assessments of executives' goals, objectives and performance are reviewed and considered in awarding compensation.


Restrictions on Purchase of Financial Instruments

Although the Company has not adopted a formal policy forbidding an NEO or director from purchasing financial instruments that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the NEO or director, the Company is not aware of any NEO or director having entered into this type of transaction.

Compensation Governance

The Board has not adopted any specific policies or practices to determine the compensation for the Company’s directors and officers, other than disclosed above. The Company has not established a compensation committee.

Summary Compensation Table

Particulars of compensation paid to each NEO in the three most recently completed financial years are set out in the summary compensation table below.









Name and Principal
Position









Year








Salary
($)





Share-
based
Awards
(2)
($)






Option-
based
Awards(3)
($)
Non-equity
Incentive Plan
Compensation(1)
($)







Pension
Value
($)






All Other
Compens-
ation
($)






Total
Compens-
ation
($)


Annual
Incentive
Plans
Long-
term
Incent
ive
Plans
Andrew Brodkey(4)
Chairman of the Board,
Chief Executive Officer
and President
2012
2011
2010
134,020
140,044
45,542
Nil
Nil
Nil
97,543
122,966
22,085
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
231,563
263,010
67,627
Jodi Henderson(5)
Corporate Secretary
2012
2011
2010
50,668
53,484
13,995
Nil
Nil
Nil
27,470
56,555
22,086
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
78,138
110,039
26,081
David Hackman(6)
V.P. Exploration
2012
2011
2010
70,962
73,720
19,037
Nil
Nil
Nil
14,446
37,149
22,086
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
85,408
110,869
42,123
Frank Garcia(7)
Chief Financial Officer
2012
2011
2010
54,117
48,032
12,560
Nil
Nil
Nil
27,322
78,752
22,085
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
81,439
126,784
34,645
Jerry Minni(8)
Former Chief Financial
Officer
2012
2011
200
N/A
7,000
48,000
N/A
Nil
Nil
N/A
19,050
19,050
N/A
Nil
Nil
N/A
Nil
Nil
N/A
Nil
Nil
N/A
Nil
25,875
N/A
26,050
92,925

1.

“Non-equity Incentive Plan Compensation” includes all compensation under an incentive plan or portion of an incentive plan that is not an equity incentive plan.

   
2.

“Share-based Awards” means an award under an equity incentive plan of equity-based instruments that do not have option-like features, including, for greater certainty, common shares, restricted shares, restricted share units, deferred share units, phantom shares, phantom share units, common share equivalent units, and stock.




3.

“Option-based Awards” means an award under an equity incentive plan of options, including, for greater certainty, share options, share appreciation rights, and similar instruments that have option-like features. The value of these options in 2012 is estimated using the Black-Scholes option pricing model with the following assumptions: share price of $0.12, risk free interest rate of 2.13%, expected stock price volatility of 147%, expected dividend yield of 0 and expected term of 10 years. The value of these options in 2011 is estimated using the Black-Scholes option pricing model with the following assumptions: share price of $0.25, risk free interest rate of 3.04%, expected stock price volatility of 144%, expected dividend yield of 0 and expected term of 7.6 years. The value of these options in 2010 is estimated using the Black-Scholes option pricing model with the following assumptions: share price of $0.23, risk free interest rate of 2.35%, expected stock price volatility of 138%, expected dividend yield of 0 and expected term of 4.38 years.

   
4.

Andrew Brodkey was appointed as the President, Chief Executive Officer and a director of the Company on December 4, 2009.

   
5.

Jodi Henderson was appointed as Corporate Secretary on December 4, 2009.

   
6.

David Hackman was appointed V.P. Exploration of the Company on December 4, 2009. The payment of $19,037 and $73,720 in the financial year ended February 28, 2010 and 2011, respectively, was paid to Sage Associates Inc, a company wholly owned by David Hackman.

   
7.

Frank Garcia was appointed Chief Financial Officer of the Company on March 30, 2010.

   
8.

Jerry Minni was appointed the Chief Financial Officer of the Company on September 18, 2006 and resigned from that position on March 30, 2010. Jerry Minni’s total compensation for 2010 includes $48,000 to JVM Management Ltd., a company controlled by Jerry Minni, $12,125 accounting fees and $13,750 for office facilities and rent.

Narrative Discussion

The Company entered into an employment agreement dated November 1, 2009 with Andrew Brodkey, Chief Executive Officer, President and a director of the Company. Pursuant to the terms of the agreement, the Company agreed to pay Mr. Brodkey a base salary of US$10,000 per month and grant options to acquire 1,500,000 common shares of the Company, the terms of which were to be agreed upon at a later date. The term of the agreement is for a two year period with automatic renewals for similar two year periods. The agreement can be terminated with 30 days notice. If the agreement is terminated, subject to certain conditions, the Company will pay a severance of one month’s compensation for every month of service up to a maximum of two year’s wages.

The Company entered into a consulting agreement dated November 1, 2009 with Sage Associates Inc., a company wholly owned by Dr. David Hackman, an officer of the Company. Pursuant to the terms of the agreement, Sage Associates agreed to provide geological and advisory services in consideration for the payment of US$6,000 per month. Such services primarily involve geologic evaluation of properties, design and implementation of exploration programs, and coordination with outside independent geologists. The term of this agreement extends through the end of the calendar year 2010 and can be renewed at the Company’s discretion. Either party without notice may terminate this agreement, and if the Company exercises its right it will only be obligated to pay Dr. Hackman for the fees actually earned by Dr. Hackman.

The Company entered into a consulting agreement dated November 1, 2009 with JVM Management Ltd., a company wholly owned by Jerry Minni, formerly the Chief Financial Officer, Secretary and a director of the Company. Pursuant to the terms of the agreement, JVM Management provided administrative and management services to the Company in consideration for the payment of $3,500 per month. These services included day-to-day operations of the Company as well as bookkeeping, all regulatory filings, contracts, procurement of services, and related matters. The Company also paid accounting fees of $12,125 to J.A. Minni & Associates Inc., and rent of $13,750 to Earls Cove Financial Corp., both of which entities were controlled by Jerry Minni, a former director and officer, or were entities in which Mr. Minni was a partner or proprietor. Jerry Minni resigned as the Company’s Chief Financial Officer on March 30, 2010.

The Company has not granted any stock options to its NEO’s subsequent to the financial year ended February 29, 2012.

The Company has also engaged Kriyah Consultants LLC, a company managed by Andrew Brodkey, to provide administrative services for US$2,500 per month.


Other than as set forth in the foregoing, no NEO of the Company has received, during the most recently completed financial year, compensation pursuant to:

  (a)

any standard arrangement for the compensation of NEOs for their services in their capacity as NEOs, including any additional amounts payable for committee participation or special assignments;

     
  (b)

any other arrangement, in addition to, or in lieu of, any standard arrangement, for the compensation of NEOs in their capacity as NEOs; or

     
  (c)

any arrangement for the compensation of NEOs for services as consultants or expert.

Incentive Plan Awards

An “incentive plan” is any plan providing compensation that depends on achieving certain performance goals or similar conditions within a specified period. An “incentive plan award” means compensation awarded, earned, paid, or payable under an incentive plan.

Outstanding Share-Based Awards and Option-Based Awards

The following table sets forth all option and share-based awards granted to NEOs that were outstanding as of February 29, 2012, including awards granted before the year ended February 29, 2012.

Name Option-based Awards Share-based Awards


Number of
securities
underlying
unexercised
options
(#)




Option
exercise
price
($)






Option
expiration date


Value of
unexercised
in-the-
money
options
($)(1)

Number of
shares or
units of
shares that
have not
vested
(#)
Market or
payout value
of share-
based
awards that
have not
vested
($)
Andrew Brodkey(2)
Chairman of the Board,
Chief Executive Officer
and President
100,000
75,000
350,000
$0.50
$0.55
$0.30
Jan. 15, 2015
March 30, 2015
May 26, 2020

Nil


Nil


Nil

Jodi Henderson(3)
Corporate Secretary

100,000
51,200
23,800
50,000
$0.50
$0.55
$0.55
$0.30
Jan. 15, 2015
March 30, 2015
March 30, 2020
May 26, 2020


Nil


Nil


Nil
David Hackman(4)
V.P. Exploration
100,000
50,000
$0.50
$0.55
Jan. 15, 2015
March 30, 2015

Nil

Nil

Nil
Frank Garcia(5)
Chief Financial Officer
100,000
75,000
50,000
$0.50
$0.55
$0.30
Jan. 15, 2015
March 30, 2020
May 26, 2020

Nil

Nil

Nil
Jerry Minni(6)
Former Chief Financial
Officer

Nil

Nil

Nil

Nil

Nil

Nil

1.

The closing price of the Company’s common shares on February 29, 2012 was $0.065 .

2.

Andrew Brodkey was appointed as the President, Chief Executive Officer and a director of the Company on December 4, 2009.

3.

Jodi Henderson was appointed as Corporate Secretary on December 4, 2009.

4.

David Hackman was appointed V.P. Exploration of the Company on December 4, 2009.

5.

Frank Garcia was appointed Chief Financial Officer of the Company on March 30, 2010.

6.

Jerry Minni was appointed the Chief Financial Officer of the Company on September 18, 2006 and resigned from that position on March 30, 2010.



Incentive Plan Awards – Value Vested or Earned During the Year

The following table sets forth details of the value vested or earned for all incentive plan awards during the year ended February 29, 2012 by NEOs.





Name

Option-based awards –
Value vested during the
year
($)

Share-based awards –
Value vested during the
year
($)
Non-equity incentive
plan compensation –
Value earned during the
year
($)
Andrew Brodkey(1)
Chairman of the Board,
Chief Executive Officer
and President
97,543 Nil Nil
Jodi Henderson(2)
Corporate Secretary
27,470 Nil Nil
David Hackman(3)
V.P. Exploration
14,446 Nil Nil
Frank Garcia(4)
Chief Financial Officer
27,322 Nil Nil
Jerry Minni(5)
Former Chief Financial
Officer
Nil Nil Nil

7.

Andrew Brodkey was appointed as President, Chief Executive Officer and a director of the Company on December 4, 2009. On March 30, 2010, 75,000 stock options were granted to this optionee at an exercise price of $0.55. On May 26, 2010, 350,000 stock options were granted to this optionee at an exercise price of $0.30.

8.

Jodi Henderson was appointed as Corporate Secretary on December 4, 2009. On March 30, 2010, 75,000 stock options were granted to this optionee at an exercise price of $0.55. On May 25, 2010, 50,000 stock options were granted to this optionee at an exercise price of $0.30.

9.

David Hackman was appointed V.P. Exploration of the Company on December 4, 2009. On March 30, 2010, 50,000 stock options were granted to this optionee at an exercise price of $0.55.

10.

Frank Garcia was appointed Chief Financial Officer of the Company on March 30, 2010. On March 30, 2010, 75,000 stock options were granted to this optionee at an exercise price of $0.55. On May 26, 2010, 50,000 stock options were granted to this optionee at an exercise price of $0.30.

11.

Jerry Minni was appointed the Chief Financial Officer of the Company on September 16, 2006 and resigned from that position on March 30, 2010.

Narrative Discussion

Refer to the section titled “Compensation Discussion and Analysis”, above, and “Stock Option Plan”, below, for a description of all plan based awards and their significant terms. Also refer to the copy of the stock option plan attached to this Information Circular as Schedule “A”. There was no re-pricing of stock options under the stock option plan or otherwise during the Company’s most recently completed financial year ended February 29, 2012.

The Company has not granted any stock options to it’s NEO’s subsequent to the financial year ended February 29, 2012.

Pension Plan Benefits

The Company does not have a pension plan that provides for payments or benefits to the NEOs at, following, or in connection with retirement.

Defined Benefits Plans

The Company does not have a pension plan that provide for payments or benefits at, following, or in connection with retirement, excluding defined contribution plans.


