|• 2012 FORM 20-F/A • EXHIBIT 12.1 • EXHIBIT 12.2 • EXHIBIT 13.1 • EXHIBIT 13.2 • EXHIBIT F1 - CONSOLIDATED FINANCIAL STATEMENTS|
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Commission file number 0-29870
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
(Title of Class)
Number of outstanding shares of Cream's only class of issued capital stock as at March 31, 2012:
152,642,916 Common Shares Without Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If other has been checked in response to the previous question, indicate by check mark which financial statement item Registrant has elected to follow:
If this report 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).
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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.
EXPLANATORY NOTICE TO READER
On August 1, 2012, Cream Minerals Ltd. (“Cream” or the “Company”) filed its annual report on Form 20-F for the year ended March 31, 2012 (the “Annual Report”). Subsequent to filing the Annual Report, Cream noted certain typographical errors in the table titled “Resource Summary Nuevo Milenio” included on pages 25 and 26 of the Annual Report. A corrected version of that table, which supersedes the earlier filed version, together with certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, is filed herewith. No other portions of the Annual Report are being amended.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Certain statements in this Annual Report on Form 20-F (this “Annual Report”) under the captions “Item 3 - Risk Factors”, “Item 4 – “Business Overview”, Item 5 - “Operating and Financial Review and Prospects” and “Item 11 - Quantitative and Qualitative Disclosures about Market Risk” and elsewhere in this Annual Report and the documents incorporated herein by reference constitute “forward-looking statements” within the meaning of the U.S. Securities Litigation Reform Act of 1995 and "forward-looking information under applicable Canadian securities legislation. Some forward-looking statements may be identified by such terms as “believes”, “anticipates”, “intends” or “expects”. Forward-looking statements and information in this Annual Report include statements regarding the Company's plans for its projects, statements relating to mineral resources, as they are based on various assumptions that are inherently forward-looking, statements regarding the anticipated timing by which the Company will require additional funds, and the anticipated timing of the updated mineral resource estimate on the Company's Nuevo Milenio project. These forward-looking statements are based on the Company’s current expectations and projections about future events and financial trends affecting the financial condition of its business and the industry in which it operates. Such forward-looking statements are based on assumptions regarding future events and other matters and are subject to known and unknown risks, uncertainties and other factors including the factors set forth in other filings with the Canadian securities commissions and the United States Securities and Exchange Commission (the “Commission”), which may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Assumptions on which forward-looking statements are based include the assumptions underlying mineral resource estimates and in the technical reports supporting such estimates and the assumption that the Company will continue as a going concern and will continue to be able to access the capital required to advance its projects and continue operations. Such risks, uncertainties and other factors include, among others, the following: general economic and business conditions, which will, among other things, impact the demand for gold and silver and other precious metals explored for by the Company; industry capacity; the ability of the Company to raise the capital required to implement its business strategy; changes in, or the unintentional failure to comply with, government regulations (especially safety and environmental laws and regulations); changes in the uses of gold, silver and other precious metals; silver and gold price volatility; increased competition; risks of the mining industry; exploration programs not being successful; inability to obtain financing; inability to obtain, or cancellation of, government permits; changes to regulations and mining law; increased reclamation obligations; title defects with respect to properties; risks associated with international operations; and foreign exchange and currency fluctuations. There can be no assurance that forward-looking information or statements in this Annual Report will prove to be accurate and actual results and future events could vary materially from those implied by such statements and information. Consequently, all of the forward-looking statements made in this Annual Report are qualified by these cautionary statements. The Company disclaims any obligation to update or revise any written forward-looking statements whether as a result of new information, future events or otherwise except as required by applicable laws.
Currency and Measurement
All currency amounts in this Annual Report on Form 20-F are stated in Canadian dollars unless otherwise indicated. On July 29, 2012, the Bank of Canada noon rate for Canadian Dollars was U.S. $1.00: Cdn$1.006 (see Item 4 for further historical exchange rate information). Conversion of metric units into imperial equivalents is as follows:
The following table sets out the U.S. dollar exchange rates, based on the noon rate at the Bank of Canada for the calendar years 2006 through 2011 and 2012 to date.
CAUTIONARY NOTE TO U.S. INVESTORS
This Annual Report may use the terms “measured resources” and “indicated resources.” We advise U.S. investors that while such terms are recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves.
This Annual Report may use the terms “inferred resources.” We advise U.S. investors that while such term is recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred resources” have a great amount of uncertainty as to their existence, as well as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an inferred resource exists, or is economically or legally mineable.