Defined Contribution Plans

The Company does not have a pension plan that provides for payments or benefits at, following or in connection with retirement, excluding defined benefit plans.

Deferred Compensation Plans

The Company does not have any deferred compensation plan with respect to any NEO.

Termination and Change of Control Benefits

If the Company terminates the employment agreement with Andrew Brodkey, the Company will pay a severance of one month’s compensation for every month of service up to a maximum of two year’s wages.

Director Compensation

Director Compensation Table

The following table sets forth the details of all compensation provided to the Company’s directors, other than the NEOs, during the Company’s most recently completed financial year ended February 29, 2012.





Name


Fees
earned
($)

Share-
based
awards
($)

Option-
based
awards
($)
Non-equity
incentive
plan
compensation
($)


Pension
value
($)


All other
compensation
($)



Total
($)
Dr. David Terry(1) $13,440 Nil $3,046 Nil Nil Nil $16,486
Dr. Ronald Richman(2) $11,804 Nil $25,490 Nil Nil Nil $37,294
Hyundae Kim(3) Nil Nil Nil Nil Nil Nil Nil

12.

Dr. David Terry has been a director of the Company since May 30, 2008. David Terry was granted an aggregate of 100,000 stock options. The fair value of the vested options on the date of grant was calculated using the Black-Scholes option pricing model, which valued them at $0.25.

13.

Dr. Ronald Richman was appointed a director of the Company on April 14, 2010. Ronald Richman was granted an aggregate of 200,000 stock options. The fair value of the vested options on the date of grant was calculated using the Black-Scholes option pricing model, which valued them at $0.25.

14.

Hyundae Kim was appointed a director of the Company on September 15, 2011.

Narrative Discussion

Dr. David Terry has entered into an Independent Director Agreement with the Company for a monthly fee of USD $1,000 that continued until the Annual General Meeting. As Dr. Terry was re-elected as a director at the Meeting, the Company intends to extend the term of that Independent Director Agreement. Either party without notice may terminate this agreement, and if the Company exercises its right, the Dr. Terry shall be entitled to keep the monthly fee already paid to him for that calendar month.

Dr. Ronald Richman entered into an Independent Director Agreement with the Company for a monthly fee of USD $1,000 that continued until the Annual General Meeting. As Dr. Richman was re-elected as a director at the Meeting, the Company intends to extend the term of that Independent Director Agreement. Either party without notice may terminate this agreement, and if the Company exercises its right, Dr. Richman shall be entitled to keep the monthly fee already paid to him for that calendar month.

Other than noted above, the Company does not have any arrangements, standard or otherwise, pursuant to which non-NEO directors are compensated by the Company for their services in their capacity as directors, or for committee participation, involvement in special assignments or for services as consultants or experts. The Board intends to continue to compensate directors primarily through the grant of stock options and reimbursement of expenses incurred by such persons acting as directors of the Company.


Outstanding Share-Based Awards and Option-Based Awards for Directors

The following table sets forth all option and share-based awards granted to the Company’s directors, other than the NEOs, that were outstanding as of February 29, 2012.

  Option-based Awards Share-based Awards






Name

Number of
securities
underlying
unexercised
options
(#)




Option
exercise price
($)




Option
expiration
date

Value of
unexercised
in-the-
money
options(1)
($)
Number of
shares or
units of
shares that
have not
vested
(#)
Market or
payout value
of share-based
awards that
have not
vested
($)
Dr. David Terry
300,000
100,000
0.15
0.30
September 15, 2013
May 26, 2020
Nil
Nil
Nil
Dr. Ronald Richman 200,000 0.55 April 9, 2020 Nil Nil Nil
Hyundae Kim Nil Nil Nil Nil Nil Nil

1.

The closing price of the Company’s common shares on February 29, 2012 was $0.065.

Incentive Plan Awards – Value Vested or Earned During the Year

The following table sets forth details of the value vested or earned for all incentive plan awards during the year ended February 29, 2012 by directors.





Name

Option-based awards –
Value vested during the
year
($)

Share-based awards –
Value vested during the
year
($)
Non-equity incentive
plan compensation –
Value earned during the
year
($)
Dr. David Terry(1) 3,046 Nil Nil
Dr. Ronald Richman(2) 25,490 Nil Nil
Hyundae Kim Nil Nil Nil

1.

On May 25, 2010, 100,000 stock option granted to this optionee at an exercise price of $0.30. On June 25, 2012, the closing price of the Company’s common shares was $0.05.

   
2.

On April 14, 2010, 200,000 stock option granted to this optionee at an exercise price of $0.55. On June 25, 2012, the closing price of the Company’s common shares was $0.05.

Narrative Discussion

The Company has not granted any stock options to its directors subsequent to the financial year ended February 29, 2012.

C.                      Board Practices

Our directors are re-elected and our officers are re-appointed at the annual general meeting of our shareholders. The last annual general meeting was held on August 5, 2011 and each of our current directors and officers will continue to hold his respective office until his successor is elected or appointed, unless his office is earlier vacated under any of the relevant provisions of our Articles or of the British Columbia Business Corporations Act.

If the Company terminates the employment agreement with Andrew Brodkey, the Company will pay a severance of one month’s compensation for every month of service up to a maximum of two year’s wages.


The members of the Company’s Audit Committee are:

Member Independent(1) Financially Literate(2)
Andrew Brodkey No Yes
Dr. David Terry Yes Yes
Dr. Ronald Richman Yes Yes

1

A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company, which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment. Mr. Brodkey is not independent, as he is the President and Chief Executive Officer of the Company.

2

An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.

The audit committee reviews and approves the scope of the audit procedures employed by our independent auditors, reviews the results of the auditor’s examination, the scope of audits. The audit committee also recommends the selection of independent auditors.

D.                      Employees

As of June 28, 2012, we had 1 employee, including management.

E.                      Share Ownership

As of 25, 2012, there are 57,749,783 common shares of our company issued and outstanding. Our directors and officers owned, directly or indirectly, the following common shares:



Name
Number of Common
Shares
Beneficially Owned

Percentage(1)
Andrew Brodkey 2,023,000 3.5%
Dr. David Terry nil 0.0%
Dr. Ronald Richman nil 0.0%
Dr David Hackman 300,000 0.5%
Hyundae Kim nil 0.0%
Frank Garcia 200,000 0.3%
Jodi Henderson 200,000 0.3%

1

Based on 57,749,783 shares of common stock issued and outstanding as of June 25, 2012. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.

For a discussion regarding any arrangement that involves the issue or grant of options or shares or securities of the Company, please see the discussion under “Item 6B Compensation”.

ITEM 7                        Major Shareholders and Related Party Transactions

The following table sets forth persons known to us to be the beneficial owner of more than five percent (5%) of each class of our shares issued and outstanding as of June 25, 2012:



Name Number of Common Shares(1) Percentage of Common Shares(2)
CDS & Co. 45,116,216 78.12

1

Does not include options to acquire common shares of our company held by the persons set forth in the table.

2

Based on 57,749,783 common shares issued and outstanding as of June 25, 2012. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.

The voting rights of our major shareholder do not differ from the voting rights of holders of our company’s shares who are not major shareholders.

As of June 25, 2012, Computershare Trust Company, our registrar and transfer agent, reported that our company’s 57,749,783 common shares are held as follows:


Location

Number of Shares

Percentage of Shares
Number of Registered
Shareholders of Record
Canada 47,117,573 81.59% 12
United States 6,688,610 11.58% 31
Other 3,943,600 6.83% 4
Total 57,749,783 100% 47

There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our company.

B.                      Related Party Transactions

Other than as disclosed herein, to the best of our knowledge, there have been no material transactions or loans from March 1, 2010 up to the date of this annual report between our company and: (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over our company, and close members of any such individual’s family; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.

As of February 29, 2012 and February 28, 2011 the Company has identified its directors and certain senior officers as its key management personnel and the compensation costs for key management personnel and companies related to them were recorded at their exchange amounts as agreed upon by transacting parties and on terms and conditions similar to non-related parties.

The compensation costs for key management personnel for the year ended February 29, 2012 and February 28, 2011 are as follows:

      February 29,     February 28,  
      2012     2011  
  Salaries and benefits $  335,011   $  343,468  
  Share-based payments   195,317     370,701  
    $  530,328   $  714,169  

Other related party transactions:

  a)

Management fees and rent of $32,061 and $14,461 (February 28, 2011 - $30,756 and $16,153) were incurred to a company in which a director and officer is general manager and a balance of $18,401 was owing to this party as at February 29, 2012 (February 28, 2011: $Nil).




  b)

Deferred exploration costs of $23,543 (February 28, 2011 - $34,735) were incurred to a company with one director and two officers in common.

     
  c)

As at February 29, 2012, accounts payable includes $nil (February 28, 2011 - $437) owing to an officer of the Company and accrued liabilities include $nil (February 28, 2011 - $183,747) for unissued stock options to the President and CEO of the Company.

     
  d)

An officer and director of the Company purchased 1,000,000 shares of the Company’s common stock at $0.06 per share for gross proceeds of $60,000.

The Company entered into an employment agreement dated November 1, 2009 with Andrew Brodkey, the current Chief Executive Officer and a director of the Company. Pursuant to the terms of the agreement, the Company has agreed to pay Mr. Brodkey a base salary of US$10,000 per month and options to acquire 1.5 million shares of the Company, the terms of which were to be agreed upon at a later date. During the year ended February 29, 2012, the Company incurred $134,020 to Mr. Brodkey. In addition, the Company entered into a consulting agreement dated November 1, 2009 with Sage Associates Inc., a company wholly-owned by David Hackman, an officer of the Company. Pursuant to the terms of the agreement, Sage Associates agreed to provide geological and advisory services in consideration for the payment of US$6,000 per month. During the year ended February 29, 2012, the Company incurred $70,962 to Sage. The Company has engaged Kriyah Consultants LLC, a company whose Manager is Andrew Brodkey, to provide administrative services for US$2,500 per month and incurred $32,061 during the year ended February 29, 2012. During this same period, the Company incurred $50,668 to Jodi Henderson, the Company’s Corporate Secretary and $54,117 to Frank Garcia, the Company’s Chief Financial Officer.

On September 23, 2011, the Company entered into stock option agreements with each of Andrew Brodkey, David Hackman, Frank Garcia, and Jodi Henderson. Andrew Brodkey is a director and officer of the Company and David Hackman and Jodi Henderson are officers of the Company. All options are exercisable at a price of $0.15 per share until September 22, 2022. Andrew Brodkey was granted options to purchase 975,000 shares; David Hackman was granted options to purchase 150,000 shares; Frank Garcia was granted options to purchase 275,000 shares and Jodi Henderson was granted options to purchase 275,000 shares.

ITEM 8                        Financial Information

A.                      Financial Statements and Other Financial Information

Effective March 1, 2010, we adopted IFRS pursuant to National Instrument 52-107, Acceptable Accounting Principles, Auditing Standards and Reporting Currency. The consolidated financial statements have been prepared in compliance with IFRS. See “Item 18: Financial Statements”.

Legal Proceedings

There are no pending legal proceedings to which we are a party or of which any of our property is the subject. There are no legal proceedings to which any director, officer or affiliate of our company or any associate of any such director, officer or affiliate of our company is a party or has a material interest adverse to us.

Dividend Distributions

Holders of our common shares are entitled to receive such dividends as may be declared from time to time by our board, in its discretion, out of funds legally available for that purpose. We intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future.

B.                      Significant Changes

None.

ITEM 9                        The Offer and Listing

A.                      Offer and Listing Details

Our common shares started traded on the TSX Venture Exchange on July 28, 2009. Since April 4, 2011, our common shares have been quoted on the OTC Bulletin Board, and the OTCQB Exchange, under the symbol “PALTF”.


Our authorized capital consists of unlimited common shares without par value. Our preference shares may be issued in one or more series and our directors may fix the number of shares which is to comprise each series and the designation, rights, privileges, restrictions and conditions attaching to each series.

Holders of our common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, receive any dividend declared by our company’s board of directors and, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares, receive the remaining property of our company upon dissolution.

  TSX VENTURE EXCHANGE
     
Year Ended High Low
February 29, 2012 0.180 0.065
February 28, 2011 0.235 0.150
February 28, 2010(1) 0.760 0.063
  OTC BULLETIN BOARD
February 29, 2012(2) 0.200 0.130

1.

Our common shares started trading on the TSX Venture Exchange on July 28, 2009.

2.

Our common shares started trading on the OTC Bulletin Board on April 4, 2011.

The high and low market prices for our common shares for each full financial quarter for the two most recent full fiscal years on the Over-the-Counter Bulletin Board were as follows:

  TSX VENTURE EXCHANGE
     
Quarter Ended High Low
May 31, 2012  0.070 0.050
February 29, 2012  0.095 0.065
November 30, 2011  0.130 0.075
August 31, 2011  0.160 0.110
May 31, 2011  0.180 0.135
February 28, 2011  0.235 0.200
November 30, 2010  0.235 0.185
August 31, 2010  0.185 0.150
     OTC BULLETIN BOARD
May 31, 2012  0.070 0.047
February 29, 2012  0.098 0.065
November 30, 2011  0.115 0.080
August 31, 2011  0.169 0.129
May 31, 2011  0.195 0.140
February 28, 2011  0.240 0.200

The high and low market prices of our common shares for each of the most recent six months, from November 30, 2011 through April 30, 2012 on the TSX Venture Exchange and the OTC Bulletin Board were as follows:

  TSX Venture Exchange
Month High Low
May 2012 0.070 0.050
April 2012 0.095 0.055
March 2012 0.095 0.070
February 2012 0.095 0.065
January 2012 0.100 0.065
December 2011 0.085 0.060
  OTC Bulletin Board
May 2012 0.070 0.047
April 2012 0.096 0.061
March 2012 0.096 0.068
February 2012 0.098 0.065
January 2012 0.105 0.064
December 2011 0.078 0.053


B.                      Plan of Distribution

Not applicable.

C.                      Markets

Our common shares are exclusively traded on the TSX Venture Exchange and the OTC Bulletin Board.

D.                      Selling Shareholders

Not applicable.

E.                      Dilution

Not applicable.

F.                      Expenses of the Issue

Not applicable.

ITEM 10                      Additional Information

A.                      Share Capital

Not applicable.

B.                      Memorandum and Articles of Association

We are incorporated under the laws of the Province of British Columbia, Canada and have been assigned incorporation number 0769134

Our Articles do not contain a description of our objects and purposes.

Our Articles do not restrict a director’s power to (a) vote on a proposal, arrangement or contract in which the director is materially interested, (b) to vote compensation to themselves or any other members of their body in the absence of an independent quorum, or (c) exercise borrowing powers. Under our Articles, there is no mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve as directors.

Our authorized capital consists of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value.

Holders of our common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, receive any dividend declared by our company’s board of directors and, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares, receive the remaining property of our company upon dissolution.

Our Articles state that the rights attaching to our common shares and preference shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of our common and preference shares.

At each annual general meeting of our company, all of our directors retire and the shareholders elect a new board of directors. Each director holds office until our next annual general meeting, or until his office is earlier vacated in accordance with our Articles or with the provisions of the British Columbia Business Corporations Act. A director appointed or elected to fill a vacancy on our board also holds office until our next annual general meeting.

Our Articles provide that our annual meetings of shareholders must be held at such time in each calendar year and not more than 15 months after the last annual general meeting and at such place as our board of directors may from time to time determine.


Under our Articles, and subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of our shareholders is two persons who are present in person or by proxy.

Our Articles state that our directors, the President, the Secretary, and any lawyer or auditor of our company are entitled to attend any meeting of our shareholders.

Except as provided in the Investment Canada Act, or similar legislation, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia, or in our charter documents.

There are no provisions in our Articles that would have the effect of delaying, deferring or preventing a change in control of our company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving our company.

Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed. Securities legislation in Canada, however, requires that we disclose in our annual general meeting proxy statement, holders who beneficially own more than 10% of our issued and outstanding shares, and United States Federal securities laws require the disclosure in our annual report on Form 20-F of holders who own more than 5% of our issued and outstanding shares.

At its annual and special shareholders’ meeting held on August 5, 2011, the Company’s shareholders approved the alternation of the Company’s Notice of Articles and Article to amend and increase the authorized share structure of the Company to authorize an unlimited number of a new class of Preferred Shares without par value, issuable in series, with special rights and restrictions applicable to the Preferred Shares which permit the directors to affix specific rights and restrictions to each series if, as and when issued.

C.                      Material Contracts

The material contracts to which we are a party which were entered into during the last two fiscal years are as follows:

  1.

Consulting and Professional Services Agreement between JVM Management Ltd. and Etna Resources Inc. dated November 3, 2009.

     
  2.

Consulting and Professional Services Agreement between Sage Associates, Inc. and Etna Resources Inc. dated November 1, 2009.

     
  3.

Consulting Services Agreement between Kriyah Consultants LLC. and Etna Resources Inc. dated November 1, 2009.

     
  4.

Consulting Services Agreement between Tim Lowenstein and Etna Resources Inc. dated November 1, 2009.

     
  5.

Employment Agreement between Etna Resources Inc. and Andrew Brodkey dated November 1, 2009.

     
  6.

Independent Director Agreement between Pan American Lithium Corp. and Ronald Richman dated April 30, 2010.

     
  7.

Independent Director Agreement between Pan American Lithium Corp. and David Terry dated April 30, 2010.

     
  8.

Amended and Restated Consulting Services Agreement dated May 3, 2011 by and between Level 3 Capital Management Inc. and Pan American Lithium Corp.

     
  9.

A Purchase Agreement between Pan American Lithium Corp. and Sociedad Gareste, Limitada (“Gareste”) dated February 14, 2011.

     
  10.

A binding letter of intent with Gareste dated February 14, 2011 to acquire interests through joint ventures in two new lithium brine projects.




  11.

Joint Venture Agreement with Gareste to acquire an interest in Maricunga dated April 30, 2012.

D.                      Exchange Controls

There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See “Taxation” below.

E.                      Taxation

Material Canadian Federal Income Tax Consequences

We consider that the following general summary fairly describes the principal Canadian Federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, who is not, will not be and will not be deemed to be, a resident of Canada for purposes of the Income Tax Act (Canada) and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his common shares in the capital of our company in connection with carrying on a business in Canada, referred to as a “non-resident holder”.

This summary is based upon the current provisions of the Income Tax Act, the regulations thereunder, referred to as the “Regulations”, the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Canada-United States Tax Convention (1980), as amended, referred to as the “Treaty”. This summary also takes into account the amendments to the Income Tax Act and the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof, referred to as the “Tax Proposals”, and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian Federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian Federal income tax consequences described herein.

This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.

Dividends

Dividends paid on our common shares to a non-resident holder will be subject under the Income Tax Act to withholding tax which tax is deducted at source by our company. The withholding tax rate for dividends prescribed by the Income Tax Act is 25% but this rate may be reduced under the provisions of an applicable tax treaty. Under the Treaty, the withholding tax rate is reduced to 15% on dividends paid by our company to residents of the United States and is further reduced to 5% where the beneficial owner of the dividends is a corporation resident in the United States that owns at least 10% of the voting shares of our company.

Capital Gains

A non-resident holder is not subject to tax under the Income Tax Act in respect of a capital gain realized upon the disposition of a common share of our company unless such share is “taxable Canadian property” (as defined in the Income Tax Act) of the non-resident holder. Our common shares generally will not be taxable Canadian property of a non-resident holder unless the non-resident holder alone or together with non-arm’s length persons owned, or had an interest in an option in respect of, not less than 25% of the issued shares of any class of our capital stock at any time during the 60-month period immediately preceding the disposition of the shares. In the case of a non-resident holder resident in the United States for whom shares of our company are taxable Canadian property, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada.


Material United States Federal Income Tax Consequences

The following is a general discussion of certain possible United States Federal foreign income tax matters under current law, generally applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all aspects of United States Federal income tax matters and does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. See "Material Canadian Federal Income Tax Consequences" above.

The following discussion is based upon the Internal Revenue Code of 1986, as amended, referred to as the "Code" , Treasury Regulations, published by the Internal Revenue Service, referred to as "IRS" , rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. No assurance can be given that the IRS will agree with such statements and conclusions, or will not take, or a court will not adopt, a position contrary to any position taken herein.

The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal, business or tax advice to any holder or prospective holder of our common shares, and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares are urged to consult their own tax advisors with respect to Federal, state, local and foreign tax consequences of purchasing, owning and disposing of our common shares.

U.S. Holders

As used herein, a "U.S. Holder" includes a holder of less than 10% of our common shares who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity which is taxable as a corporation for United States tax purposes and any other person or entity whose ownership of our common shares is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.

Distributions

The gross amount of a distribution paid to a U.S. Holder will generally be taxable as dividend income to the U.S. Holder for United States Federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under United States Federal income tax principles. Distributions which are taxable dividends and which meet certain requirements will be "qualified dividend income" and taxed to U.S. Holders at a maximum United States Federal rate of 15%. Distributions in excess of our current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent the U.S. Holder' s tax basis in the common shares and, to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such shares.

Capital Gains

In general, upon a sale, exchange or other disposition of common shares, a U.S. Holder will generally recognize a capital gain or loss for United States Federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other distribution and the U.S. Holder' s adjusted tax basis in such shares. Such gain or loss will be a United States source gain or loss and will be treated as a long-term capital gain or loss if the U.S. Holder' s holding period of the shares exceeds one year. If the U.S. Holder is an individual, any capital gain will generally be subject to United States Federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.

Foreign Tax Credit

A U.S. Holder who pays (or has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer' s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the tax credit, among which is an ownership period requirement and the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. The availability of the foreign tax credit and the application of these complex limitations on the tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.


Passive Foreign Investment Corporation

We do not believe that we are a passive foreign investment corporation, referred to as a “PFIC”. However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets and shares from time to time, there is no assurance that we will not be considered a PFIC for any taxable year. If we were treated as a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse tax consequences could apply to the U.S. Holder.

If we are treated as a PFIC for any taxable year, gains recognized by such U.S. Holder on a sale or other disposition of shares would be allocated ratably over the U.S. Holder’s holding period for the shares. The amount allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in respect of shares in excess of 125% of the average of the annual distributions on shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available to U.S. Holders that may mitigate some of the adverse consequences resulting from PFIC status. However, regardless of whether such elections are made, dividends paid by a PFIC will not be “qualified dividend income” and will generally be taxed at the higher rates applicable to other items of ordinary income.

U.S. Holders and prospective holders should consult their own tax advisors regarding the potential application of the PFIC rules to their ownership of our common shares.

F.                      Dividends and Paying Agents

Not applicable.

G.                      Statements by Experts

Not applicable.

H.                      Documents on Display

Documents concerning our company referred to in this annual report may be viewed by appointment during normal business hours at our registered and records office at Suite 800 - 885 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3H1.

I.                      Subsidiary Information

The Company currently holds a 99% interest in South American Lithium Company S.A. Cerrada, a company governed by the laws of Chile.

ITEM 11                      Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 12                      Description of Securities Other Than Equity Securities

None.


PART II

ITEM 13                      Defaults, Dividend Arrearages and Delinquencies

Not applicable.

ITEM 14                      Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

ITEM 15                      Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this annual report, being February 29, 2012. This evaluation was carried out by our CEO (being our principal executive officer) and CFO (being our principal financial officer).

Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are ineffective to ensure that (i) information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission rules and forms and (ii) that such information is accumulated and communicated to our management, including our CEO and CFO in order to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our Board has overall responsibility for reviewing our disclosure to ensure we provide full and plain disclosure to shareholders and other stakeholders. Our Board discharges its responsibilities through its committees, specifically with respect to financial disclosure. The Audit Committee is responsible for reviewing our financial reporting procedures and internal controls to ensure full and accurate disclosure of our financial position.