This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, as amended and as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, as amended and as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, as amended and as such, there is no requirement to provide any information under this item.
A. Selected Financial Data
The selected financial data of Cream Minerals Ltd. (“Cream” or the “Company”) for the years ended March 31, 2012, 2011 and 2010 was derived from the Company’s consolidated financial statements audited by Morgan & Company, Chartered Accountants, as indicated in the audit report included elsewhere in this Annual Report.
The Selected Financial Data should be read in conjunction with the consolidated financial statements and other financial information included elsewhere in this Annual Report.
The Company has not declared any dividends on its common shares since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain future earnings for use in its operations and the expansion of its business.
The following table sets forth selected consolidated financial information with respect to the Company for the periods indicated and is extracted from the more detailed consolidated financial statements included herein. The following constitutes selected financial data for Cream Minerals Ltd. for the last five fiscal years ended March 31, 2012, in Canadian dollars, presented in accordance International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) for the years 2012 and 2011, and with Canadian Generally Accepted Accounting Principles (“Cdn GAAP”) for the years 2010, 2009, and 2008, which differs in certain respects from Generally Accepted Accounting Principles in the United States (“US GAAP”). Information based on previous Cdn GAAP and US GAAP is not comparable to information prepared in accordance with IFRS. A discussion of differences between IFRS and Cdn GAAP is contained in Note 17 to the consolidated financial statements. The following table should be read in conjunction with “Item 5: Operating and Financial Review and Prospects”, and the consolidated financial statements included in Item 17. On July 29, 2012, the noon buying rate as quoted by the Bank of Canada was 1.0060 Canadian dollars per U.S. dollar.
(Canadian Dollars in Thousands Except Per Share Amounts)
No cash or other dividends have been declared.
Exploration expenditures are now charged to earnings as they are incurred until the mineral property interest reaches the development stage. Significant costs related to mineral property acquisitions, including allocations for undeveloped mineral property interests, are capitalized until the viability of the mineral property interest is determined. When it has been established that a mineral deposit is commercially mineable and an economic analysis has been completed, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized.
The expensing of exploration costs as incurred is now consistent with US GAAP, whereby all exploration expenditures are expensed until an independent feasibility study has determined that the property is capable of economic commercial production.
The tables below include the quarterly results for the years ended March 31, 2012 (“fiscal 2012”) and 2011 (“fiscal 2011”).
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
The following is a brief discussion of those distinctive or special characteristics of Cream’s operations and industry which may have a material impact on Cream’s financial performance.
Readers should carefully consider the risks and uncertainties described below before deciding whether to invest in shares of the Company’s common stock.
Financial Risk Factors
Cream currently has no source of operating cash flow and has a history of operating losses. Cream currently has no revenues from operations and all of its mineral property interests are in the exploration stage. The Company will not receive revenues from operations at any time in the near future, and Cream has no prior years’ history of
earnings or cash flow. Cream has not paid dividends on its shares at any time since incorporation and does not anticipate doing so in the foreseeable future. Cream’s consolidated financial statements have been prepared assuming Cream will continue on a going-concern basis. Should funding not be obtained, this assumption will change and Cream’s assets may be written down to realizable values. Cream has incurred losses since inception (deficit at March 31, 2012, is $38,765,013), which casts doubt on the ability of Cream to continue as a going concern. Cream has no revenue other than interest income. A mining project can typically require ten years or more between discovery, definition, development and construction and as a result, no production revenue is expected from any of the Company’s exploration properties in the near future. All of Cream’s short to medium-term operating and exploration expenses must be paid from its existing cash position or external financing. At March 31, 2012, Cream had working capital of $308,778 compared to a working capital of $4,433,482 at March 31, 2011. Working capital is defined as current assets less current liabilities.
Cream may be unable to obtain the funds necessary to expand exploration. Cream’s operations consist, almost exclusively, of cash consuming activities given that its main mineral project, the Nuevo Milenio Silver-Gold Property, (“Nuevo Milenio” or “the Project”) Nayarit State, Mexico is in the exploration stage. Cream will need to receive significant (i.e. upwards of $10 million) new equity capital or other funding for the next two years in order to fund its current planned exploration programs, and failing that, may cease to be economically viable. To date, the only sources of funds that have been available to the Company are the sale of equity capital or the offering by the Company of an interest in its properties to be earned by another party or parties carrying out further development thereof.
The Company currently does not have sufficient financial resources to undertake all of its planned activities in fiscal 2013. This includes significant expenditures on property investigations and additional property acquisitions or staking of claims in Mexico, Canada or in other locations that may come to the attention of the Company. The Company has been successful in the past in obtaining financing through the sale of equity securities, but as an exploration stage company, it is often difficult to obtain adequate financing when required, and it is not necessarily the case that the terms of such financings will be favourable. If Cream fails to obtain additional financing on a timely basis, the Company could forfeit its mineral property interests, dilute its interests in its properties and/or reduce or terminate operations. The Company’s exploration programs would have to be prioritized to fit within cash availability.
Cream is continuously reviewing strategies for private placement equity financings as well as other forms of financing that would carry the Company through the next fiscal year. If a private equity financing were to be completed, it is expected that warrants may be included in the securities offered. Any such financings will result in dilution of existing shareholders.
Volatile gold and silver prices and external market conditions can cause significant changes in the Company’s share price because as the prices of precious metals increase or decrease, the economic viability of the mineral properties is affected. Cream has no history of mining or current source of revenue. The Company is exploring for silver and gold, and historically, the prices of the common shares of junior exploration companies are very volatile. This volatility may be partly attributed to the volatility of silver and gold prices, and also to the success or failure of the Company’s exploration programs. Market, financial and economic factors not directly related to mining activities can also affect the Company’s ability to raise equity financing.
Below are the annual average, high and low prices of gold and silver from the year 2001 to 2011, and year 2012 to date.
Fluctuations in financial markets can negatively impact the Company’s ability to fund itself.
Over the last decade there have been periods of high volatility in world financial markets. The volatility can negatively impact the company’s ability to raise sufficient equity financing to sustain operations. Future financial market volatility is likely and it should not be assumed that adequate funding will be available to the Company in amounts or at times when it is required.
Risks Associated with Mineral Exploration
Cream’s exploration efforts may be unsuccessful in locating viable mineral resources. Resource exploration is a speculative business, characterized by a number of significant risks, including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits, which, though present, are insufficient in quantity and/or quality to return a profit from production.
There is no certainty that the expenditures to be made by the Company on the exploration of its properties and prospects as described herein, in particular the Nuevo Milenio project, will result in discoveries of mineralized material in commercial quality and quantities.
1 www.kitco.com Gold prices, London Fix US dollars per ounce
2 www.silverinstitute.org/priceuk.php Silver prices, London Fix US dollars per ounce
Mineral Resource Estimates Are Only Estimates and May Not Reflect the Actual Deposits or the Economic Viability of Gold Extraction. Although the Company has carefully prepared its mineral resource figures, such figures are estimates only and no assurance can be given that the indicated tonnages and grade will be achieved. There is significant uncertainty in any mineral resource estimate. Estimates of inferred resources are the least certain of the resource categories and there is no assurance that such resources can or will be upgraded to another category of resource, or that further exploration will confirm or validate such estimates. Actual deposits encountered and the economic viability of, and returns from, a deposit (if mined) may differ materially from estimates disclosed by the Company or implied by estimates of mineral resources. The estimating of mineral resources is a subjective process and the accuracy of mineral resource estimates is a function of the quantity and quality of available data, the accuracy of statistical computations, and the assumptions used and judgments made in interpreting engineering and geological information. Mineral resource estimates are based on many things, including assumed commodity prices, continuity of mineralization, operating costs and exchange rates. Changes in assumptions may result in a significant reduction in the reported mineral resources and thereby have a material adverse effect on the Company's results of operations and financial condition.
Estimated mineral resources may also require downward revisions based on changes in metal prices and further exploration or development activity. This could materially and adversely affect estimates of the tonnage or grade of mineralization, estimated recovery rates or other important factors that influence mineral resource and reserve of estimates. Any reduction in estimated mineral reserves or estimated resources as a result could require material write downs in investment in the affected mining property, which could have a material and adverse effect on the Company's results of operations and financial condition.
The Company has not established the presence of any proven and probable reserves at any of its mineral properties. There can be no assurance that subsequent testing or future studies will establish proven and probable reserves on the Company's properties. The failure to establish proven and probable reserves could severely restrict the Company's ability to successfully implement its strategies for long-term growth.
There is Uncertainty Relating to Mineral Resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty, which may attach to inferred mineral resources, there is no assurance that inferred mineral resources will be upgraded to indicated and measured mineral resources as a result of continued exploration. If mineral resources are not upgraded to proven and probable mineral reserves, it could materially and adversely affect and/or restrict the Company's ability to successfully implement its strategies for long-term growth.