Our CEO and CFO are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Based on this evaluation the CEO and CFO have concluded that our internal controls over financial reporting as of February 29, 2012 (the “Evaluation Date”) are ineffective. Management has used the framework set forth in the report entitled Internal Control--Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting.

Based on such evaluation, they have concluded that as of the Evaluation Date, certain material weaknesses exist in our internal controls and procedures, however, our CEO and CFO believe that these material weaknesses would not prevent them from becoming aware, on a timely basis, of material information relating to us required to be included in our reports filed or submitted under the Exchange Act due to their involvement in all of our operations. Such weaknesses are:

  (i)

Due to our limited number of staff, it is not feasible to achieve complete segregation of incompatible duties.

     
  (ii)

Due to our limited number of staff, we do not have a sufficient number of finance personnel with all the technical accounting knowledge to address all complex and non-routine accounting transactions that may arise.




  (iii)

We did not have a Whistle Blower Policy in place during the period.

These weaknesses in our internal controls are not pervasive and we have attempted to mitigate their effects. However, these weaknesses impact our internal controls over financial reporting by reducing the effectiveness of the internal controls over financial reporting we have in place. The weaknesses in our internal control also affect financial reporting by increasing the likelihood that a material misstatement would not be prevented or detected.

Attestation Report of Registered Public Accounting Firm

The annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, pursuant to the exemption found in Section 404(c) of the Sarbanes-Oxley Act of 2002, as added by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Changes in Internal Control Over Financial Reporting

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any significant deficiencies or material weaknesses of internal controls that would require corrective action.

ITEM 16                      [Reserved]

ITEM 16A                   Audit Committee Financial Expert

Our board has determined that we do not have a member of our audit committee that qualifies as an “audit committee financial expert” as defined in Item 16A(b) of Form 20-F. We believe that the members of our audit committee, are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.

Our board of directors has determined that Dr. David Terry and Dr. Ronald Richman qualify as “independent” members of our audit committee as that term is defined in Rule 4350(d) of the Marketplace Rules of the FINRA. Andrew Brodkey is not “independent” as defined in Rule 4200(a)(15) of the Marketplace Rules of the FINRA. We believe that having an audit committee financial expert and an audit committee that consists entirely of independent directors would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.

ITEM 16B                   Code of Ethics

The Company has not currently adopted a code of ethics but is evaluating its internal procedures to determine the necessity of same. In the event that it is determined a code of ethics is necessary, an appropriate code will be implemented.

ITEM 16C                   Principal Accountant Fees and Services

Audit Fees

Our board appointed Manning Elliott, Chartered Accountants, as independent auditors to audit our financial statements for the fiscal years ended February 29, 2012 and February 28, 2011. The aggregate of fees billed by Manning Elliott, Chartered Accountants, for professional services rendered for the audit of our annual financial statements included in this annual report for the fiscal years ended 2011 and 2012 were $28,500 and $29,000, respectively.

Audit Related Fees

For the fiscal years ended February 28, 2011 and February 29, 2012, the aggregate fees billed for assurance and related services by Manning Elliott, Chartered Accountants, relating to our quarterly financial statements which are not reported under the caption “Audit Fees” above, were $16,700 and $23,500 for 2011 and 2012, respectively.


Tax Fees

For the fiscal years ended February 28, 2011 and February 29, 2012, the aggregate fees billed for tax compliance, tax advice and tax planning by Manning Elliott, Chartered Accountants, was $1,000 and $1,500 for 2011 and 2012 respectively.

All Other Fees

For the fiscal years ended February 28, 2011 and February 29, 2012, the aggregate fees billed by Manning Elliott, Chartered Accountants, for other non-audit professional services, other than those services listed above, totalled $19,179 and $5,600 for 2011 and 2012, respectively.

Pre-Approval Policies and Procedures

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Manning Elliott, Chartered Accountants, is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

- approved by our audit committee; or
   

-

entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.

The audit committee pre-approves all services provided by our independent auditors. The pre-approval process has been implemented in response to the new rules. Therefore, the audit committee does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the audit committee either before or after the respective services were rendered.

The audit committee has considered the nature and amount of the fees billed by Manning Elliott, Chartered Accountants, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Manning Elliott, Chartered Accountants.

ITEM 16D.                 Exemption from the Listing Standards for Audit Committees

Not Applicable.

ITEM 16E                   Purchases of Equity Securities the Company and Affiliated Purchasers

Not Applicable.

ITEM 16F                   Change in Registrant’s Certifying Account

None.

ITEM 16G                   Corporate Governance

Not Applicable.

ITEM 16H                   Mine Safety Disclosure

None.

PART III

ITEM 17                      Financial Statements

Refer to Item 18 - Financial Statements.


ITEM 18                      Financial Statements

 

 

PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011


(Expressed in Canadian dollars)

 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


INDEPENDENT AUDITORS’ REPORT

To the Shareholders of
Pan American Lithium Corp.

We have audited the accompanying consolidated financial statements of Pan American Lithium Corp. which comprise the consolidated statements of financial position as at February 29, 2012, February 28, 2011 and March 1, 2010, and the consolidated statements of operations and comprehensive loss, changes in equity and cash flows for the years ended February 29, 2012 and February 28, 2011, and the related notes comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained based on our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Pan American Lithium Corp. as at February 29, 2012, February 28, 2011 and March 1, 2010, and its financial performance and cash flows for the years ended February 29, 2012 and February 28, 2011 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter
We draw attention to Note 1 to these consolidated financial statements which describes the uncertainty related to Pan American Lithium Corp’s ability to operate as a going concern in the future. Our opinion is not qualified in respect of this matter.

/s/ “Manning Elliott LLP”

CHARTERED ACCOUNTANTS
Vancouver, British Columbia
June 28, 2012


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Expressed in Canadian Dollars)

    February 29,     February 28,     March 1,  
    2012     2011     2010  
          (Note 12)   (Note 12)
CURRENT ASSETS                  
         Cash $  537,722   $  165,165   $  1,637,451  
         Amounts receivable and prepaid expenses   100,112     69,077     78,650  
                   
Total Current Assets   637,834     234,242     1,716,101  
                   
MINERAL PROPERTIES (Notes 5 and 7)   4,636,325     4,441,553     3,989,952  
                   
TOTAL ASSETS $  5,274,159   $  4,675,795   $  5,706,053  
                   
LIABILITIES AND SHAREHOLDERS’ EQUITY                  
                   
Current Liabilities                  
   Accounts payable and accrued liabilities (Note 7(c)) $  334,623   $  396,746   $  56,163  
   Due to related parties (Note 7)   18,195     -     -  
                   
Total Current Liabilities   352,818     396,746     56,163  
                   
WARRANT LIABILITY (Note 6(e))   58,424     716,552     108,372  
                   
Total Liabilities   411,242     1,113,298     164,535  
                   
Shareholders’ Equity                  
                   
Share capital (Note 6)   8,600,055     6,674,338     6,325,884  
Contributed surplus   1,391,442     1,118,247     365,637  
Share subscriptions received   15,000     -     -  
Accumulated other comprehensive loss   (274,792 )   (338,549 )   -  
Deficit   (4,868,788 )   (3,891,539 )   (1,150,003 )
                   
Total Shareholders’ Equity   4,862,917     3,562,497     5,541,518  
                   
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $  5,274,159   $  4,675,795   $  5,706,053  
                   
Going Concern (Note 1)                  
Commitments (Note 8)                  
Subsequent Events (Note 13)                  

APPROVED BY THE BOARD OF DIRECTORS ON JUNE 28, 2012:

“Ron Richman”  
   
“Andrew Brodkey”  

The accompanying notes are an integral part of these consolidated financial statements.


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in Canadian Dollars)

    For the years ended  
             
    February 29,     February 28,  
    2012     2011  
          (Note 12)
EXPENSES            
Advertising and promotion $  5,880   $  34,672  
Bank charges   2,920     3,975  
Investor communications   440,579     599,172  
Management fees (Note 7(a))   523,084     941,697  
Office and miscellaneous   62,195     46,464  
Professional fees   192,697     209,375  
Rent (Note 7(a))   14,461     16,153  
Share-based payments (Note 6(d))   128,519     685,315  
Stock transfer and filing fees   47,975     35,392  
Travel   76,427     55,834  
LOSS BEFORE OTHER ITEMS   (1,494,737 )   (2,628,049 )
             
OTHER ITEMS            
Gain on derivative liability   81,587     132,501  
Gain (loss) on warrant liability (Note 6(e))   851,233     (245,988 )
Impairment of mineral property (Note 5)   (418,873 )   -  
Gain on foreign exchange   3,541     -  
    517,488     (113,487 )
NET LOSS   (977,249 )   (2,741,536 )
Unrealized gain (loss) on foreign exchange translation   63,757     (338,549 )
COMPREHENSIVE LOSS   (913,492 )   (3,080,085 )
BASIC AND DILUTED NET LOSS PER SHARE $  (0.021 ) $  (0.079 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   46,399,041     34,861,292  

The accompanying notes are an integral part of these consolidated financial statements.


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
(Expressed in Canadian Dollars)

                            Accumulated              
                            Other           Total  
    Common Shares     Contributed     Subscriptions     Comprehensive           Shareholders’  
    Shares     Amount     Surplus     Received     Loss     Deficit     Equity  
                                           
Balance, March 1, 2010   32,264,362   $  6,325,884   $  365,637   $  -   $  -   $  (1,150,003 ) $  5,541,518  
     Exercise of stock options   225,000     33,750     -     -     -     -     33,750  
     Exercise of agent warrants   178,708     35,313     -     -     -     -     35,313  
     Private placement   5,432,873     241,021     105,665     -     -           346,686  
     Share-based payments   -     -     685,315     -     -     -     685,315  
     Transfer from contributed   -     -     -           -     -     -  
       surplus on:                     -                    
Stock option exercise   -     28,571     (28,571 )   -     -     -     -  
           Agent warrant exercise   -     9,799     (9,799 )   -     -     -     -  
     Unrealized loss on foreign   -                       (338,549 )         (338,549 )
     exchange translation                     -                    
     Loss for the year   -     -     -     -     -     (2,741,536 )   (2,741,536 )
Balance, February 28, 2011   38,100,943     6,674,338     1,118,247     -     (338,549 )   (3,891,539 )   3,562,497  
                                           
                                           
     Issued in exchange for services   1,303,892     116,710     -     -     -     -     116,710  
     Private placements   15,598,757     1,809,007     16,901     -     -     -     1,825,908  
     Share-based payments         -     256,294     -     -     -     256,294  
     Unrealized gain on foreign         -     -     -     63,757     -     63,757  
     exchange translation                                          
     Subscriptions received                     15,000                 15,000  
     Loss for the year         -     -     -     -     (977,249 )   (977,249 )
Balance, February 29, 2012   55,003,592   $  8,600,055   $  1,391,442   $  15,000   $  (274,792 ) $  (4,868,788 ) $  4,862,917  

The accompanying notes are an integral part of these consolidated financial statements


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)

    For the years ended  
    February 29,     February 28,  
    2012     2011  
          (Note 12)
CASH PROVIDED BY (USED IN):            
OPERATING ACTIVITIES            
Net loss for the year $  (977,249 ) $  (2,741,536 )
     Operating items not involving cash:            
     Impairment of mineral property   418,873     -  
     Gain on derivative liability   (81,587 )   (132,501 )
     Loss (gain) on warrant liability   (851,233 )   245,988  
     Non-cash investor communications expense   74,700     -  
     Share-based payments   128,519     685,315  
    (1,287,977 )   (1,942,734 )
Changes in working capital items:            
     Amounts receivable   (15,287 )   (29,370 )
     Prepaid expenses   (15,748 )   38,943  
     Accounts payable and accrued liabilities   91,245     408,615  
     Due to related parties   18,195     -  
             
    (1,209,572 )   (1,524,546 )
             
FINANCING ACTIVITIES            
Share issue costs   (83,491 )   (97,578 )
Proceeds from subscriptions received   15,000     -  
Proceeds from issuance of shares   2,102,504     883,994  
    2,034,013     786,416  
INVESTING ACTIVITIES            
             
Deferred exploration expenditures   (430,298 )   (691,522 )
    (430,298 )   (691,522 )
             
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (21,586 )   (42,634 )
             
CHANGE IN CASH   372,557     (1,472,286 )
             
CASH, BEGINNING OF YEAR   165,165     1,637,451  
             
CASH, END OF YEAR $  537,722   $  165,165  
             
SUPPLEMENTAL CASH FLOW INFORMATION            
Interest paid $  -   $  -  
Taxes paid $  -   $  -  
NON-CASH FINANCING AND INVESTING ITEMS            
Warrants issued to agent $  16,901   $  105,665  
Shares issued for exploration expenditure $  42,010   $  -  

The accompanying notes are an integral part of these consolidated financial statements.


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

1.

NATURE OF BUSINESS AND GOING CONCERN

   

Pan American Lithium Corp., incorporated in British Columbia, is a public company listed on the TSX Venture Exchange (“TSX-V”) and trades under the symbol PL. The address of the Company’s corporate office and its principal place of business is 3040 N. Campbell Avenue, Tucson, AZ, United States.

   

Pan American Lithium Corp. (the “Company”) was incorporated on September 18, 2006 under the laws of British Columbia. The Company’s principal business activities include the acquisition, exploration and development of mineral properties. At February 29, 2012, the Company had not yet determined whether the properties contain ore reserves that are economically recoverable. The recoverability of amounts shown for mineral properties and related deferred exploration costs is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production or proceeds from the disposition of the mineral property.

   

For the period from incorporation on September 18, 2006 to February 29, 2012, the Company incurred losses of $4,868,788 since inception and does not have sufficient working capital as at February 29, 2012 to meet its expected obligations over the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company's ability to continue its operations and to realize assets at their carrying values is dependent upon obtaining additional financing and generating revenues sufficient to cover its operating costs.

   

These consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these financial statements.

   
2.

BASIS OF PRESENTATION


  a)

Statement of Compliance and Conversion to International Financial Reporting Standards

     
 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. These are the Company’s first IFRS annual consolidated financial statements to be presented in accordance with IFRS and IFRS 1 First-time adoption of International Financial Reporting Standards has been applied. Previously the Company prepared its consolidated annual and interim financial statements in accordance with Canadian generally accepted accounting principles. Note 12 contains reconciliations and descriptions of the effects of the transition from Canadian GAAP to IFRS on equity, operations and comprehensive loss along with reconciliations of the statements of financial position as at March 1, 2010 and February 28, 2011 and the statements of operations and comprehensive loss and cash flows for the year ended February 28, 2011.

     
  b)

Basis of Presentation

     
 

These consolidated financial statements are expressed in Canadian dollars and have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting on a going concern basis. The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements as if the policies have always been in effect, subject to certain IFRS transition elections described in Note 12.

     
 

These consolidated financial statements are prepared on a consolidated basis and include the accounts of the Company and its 99% owned subsidiary SALICO (see Note 5) which owns mineral interests located in Chile. All inter-company transaction and balances have been eliminated upon consolidation.

1


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

2.

BASIS OF PRESENTATION - continued

     
c)

Use of estimates

     

The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Significant areas requiring the use of management estimates include the recoverability of mineral properties, exploration assets, asset retirement obligations, deferred income tax asset valuations, and fair value measurements for financial instruments and share-based payments and other equity-based payments. Actual results could differ from those estimates.

     
3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     
a)

Cash and cash equivalents

     

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

     
b)

Mineral properties

     

Mineral property acquisition costs and exploration and evaluation expenditures are recorded at cost. When shares are issued as part of mineral property exploration costs, they are valued at the closing share price on the date of issuance unless the fair value of goods or services received is determinable. Payments relating to a property acquired under an option or joint venture agreement, where payments are made at the sole discretion of the Company, are recorded in the accounts upon payment.

     

Option payments received are treated as a reduction of the carrying value of the related mineral property until the Company’s option and/or royalty payments received are in excess of costs incurred and then are credited to operations.

     

All expenditures related to the cost of exploration and evaluation of mineral properties including acquisition costs for interests in mineral claims are classified and capitalized as intangible assets until the property to which they relate is placed into production, sold, allowed to lapse or abandoned. These costs will be amortized over the estimated useful life of the property following commencement of commercial production or will be written off if the property is sold, allowed to lapse, abandoned or determined to be impaired.

     

The acquisition of title to mineral properties is a detailed and time-consuming process. The Company has taken steps, in accordance with industry standards, to verify mineral properties in which it has an interest. Although the Company has made efforts to ensure that legal title to its properties is properly recorded in the name of the Company when all terms of agreements have been met, there can be no assurance that such title will ultimately be secured.

     
c)

Impairment of non-financial assets

     

Mineral property exploration interests are regularly tested for recoverability or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment of a mineral property exploration interests is generally considered to have occurred if one of the following factors are present: the rights to explore have expired or are near to expiry with no expectation of renewal, no further substantive expenditures and planned, exploration and evaluation work is discontinued in an area for which commercially viable quantities have not been discovered, indications in an area with development likely to proceed that the carrying amount is unlikely to be recovered in full by development or by sale.

     

The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. Value in use is determined using discounted estimated future cash flows of the relevant asset. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are cash-generating units.

     

The Company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration.

2


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     
d)

Provisions

     

Provisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probably that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. At each financial position reporting date presented the Company has not incurred any decommissioning costs related to the exploration and evaluation of its mineral properties and accordingly no provision has been recorded for such site reclamation or abandonment.

     
e)

Warrant liability

     

In accordance with IAS 32, share purchase warrants with an exercise price denominated in a currency other than the Company’s functional currency are considered a derivative and recorded as a liability carried at fair value. Any changes in the fair value from period to period are recorded as a gain or loss in the statement of operations and comprehensive income (loss).

     
f)

Income taxes

     

Current income taxes:

     

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company and its subsidiaries operates and generates taxable income.

     

Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

     

Deferred income taxes:

     

Deferred income tax is provided using the balance sheet method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

     

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

     

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

     

Flow-through shares:

     

Any premium received by the Company on the issuance of flow-through shares is initially recorded as a liability (“flow-through tax liability”) and included in trade payables and accrued liabilities. Upon renouncement by the Company of the tax benefits associated with the related expenditures, a deferred tax liability is recognized and the flow-through tax liability will be reversed. To the extent that suitable deferred tax assets are available, the Company will reduce the deferred tax liability and record a deferred tax recovery.

3


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     
g)

Share-based payments

     

The Company operates an incentive stock option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The fair value of share-based payments is charged to the statement of comprehensive income (loss) with a corresponding credit recorded to contributed surplus. The fair value of options is determined using a Black–Scholes option pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

     

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive loss/income over the remaining vesting period.

     

The Black-Scholes model requires management to make estimates, which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values.

     

All equity-settled share-based payments are reflected in contributed surplus, until exercised. Upon exercise, shares are issued from treasury and the amount reflected in contributed surplus is credited to share capital along with the consideration paid.

     
h)

Loss per share

     

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. The Company applies the treasury stock method in calculating diluted loss per share. The treasury method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common shares at the prevailing market rate. Stock options and warrants are dilutive when the average market prices of the common shares during the year exceed the exercise prices of the options and warrants. Diluted loss per share excludes all dilutive potential common shares if their effect is anti-dilutive.

     
i)

Financial instruments

     

The Company's financial instruments include cash, accounts payable, due to related parties and warrant liability. The warrant liability consists of warrants issued with exercise prices denominated in Canadian dollars. The Company considers the share purchase warrants issued in Canadian dollars a derivative liability as the Company will have a variable amount of cash in U.S. dollars, its functional currency. The Company will receive a variable amount of cash in their functional currency of U.S. dollars when warrants are exercised.

     

The Company classifies financial assets and liabilities as fair value through profit or loss (“FVTPL”), available-for-sale, held-to maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition.

     

Warrant liability is classified as FVTPL with fair value determined using the Black-Scholes valuation model. The Company classified its cash as FVTPL and accounts payable and due to related parties as other financial liabilities.

     

Transaction costs incurred with FVTPL financial instruments are expensed as incurred. Transaction costs incurred with amortized cost financial assets and other financial liabilities are included in the initial carrying amount.

     

Financial liabilities are derecognized only when the Company’s obligations are discharged, cancelled or they expire. All gains and losses as a result of changes in fair value are included in net income (loss) in the period they occur.

4


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     
k)

Foreign currency translation

     

The presentation currency of the Company is the Canadian dollar and the functional currency of the Company and all of its subsidiaries is the United States Dollar.

     

Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each financial position reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the date of the statement of financial position. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

     

Assets and liabilities are translated to the Canadian dollar at exchange rates prevailing at the end of each reporting period. Exchange variations resulting from the retranslation at closing rate, together with differences between their statement of operations items translated at actual and average rates, are recognized in the accumulated other comprehensive income/loss.

     
l)

Share capital

     

The proceeds from the issue of units are allocated between common shares and share purchase warrants with an exercise price denominated in Canadian dollars on a pro-rata basis based on relative fair values. The fair value of common shares is based on the market closing price on the date the units are issued and the fair value of common share purchase warrants is determined using the quoted market price or if the warrants are not traded, the Black-Scholes option pricing model. Equity instruments issued to agents as financing costs are measured at their fair value at the date of grant.

     
4.

NEW ACCOUNTING PRONOUNCEMENTS

     

Certain new standards, interpretations and amendments to existing standards have been issued by the IASB or the International Financial Reporting Interpretations Committee (“IFRIC”) that are mandatory for accounting periods beginning after January 1, 2011, or later periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.

a)    New accounting standards effective March 1, 2012

Amendments to IFRS 7 Financial Instruments: Disclosures - In October 2010, the IASB issued amendments to IFRS 7 that improve the disclosure requirements in relation to transferred financial assets. The amendments are effective for annual periods beginning on or after July 1, 2011, with early adoption permitted. The Company does not anticipate this amendment to have a significant impact on its consolidated financial statements.

IAS 12 Income taxes - In December 2010, the IASB issued an amendment to IAS 12 that provides a practical solution to determining the recovery of investment properties as it relates to the accounting for deferred income taxes. This amendment is effective for annual periods beginning on or after July 1, 2011, with early adoption permitted. The Company does not anticipate this amendment to have a significant impact on its consolidated financial statements.

b)    New accounting standards effective March 1, 2013:

IFRS 10 Consolidated Financial Statements - IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.

5


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

4.

NEW ACCOUNTING PRONOUNCEMENTS - continued

   

IFRS 11 Joint Arrangements - IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-monetary Contributions by Venturers.

   

IFRS 12 Disclosure of Interests in Other Entities - IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.

   

IFRS 13 Fair Value Measurement - IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.

   

Amendments to other standards - In addition, there have been other amendments to existing standards, including IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to IFRS 13.

 

 

Each of the new standards, IFRS 10 to 13 and the amendments to other standards, is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has not yet begun the process of assessing the impact that the new and amended standards will have on its consolidated financial statements or whether to early adopt any of the new requirements.

c)    New accounting standards effective March 1, 2015:

IFRS 9 Financial Instruments - IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: Amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at the fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return of investment; however, others gains and losses (including impairments) associated with such instruments remain in accumulated other comprehensive income indefinitely.

Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments – Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income.

6


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

5.

MINERAL PROPERTIES


      February 29,     February 28,  
      2012     2011  
               
  Salico Lithium/Potassium Properties, Atacama Region III, Chile            
               
                 Acquisition cost $  -   $  -  
                 Assay reports   -     11,668  
                 Claims expense   -     71,575  
                 Site maintenance   412,389     489,415  
                 Technical report   5,653     24,769  
                 Hydrology   79,583     -  
                 Mapping   536     -  
                 Trenching   18,398     -  
                 Change in foreign exchange   67,974     (272,762 )
      584,533     324,665  
                   Balance, beginning of the period   4,051,792     3,727,127  
                   Balance, end of period $  4,636,325   $  4,051,792  
               
  Cerro Prieto Lithium/Potassium Property, Mexico            
               
                   Acquisition cost $  -   $  -  
                   Site maintenance   11,743     150,089  
                   Impairment of mineral property   (418,873 )      
                   Change in foreign exchange   17,369     (23,153 )
      (389,761 )   126,936  
                   Balance, beginning of the period   389,761     262,825  
                   Balance, end of period $  -   $  389,761  
               
  Total Mineral Properties $  4,636,325   $  4,441,553  

Chilean Lithium/Potassium Properties

The Company entered into a Securities Exchange Agreement dated August 18, 2009 and amended September 18, 2009 (“Agreement”) with Sociedad Gareste Limitada (“Gareste”), a private limited liability company organized under the laws of Chile, which owned nine lithium/potassium salar concessions (the “Properties ) located in Chile. Under the terms of the agreement, Gareste organized a new Chilean limited liability company (“SALICO”) and transferred the Properties to SALICO subject to a net smelter return royalty. The Company consummated an agreement to purchase 99% of the interests of SALICO from the owners thereof in consideration for the Company issuing 10,494,000 common shares with a fair value of $3,148,200. In connection with the Agreement the Company issued 613,333 finders shares with a fair value of $184,000. The fair value of the finders shares has been included in the acquisition costs. The Company has also agreed to pay US$50,000 to Gareste on signing to cover costs incurred in connection with the formation and organization of SALICO. In addition, the Company has agreed to pay a monthly fee of US$25,000 to compensate Gareste for the general and administrative costs. The Company completed the acquisition on December 4, 2009.

7


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

5.

MINERAL PROPERTIES - continued

   

In connection with the closing of the acquisition, Salico granted a 2% net smelter return royalty to the vendor on future production from eight salars, and a 2% net smelter return royalty to another vendor on one salar, payable following commencement of commercial production to a maximum of US$6 million on a per salar basis. Prior to commencement of commercial production at any salar, Salico may re-purchase one-half of each net smelter return royalty for US$2 million on a per salar basis. At the Piedra Parada salar, where Salico obtained contractual rights to exploit lithium and light metals, Salico granted a 2% net smelter return royalty to the owner on the proceeds from the sale of lithium, potassium and light metals to a maximum of US$6 million. Salico is obligated to pay the owner a payment of US$2,000 per month as a lease and rental remittance fee to maintain the Piedra Parada concessions through the exploration stage, which payments will increase to US$5,000 per month at such time as these concessions are converted to exploitation status. Subsequent and subject to the agreement with SALICO, the owner of the Piedra Parada mineral concessions conveyed such concessions and the right to receive the maintenance payment described herein, to Zoro Mining Corp. (OTCBB:ZORM), a publicly traded mining company with one director and 2 officers in common with the Company.

   

Mexican Lithium/Potassium Property

   

The Company entered into a Share Option Agreement (the “Option Agreement”) dated December 18, 2009 among the Company, Escondidas Internacional S.A. de C.V. (“Escondidas”) and the shareholders of Escondidas (the “Shareholders”) whereby, among other things, the Shareholders granted an Option to the Company to acquire 76% of the shares of Escondidas.

   

In consideration, the Company paid $200,000 to Escondidas upon execution of the agreement, and agreed to pay $25,000 per month until the earlier of closing or termination of the agreement. Upon closing the Company will pay an additional $50,000 to Escondidas. In addition, the agreement calls for cash payments to the Shareholders as follows; $125,000 on the closing date, $500,000 six months from the closing date, $500,000 twelve months from the closing date, and $750,000 eighteen months from the closing date. Upon closing, the agreement also calls for the issuance of 10,300,000 common shares and 7,500,000 warrants to the Shareholders. Each warrant will be exercisable for one common share up to two years from closing.

   

Subsequently, the Company entered into an amended agreements changing the terms of the Option Agreement originally dated December 18, 2009. Under the terms of the amended agreements:


  i.  

The closing date is changed from June 30, 2010 to October 31, 2011 (subsequently amended to April 30, 2012); and

       
  ii.  

The number of shares issued to the shareholders is reduced from 10,300,000 to 5,000,000; and

       
  iii.  

The number of warrants issued to the shareholders is reduced from 7,500,000 to 5,000,000; and

       
  iv.  

The date of the obligated payment of $500,000 is amended from 6 months from the closing date to 6 months from the commencement of commercial production; and

       
  v.  

The date of the obligated payment of $500,000 is amended from 12 months from the closing date to 12 months from the commencement of commercial production; and

       
  vi.  

The date of the obligated payment of $750,000 is amended from 18 months from the closing date to 18 months from the commencement of commercial production; and

       
  vii.  

The monthly obligated payment is reduced from $25,000 to $1,000.

On May 3, 2012 the Company announced that the closing date of the share option agreement dated December 18, 2009 with Escondidas Internacional S.A. de C.V., a privately held Mexican corporation, had lapsed and the parties have not signed an agreement to extend the closing date. As a result, the Company has written off all capitalized property costs as of February 29, 2012 and recorded an impairment loss of $418,873.

8


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

6.

SHARE CAPITAL

     
a)

Authorized

     

Unlimited common shares and preferred shares without par value.

     
b)

Issued and outstanding – see Statement of Changes in Shareholders’ Equity

     

The details for the common share issuances during the year ended February 29, 2012 are as follows:


  i)

The Company issued 953,810 shares of common stock with a fair value of $74,700 to an investor relations consultant for services rendered.

     
  ii)

On June 16, 2011 the Company completed a non-brokered private placement of 4,076,667 “Units” at $0.15 per Unit for gross proceeds of $611,500. Each Unit consists of one common share and one common share purchase warrant, entitling the purchaser to acquire one additional common share at an exercise price of $0.25 per common share until June 16, 2013. The proceeds of $0.15 per Unit were allocated based on fair value as follows: $0.102 to share capital and $0.048 to warrant liability. In connection with the offering, the Company paid a cash finder’s fee of $40,150, incurred share issuance cost of $6,144, and issued 267,666 agent warrants. Each agent warrant entitles the finder to acquire one additional common share at an exercise price of $0.25 per Common Share until June 16, 2013. The agent warrants were valued at $16,901 based on the Black-Scholes model using the following assumptions: volatility – 122%, expected life of option – 2 years, dividends – 0%, and risk free rate of 1.45%.

     
  iii)

On September 15, 2011, the Company closed a private placement with POSCO Canada Ltd. ("POSCAN") and issued 10,522,090 common shares to POSCAN at the price of $0.136 per common share, resulting in gross proceeds to the Company of $1,431,004.

     
  iv)

On October 11, 2011 the Company issued 350,082 shares to a consultant for exploration work performed in Chile and valued the services at $42,010.

     
  v)

On January 16, 2012, the Company issued 1,000,000 shares of the Company’s common stock in a non-brokered private placement to the Company’s President and CEO, Andrew Brodkey at $0.06 per share for gross proceeds of $60,000.

     
  vi)

The Company incurred $37,196 in legal fees related to the private placements above which has been recorded as share issuance cost.

The details for the common share issuances during the year ended February 28, 2011 are as follows:

  i)

The Company received proceeds of $33,750 for the exercise of 225,000 stock options at $0.15, $23,160 for the exercise of 154,402 stock purchase warrants at $0.15, and $12,153 for the exercise of 24,306 stock purchase warrants at $0.50.

     
  ii)

On September 29, 2010 and October 4, 2010, pursuant to a private placement, the Company issued 5,432,873 shares in two tranches at $0.15 for total proceeds of $814,931 before share issue costs. Each unit is comprised of one share and one share purchase warrant. Each warrant is exercisable into one share at $0.25 per share for a period of two years from the date of issuance. The proceeds of $0.15 per share were allocated based on fair value as follows; $0.083 to stock and $0.067 to warrants liability. In connection with the private placement, the Company incurred share issue costs consisting of legal and regulatory expenses of $18,143, finder’s fees of $87,910, and $105,665 of non cash expense based on the Black-Scholes valuation of the finder’s warrants.

9


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

6.

SHARE CAPITAL - continued

     
c)

Escrow shares

     

Pursuant to an escrow agreement dated July 31, 2008, the Company had common shares of 3,990,000 held in escrow at February 28, 2009. Under the escrow agreement, 10% of the shares will be released upon issuance of the Final Exchange Bulletin for the TSX's acceptance of the Offering, and 15% will be released every six months thereafter for a period of thirty-six months.


DATE Released Remaining
15-Jun-09 399,000 3,591,000
15-Dec-09 598,500 2,992,500
15-Jun-10 598,500 2,394,000
15-Dec-10 598,500 1,795,500
15-Jun-11 598,500 1,197,000
15-Dec-11 598,500 598,500
15-Jun-12 598,500 -

 

As at February 29, 2012, 598,500 shares remain in escrow.

     
  d)

Stock options

     
 

The Company has adopted an incentive share option plan for granting options to directors, employees and consultants, under which the total outstanding options are limited to 10% of the outstanding common shares of the Company. The directors, subject to the policies of the TSX Venture Exchange, impose terms upon which each option shall become vested.

     
 

A summary of the status of the stock option plan as of February 29, 2012 and February 28, 2011 and changes during the periods then ended is presented below:


      February 29, 2012     February 28, 2011  
      Options     Weighted Average     Options     Weighted Average  
      Outstanding     Exercise Price     Outstanding     Exercise Price  
                           
  Opening balance   2,650,000   $ 0.40     1,775,000   $ 0.34  
  Granted   2,125,000   $ 0.15     1,900,000   $ 0.53  
  Exercised   -     -     (225,000 ) $ 0.15  
  Forfeited   -     -     (800,000 ) $ 0.39  
  Ending balance   4,775,000   $ 0.29     2,650,000   $ 0.40  

10


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

6.

SHARE CAPITAL - continued

     
d)

Stock options - continued

     

The Company had the following share purchase options outstanding and exercisable:


 February 29, 2012 
Quantity
Exercise  
Outstanding   Exercisable Price Expiry Date
         
300,000   300,000 $0.15 September 15, 2013
750,000   750,000 $0.50 January 15, 2015
351,200   351,200 $0.55 April 21, 2015
200,000   200,000 $0.55 April 9, 2020
98,800   98,800 $0.55 April 21, 2020
950,000   950,000 $0.30 May 26, 2020
2,125,000   1,062,500 $0.15 September 22, 2021
         
4,775,000   3,712,500    

The weighted average contract life remaining on the above options is 7.19 years (February 28, 2011 – 6.28 years).

The Company uses the Black-Scholes Option Pricing Model (the “Model”) to calculate the fair value of stock options granted. The Model requires management to make estimates, which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following weighted average assumptions were used:

 
February 29,
February 28,
 
2012
2011
     
Risk free interest rate 2.13% 3.04%
Expected dividend yield - -
Expected stock price volatility 147% 144%
Expected life of options 10 years 7.6 years

The weighted average fair value of the options granted during the period was $0.12 (2011 - $0.25) .

The Company granted 2,125,000 options to directors, officers, and consultants during the year ended February 29, 2012. Total share-based payment for the year ended February 29, 2012 was $256,294 (2011 - $685,315) of which $128,519 was expensed to operations and $127,775 was recorded against accrued liabilities for options granted to directors, officers, and consultants of the Company.

11


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

6.

SHARE CAPITAL - continued


  e)

Warrants


            Weighted Average  
      Number of     Exercise  
      Warrants     Price  
               
  Balance, February 28, 2010   5,895,007   $  0.49  
               
  Agent’s warrants granted   529,567   $  0.25  
  Warrants granted with private placement   5,432,873   $  0.25  
  Less: exercised   (178,708 ) $  0.20  
  Less: expired   -        
  Balance, February 28, 2011   11,678,739   $  0.37  
               
  Warrants granted with private placement   4,076,667   $  0.25  
  Agent’s warrants granted   267,666   $  0.25  
               
  Less: expired   (5,716,299 ) $  0.50  
  Balance, February 29, 2012   10,306,773   $  0.25  

During the year ended February 29, 2012, an aggregate of 4,344,333 warrants were issued at a price of $0.25 and 5,716,299 warrants had expired. No warrants were exercised.

As at February 29, 2012, the warrant liability was $58,424 (2011 - $716,552). The fair value of the warrant liability was determined using the Black-Scholes valuation model. During the year ended February 29, 2012, a gain on warrant liability of $851,233 (2011 – loss of $245,988) was recorded. As at February 29, 2012 and 2011, the intrinsic value of the warrant liability was $nil.

The fair values of the warrants have been estimated using the Black-Scholes option pricing model using the following assumptions:

  2012 2011
     
Risk free interest rate 1.00% 0.63%
Expected dividend yield - -
Expected stock price volatility 108% 110%
Expected life of options 0.90 years 0.92 years

12


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

6.

SHARE CAPITAL - continued


  e)

Warrants

Details of share purchase warrants outstanding as of February 29, 2012 and February 28, 2011 are:

Number of Warrants Outstanding and    
Exercisable    
February   Exercise Price  
29,2012 February 28, 2011 per Share Expiry Date
       
- 33,370 $0.15 July 24, 2011
- 758,530 $0.50 June 4, 2011
- 4,924,399 $0.50 June 4, 2011
349,800 349,800 $0.25 September 29, 2012
3,532,397 3,532,397 $0.25 September 29, 2012
1,900,476 1,900,476 $0.25 October 4, 2012
179,767 179,767 $0.25 October 4, 2012
4,076,667 - $0.25 June 16, 2013
267,666 - $0.25 June 16, 2013
10,306,773 11,678,739    

7.

RELATED PARTY TRANSACTIONS AND BALANCES

   

As of February 29, 2012 and February 28, 2011 the Company has identified its directors and certain senior officers as its key management personnel and the compensation costs for key management personnel and companies related to them were recorded at their exchange amounts as agreed upon by transacting parties.

   

The compensation costs for key management personnel for the year ended February 29, 2012 and February 28, 2011 are as follows:


      February 29,     February 28,  
      2012     2011  
  Salaries and benefits $  335,011   $  343,468  
  Share-based payments   110,542     370,701  
    $  445,553   $  714,169  

Other related party transactions:

  a)

Management fees and rent of $32,061 and $14,461 (February 28, 2011 - $30,756 and $16,153) were incurred to a company in which a director and officer is general manager and a balance of $18,401 was owing to this party as at February 29, 2012 (February 28, 2011: $Nil).

     
  b)

Deferred exploration costs of $23,543 (February 28, 2011 - $34,735) were incurred to a company with one director and two officers in common.

     
  c)

As at February 28, 2011, accrued liabilities include $183,747 for unissued stock options to the President and CEO of the Company.

13


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

7.

RELATED PARTY TRANSACTIONS AND BALANCES - continued

     
d)

An officer and director of the Company purchased 1,000,000 shares of the Company’s common stock at $0.06 per share for gross proceeds of $60,000 – note 6 b) v).


8.

COMMITMENTS

     
a)

Pursuant to the incentive stock option plan, the Company has agreed to issue 1,500,000 stock options to the President and CEO. As of February 28, 2011, 975,000 of these options have not been issued, as a result $183,747 was recorded in accrued liability. During the year ended February 29, 2012, and the 975,000 stock options were granted and the accrued liability was derecognized. The Company recognized a gain on derivative liability of $98,972.

     
b)

On November 1, 2010 the Company entered into an agreement with a consultant to provide international business development and financial advisory services in exchange for 500,000 options to purchase shares of the Company’s common stock. 250,000 options were to be delivered on signing and 250,000 on the first anniversary. Due to plan limitations, 350,000 of the options have not been delivered. As at February 29, 2012, the Company re-measured the accrued liability at fair value and as a result recorded an unrealized gain on derivative liability of $8,452 and reduced the corresponding accrued liability. As of February 29, 2012, the Company has included $4,022 in accrued liabilities for these unissued stock options.

     
c)

On February 14, 2011, the Company entered into a property purchase agreement with Sociedad Gareste Limitada (“Gareste”) to acquire 16 mineral claims (Pedernales) covering an area of approximately 4,200 hectares in Chile in consideration for 2,000,000 common shares upon closing to Gareste. The closing date shall be no later than June 30, 2012. In connection with the purchase, a 2% net smelter return royalty (“NSR”) on the sale of production will be granted in favour of Gareste, capped at US$6 million. At any time prior to the commencement of commercial production, the Company shall have the right to repurchase one-half, or a 1% NSR, for the sum of US$2million. On May 3, 2012, the Company closed this agreement with Gareste and issued the 2,000,000 common shares. (Note 13).

     
d)

On February 14, 2011, the Company entered into a binding letter of intent for a proposed joint venture and earn-in with Gareste, whereby, the Company was granted an option to acquire up to 80% interest in the Maricunga project in consideration for cash payments totaling US$1.5 million and the issuance of 2 million common shares. The closing date shall be no later than June 30, 2012. In connection with the option, a 2% NSR royalty on the sale of production from the project will be granted, capped at US$6 million. At any time prior to the commencement of commercial production from the project, the Company shall have the right to repurchase one-half, or a 1% NSR, from Gareste, for the sum of US$2 million. On May 3, 2012, the Company closed this agreement with Gareste and issued the first 200,000 shares of common shares (Note 13).

     
e)

On February 14, 2011, the Company entered into a binding letter of intent for a proposed joint venture and earn-in with Gareste, whereby, the Company was granted an option to acquire up to 80% interest in the Llanta project in consideration for cash payments totaling US$600,000 and the issuance of 900,000 common shares. The closing date shall be no later than June 30, 2012. In connection with the option, a 2% NSR royalty on the sale of production from the project will be granted, capped at US$6 million. At any time prior to the commencement of commercial production from the project, the Company shall have the right to repurchase one-half, or a 1% NSR, from Gareste, for the sum of US$2 million. The joint venture with Gareste at Llanta has not been closed and will lapse on June 30, 2012.

14


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

8.

COMMITMENTS - continued

     
f)

On September 22, 2011, the Company entered into a debt settlement agreement with three vendors to settle accounts payable of $200,365 through the issuance of 1,335,768 common shares. As at February 29, 2012, the common shares have not been issued pending approval of the TSX Venture Exchange.

     
g)

On August 26, 2011 the Company engaged a consultant to provide news media relations services for a period of six months beginning September 1, 2011 for US$10,000 per month. This agreement was renewed on February 23, 2012 for an additional period of 6 months with the same terms.

     
h)

On November 10, 2011, the Company engaged Zone Capital Partners, LLC (“Zone Capital”) to provide financial consulting services for a period of six months in exchange for compensation of $5,000 per month and issuance of 300,000 3-year warrants subject to TSXV approval. On February 22, 2012, the Company amended the agreement to remove the warrants to be issued and increase the monthly fee from $5,000 per month to $10,000, payable in shares. In addition, the term of the agreement has been amended from a period of six months to 12 months effective from November 10, 2011. As at February 29, 2012, the Company included $40,000 in accrued liabilities.


9.

MANAGEMENT OF CAPITAL

   

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the sourcing and exploration of mineral properties. The Company does not have any externally imposed capital requirements to which it is subject.

   

The Company considers all components of shareholders’ equity to be capital. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue common shares or dispose of assets or adjust the amount of cash.

   

The Company’s investment policy is to invest its cash in instruments with high credit quality and terms to maturity selected to match the expected timing of expenditures from continuing operations.

   

The Company expects its current capital resources, together with the proceeds from planned additional equity fundraising, will be sufficient to carry out its exploration plans and operations through its next operating period.

15


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

10.

FINANCIAL INSTRUMENTS

   

Financial Instruments

   

The Company’s financial instruments consist of cash, accounts payable, due to related parties, and warrant liability.

   

The following table summarizes information regarding the carrying and fair values of the Company’s financial instruments:


      February 29, 2012           February 28, 2011        
      Fair Value     Carrying     Fair Value     Carrying  
            Value           Value  
  FVTPL asset (i) $  537,722   $  537,722   $  165,165   $  165,165  
  FVTPL liability (ii)   58,424     58,424     716,552     716,552  
  Other financial liabilities (iii)   352,818     352,818     396,746     396,746  

  i)

Cash

  ii)

Warrant liability

  iii)

Accounts payable and amounts due to related parties

Fair values

The Company classifies its fair value measurements in accordance with an established hierarchy that prioritizes the inputs in valuation techniques used to measure fair value as follows:

  Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 –

Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

  Level 3 – Inputs that are not based on observable market date.

16


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

10.

FINANCIAL INSTRUMENTS - continued

   

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:


                        Total  
      Level 1     Level 2     Level 3     2012  
                           
  Cash $  537,722     -     -     537,722  
                           
  Derivative liability   -     4,022     -     4,022  
                           
  Warrant liability   -     58,424     -     58,424  

The Company believes the recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates.

Credit Risk

The Company is not exposed to significant credit risk.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due (Note 1). The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined above.

The Company monitors its ability to meet its short-term exploration and administrative expenditures by raising additional funds through share issuance when required. All of the Company’s financial liabilities have contractual maturities of 30 days or are due on demand and are subject to normal trade terms. The Company does not have investments in any asset backed deposits.

Foreign Exchange Risk

The Company bears significant foreign exchange risk as the majority of the cash is held in US dollars. As at February 29, 2012, with other variables unchanged, a 1% change in the value of the US Dollar against the Canadian Dollar would have an impact of $45,513 on the comprehensive loss.

Interest Rate Risk

The Company is not exposed to significant interest rate risk.

17


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

11.

INCOME TAXES

   

The following table reconciles the amount of income taxes recoverable on application of the combined statutory Canadian federal and provincial income tax rates.


    2012     2011  
             
Combined statutory tax rate   26.25%     28.18%  
             
Income tax recovery at combined statutory rate $  (256,568 ) $  (772,565 )
Permanent differences   (260,326 )   258,266  
Reduction in tax rates   23,352     53,901  
Unrecognized deferred tax assets   493,542     460,398  
             
Deferred income tax recovery $  -   $  -  

Significant components of the Company’s deferred income tax assets are shown below:

    2012     2011  
             
Non-capital loss carry forwards $  1,168,263   $  687,217  
Eligible capital expenditures   183     180  
Share issuance costs   85,988     101,495  
Mineral properties   94,101     66,100  
Deferred income tax asset   1,348,535     854,992  
Unrecognized deferred tax asset   (1,348,535 )   (854,992 )
Deferred income tax assets $  -   $  -  

As of February 29, 2012 the company had approximately $4,673,000 (February 28, 2011: $2,749,000) of non-capital loss carry forwards available to reduce the taxable income for future years. The non-capital losses expire as follows:

2027 $  22,000  
2028   72,000  
2029   69,000  
2030   858,000  
2031   1,728,000  
2032   1,924,000  
  $  4,673,000  

The company also has certain allowances with respect to resource development and exploration costs of approximately $264,000, which, subject to certain restrictions, are available to be offset against deferred taxable income.

18


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

12.

ADOPTION OF IFRS - continued

a)    Transition to IFRS

The Company has adopted IFRS effective March 1, 2011 with a transition date of March 1, 2010 (“Transition Date”). Prior to the adoption of IFRS the Company prepared its financial statements in accordance with Canadian GAAP.

The comparative information presented in these first annual financial statements for the year ended February 28, 2011, and the opening financial position as at March 1, 2010 have been prepared in accordance with the accounting policies referenced in Note 3 and IFRS 1, First-Time Adoption of International Financial Reporting Standards.

b)    Initial elections upon adoption

The Company adopted IFRS in accordance with IFRS 1 which requires the retrospective application of IFRS at the Transition Date with all adjustments to assets and liabilities taken to deficit, subject to mandatory exceptions and the application of optional exemptions. The IFRS 1 exceptions applied in the conversion from Canadian GAAP to IFRS by the Company are explained as follows:

  (i)

Share-based payments – The Company elected under IFRS 1 to apply IFRS 2, Share-Based Payments only to equity instruments that were issued after November 7, 2002 and had not vested by the Transition Date.

     
  (ii)

Business combinations – The Company elected under IFRS 1 to not to apply IFRS 3, Business Combinations retrospectively to any business combinations that may have occurred prior to its Transition Date and such business combinations have not been restated.

     
  (iii)

Compound financial instruments – The Company has elected under IFRS 1 not to retrospectively separate the liability and equity components of any compound instruments for which the liability component is no longer outstanding at the Transition Date.

     
  (iv)

Foreign currency translation - The Company has elected to deem all foreign currency translation differences that arose prior to the Transition Date in respect of all foreign operations to be nil at the date of transition

c)    Reconciliation between Canadian GAAP and IFRS

In preparing the Company’s first annual financial statement in accordance with IFRS, management noted that adjustments related to flow-through shares, share based payments, and warrant liability were necessary to be made by the Company previously in its financial statements prepared in accordance with Canadian GAAP.

Flow-through shares

Under Canadian GAAP, when flow-through shares are issued, they are initially recorded in share capital at their issue price less the deferred tax liability related to the renounced expenditures. Under IFRS, flow-through shares are recognized based on the quoted price of the existing shares on the date the Company and the investors agree to the transaction. The difference (“premium”) between the amount recognized in common shares and the amount the investors pay for the shares is recognized as a flow-through share related liabilities which is reversed into the statement of loss within other income when the eligible expenditures are incurred. The amount recognized as flow-through share related liabilities represents the difference between the fair value of the common shares and the amount the investor pays for the flow-through shares.

19


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

12.

ADOPTION OF IFRS

c)    Reconciliation between Canadian GAAP and IFRS - continued

The cumulative premium and renunciation adjustment as at March 1, 2010 related to flow-through shares issued before March 1, 2010 is $37,562. As at February 28, 2011 no additional cumulative premium and renunciation adjustment were identified under IFRS.

Share-based payments

The Company adjusted the share-based payment expense relating to performance based share options held by non-employees of the Company due to a change in measurement date under IFRS. As a result, an adjustment of $32,552 was required on the application of IFRS 2 at the transition date and an adjustment of $126,457 was required for the year ended February 28, 2011.

Warrant liability

The Company’s functional currency is the U.S. Dollar and it has issued and outstanding warrants that have an exercise price denominated in Canadian Dollars. For IFRS purposes, all the Company’s warrants are classified and accounted for as derivatives and are recorded as liabilities carried at their fair value. Any changes in the fair value from period to period are recorded as a gain or loss in the statement of operations and comprehensive loss. The cumulative adjustment as at March 1, 2010 related to the warrant liabilities was an increase in warrant liabilities of $108,372, and a corresponding decrease of $659,630 and $551,258 to contributed surplus and deficit, respectably. For the year ended February 28, 2011, the adjustment related to warrant liabilities was an increase in warrant liabilities of $608,180, a loss on warrant liabilities of $245,988, and a corresponding decrease in contributed surplus of $362,192.

The February 28, 2011 Canadian GAAP statement of financial position has been reconciled to IFRS as follows:

      February 28,     Effect of     February 28,  
      2011     IFRS     2011  
      Canadian              
      GAAP     Transition     IFRS  
                     
  Total Assets $  4,675,795   $  -   $  4,675,795  
                     
  Total Liabilities $  396,746   $  716,552   $  1,113,298  
                     
  Shareholders’ Equity                  
     Share capital   6,636,776     37,562     6,674,338  
     Contributed surplus   1,981,060     (862,813 )   1,118,247  
     Accumulated other comprehensive income   (338,549 )   -     (338,549 )
     Deficit   (4,000,238 )   108,699     (3,891,539 )
                     
  Total Shareholders' Equity   4,279,049     (716,552 )   3,562,497  
                     
  Total Liabilities and Shareholders' Equity $  4,675,795   $  -   $  4,675,795  

20


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

12.

ADOPTION OF IFRS - continued

   

The March 1, 2010 Canadian GAAP statement of financial position has been reconciled to IFRS as follows:


            Effect of        
      March 1, 2010     IFRS     March 1, 2010  
      Canadian GAAP     Transition     IFRS  
                     
  Total Assets $  5,706,053   $  -   $  5,706,053  
                     
  Total Liabilities $  56,163   $  108,372   $  164,535  
                     
  Shareholders’ Equity                  
                     
     Share capital   6,288,322     37,562     6,325,884  
                     
     Contributed surplus   992,715     (627,078 )   365,637  
                     
     Deficit   (1,631,147 )   481,144     (1,150,003 )
                     
  Total Shareholders' Equity   5,649,890     (108,372 )   5,541,518  
                     
  Total Liabilities and Shareholders' Equity $  5,706,063   $  -   $  5,706,053  

The February 28, 2011 Canadian GAAP statement of operations and comprehensive loss has been reconciled to IFRS as follows

      Year ended           Year ended  
            Effect of        
      February 28, 2011     IFRS     February 28, 2011  
      Canadian GAAP     Transition     IFRS  
                     
  Revenue $  -   $  -   $  -  
                     
  Total Expenses   2,501,592     126,457     2,628,049  
                     
  Total other items   (132,501 )   245,988     113,487  
                     
  Net loss and comprehensive loss $  2,369,091   $  372,445   $  2,741,536  

There is no material differences between the consolidated statement of cash flows presented under IFRS and the consolidated statement of cash flows presented under previous Canadian GAAP.

21


PAN AMERICAN LITHIUM CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
(Expressed in Canadian Dollars)

13

SUBSEQUENT EVENTS

     
a)

On March 26, 2012, the Company issued 46,190 common shares to a consultant for services valued at $2,448.

     
b)

On March 28, 2012, the Company issued 500,000 common shares in a non-brokered private placement at $0.07 per share for proceeds of $35,000.

     
c)

On May 3, 2012, the Company closed a definitive purchase agreement whereby the Company acquired mineral concessions totaling 4,200 hectares and other rights at the Salar de Pedernales, Chile. In connection with closing, the Company issued 2 million shares to Gareste and granted a 2% NSR to Gareste, capped at US$6 million, one-half of which can be repurchased by the Company for US$2 million prior to commercial production. (Note 8c).

     
d)

On May 3, 2012 the Company entered into a joint venture agreement with Gareste at the Salar de Maricunga for concessions totaling 1,220 hectares along with other rights. The earn-in/joint venture agreement for Maricunga calls for the Company to perform certain tasks, issue common shares to Gareste, and pay certain cash amounts to Gareste in order to obtain up to 80% of the project, as set forth in the following table:


  MILESTONE   CASH
PAYMENT
US $
    COMMON
SHARES
    INCREMENTAL
% INTEREST
EARNED
 
  Regulatory approval of Agreement         200,000        
  One year from May 3, 2012   100,000     100,000        
  Two years from May 3, 2012   100,000     100,000        
  Three years from May 3, 2012   100,000     100,000        
  Delivery of scoping study         100,000     10%  
  Delivery of pre-feasibility study ("PFS") 180 days after Delivery of PFS   100,000     100,000     20%  
  Delivery of bankable feasibility study ("BFS") 180 days after Delivery of BFS   100,000     300,000     40%  
  Receipt of actual funds from project debt financing to build production facility based on BFS   1,000,000     1,000,000     10%  
  Totals   1,500,000     2,000,000     80%  

The Company can earn a 70% interest in Maricunga by delivering the three studies, paying the first four cash payments and issuing common shares as set out in the preceding table. The Company has the right to terminate the earn-in at any time at its sole discretion. The Company can earn a further 10% in the Maricunga project by providing financing for the debt portion of the capital to build the project, and an additional 10% of the project by providing Gareste with the funds to complete construction. Gareste also was granted a 2% NSR royalty capped at US$6 million, one-half of which can be repurchased by the Company for US$2 million prior to commercial production. All common shares issued to Gareste will be subject to a hold period in accordance with applicable securities laws.

22


ITEM 19                      Exhibits

The following exhibits are being filed as part of this annual report, or are incorporated by reference where indicated:

1.

Incorporation Documents

   
1.1

Articles of Incorporation of Pan American Lithium Corp.(1)

   
4.

Material Agreements

   
4.1

Share Exchange Agreement-Sociedad Gareste Limitada Amended and Restated Share Exchange Agreement-Sociedad Gareste Limitada(1)

   
4.6

Consulting and Professional Services Agreement between JVM Management Ltd. and Etna Resources Inc. dated November 3, 2009(2)

   
4.7

Consulting and Professional Services Agreement between Sage Associated, Inc. and Etna Resources Inc. dated November 1, 2009(2)

   
4.8

Consulting Services Agreement between Kriyah Consultants LLC. and Etna Resources Inc. dated November 1, 2009(2)

   
4.9

Consulting Services Agreement between Tim Lowenstein and Etna Resources Inc. dated November 1, 2009(2)

   
4.10

Employment Agreement between Etna Resources Inc. and Andrew Brodkey dated November 1, 2009(2)

   
4.11

Independent Director Agreement between Pan American Lithium Corp. and Ronald Richman dated April 30, 2010(2)

   
4.12

Independent Director Agreement between Pan American Lithium Corp. and David Terry dated April 30, 2010(2)

   
4.13

Amended and Restated Consulting Services Agreement dated May 3, 2011 by and between Level 3 Capital Management Inc. and Pan American Lithium Corp.(2)

   
4.14

A Purchase Agreement between Pan American Lithium Corp. and Sociedad Gareste, Limitada (“Gareste”) dated February 14, 2011.(3)

   
4.15

A binding letter of intent with Gareste dated February 14, 2011 to acquire interests through joint ventures in two new lithium brine projects.(3)

   
4.16

A Joint Venture Agreement with Gareste dated April 30, 2012 to acquire an interests through joint ventures in one new lithium brine projects.

   
8.

List of Subsidiaries

   
8.1

The Company currently holds a 99% interest in South American Lithium Company S.A. Cerrada, a company governed by the laws of Chile.




12.

Certification

   
12.1 *

Section 302 Certification under Sarbanes-Oxley Act of 2002 for Andrew Brodkey.

   
12.2 *

Section 302 Certification under Sarbanes-Oxley Act of 2002 for Frank Garcia.

   
13.1 *

Section 906 Certification under Sarbanes-Oxley Act of 2002 for Andrew Brodkey.

   
13.2 *

Section 906 Certification under Sarbanes-Oxley Act of 2002 for Frank Garcia.


* Filed herewith.
   
(1)

Incorporated by reference to the Company’s registration statement on Form F-1 filed on June 3, 2010

(2)

Incorporated by reference to the Company’s registration statement on Form F-1 filed on October 27, 2010

(3)

Incorporated by reference to the Company’s annual report on Form 20-F filed on August 31, 2011



SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

PAN AMERICAN LITHIUM CORP.

/s/ Andrew Brodkey  
Andrew Brodkey  
President and Chief Executive Officer  
(Principal Executive Officer)  
   
Date: July 13, 2012  


XTSX:PL Annual Report 20-F Filling

XTSX:PL Stock - Get Annual Report SEC Filing of XTSX:PL stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
XTSX:PL Annual Report 20-F Filing - 2/29/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: XTSX:OVT Oculus VisionTech Inc Quarterly Report 10-Q/A Filing - 6/30/2012  |  Next: XTSX:PL Insider Activity 4 Filing - 1/16/2012