Cream’s projects have uncertain project realization values. Cream changed its accounting policy with respect to the deferral (capitalization) of exploration costs in fiscal 2009. The Company continues to defer (capitalize) acquisition costs incurred in connection with its projects on its balance sheet. Cream believes the acquisition costs (of approximately $0.1 million at March 31, 2012) are recoverable, notwithstanding the mineralized materials contained at the projects are not currently economically viable or classified as ore. There can be no assurance that Cream could dispose of the projects for their financial statement carrying values, and in such circumstances a diminution in the book value of shareholders’ equity would be the result.
Cream may not be able to market minerals if any are acquired or discovered by the Company due to factors beyond the control of the Company. The marketability of minerals that may in future be acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, and such other factors as government regulation, including regulation relating to royalties, allowable production, importing and exporting of minerals and environmental protection, the combination of which factors may result in the Company not receiving an adequate return on investment capital.
Environmental and Regulatory Risk Factors
Compliance with environmental regulations could affect future profitability and timeliness of operations. The current and anticipated future operations of the Company require permits from various federal, territorial and local governmental authorities. Companies engaged in the exploration and development of mines and related facilities must comply with applicable laws, regulations and permits.
The Company’s exploration activities are subject to various laws governing land use, the protection of the environment, prospecting, development, commodity prices, exports, taxes, labour standards, occupational safety and health, waste disposal, toxic substances, mine safety and other matters. Cream believes it is in substantial compliance with all material laws and regulations which currently apply to its activities. The Company may be unable to obtain all permits required for exploration and development, and the costs of obtaining these permits may not be commercially reasonable. Existing laws and regulations may be modified, which could have an adverse effect on any exploration project that the Company might undertake.
Failure to comply with environmental and reclamation rules could result in penalties. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. The Company and its employees have been involved in the exploration of mineral properties for many years. Currently, the operations of the Company have been limited to exploration, and no mining activity has yet been undertaken. The mining industry is heavily regulated in North America, where the Company has its operations, so that permitting is required before any work is undertaken where there is any form of land disturbance. Exploration activity undertaken in Mexico is subject to the laws and regulations established and administered by the Federal government. To date, land disturbance has been minimal and all required reclamation has been completed.
Other Risk Factors
Cream is dependent on its ability to recruit and retain key personnel. The success of the activities of Cream is dependent to a significant extent on the efforts and abilities of its management. Investors must be willing to rely to a significant extent on their discretion and judgment. Cream does not maintain key employee insurance for any of its employees. Cream has relied on and will continue to rely on consultants and others for exploration, development and technical expertise. The ability of the Company to retain employees and its ability to continue to pay for services are dependent upon the ability of the Company to obtain adequate financing to continue operating as a going concern.
Cream’s title to mineral property interests may be challenged. Although Cream has done a review of titles to its mineral interests, it has not obtained title insurance with respect to its properties and there is no guarantee of title. The Company has obtained a land title review and legal opinion by a Mexican law firm which affirmed Cream’s title to Nuevo Milenio. However, the mineral properties may be subject to prior unregistered agreements or transfers or native land claims, and title may be affected by undetected defects. Cream’s Canadian mineral property interests consist of mineral claims, which have not been surveyed, and therefore the precise area and location of such claims or rights may be in doubt. As there are unresolved native land claim issues in British Columbia, the Company’s properties and prospects in this jurisdiction may be affected in the future. The Company’s mineral properties in British Columbia are early stage exploration, and have no known mineral resources or reserves.
Cream’s directors and officers serve as directors and officers of other publicly traded junior resource companies. Some of the directors and officers of Cream serve as officers and/or directors of other resource exploration companies and are engaged and will continue to be engaged in the search for additional resource opportunities on their own behalf and on behalf of other companies, and situations may arise where these directors and officers will be in direct competition with Cream. Such potential conflicts, if any, will be dealt with in accordance with the relevant provisions of British Columbia corporate and common law. In order to avoid the possible conflict of interest which may arise between the directors’ duties to Cream and their duties to the other companies on whose boards they serve, the directors and officers of Cream expect that participation in exploration prospects offered to the directors will be allocated among or between the various companies that they serve on the basis of prudent business judgement and the relative financial abilities and needs of the companies.
Cream may not be able to insure certain risks which could negatively impact the Company’s operating results. In the course of exploration, development and production of mineral properties, certain risks, and in particular unanticipated geological and operating conditions as well as fires, explosions, flooding, earthquakes, power outages, labour disruptions, and the inability to obtain suitable or adequate machinery, equipment or labour may occur. It is not always possible to fully insure against such risks and the Company may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the securities of the Company.
U.S. investors may not be able to enforce their civil liabilities against the Company or its directors, controlling persons and officers. It may be difficult for U.S. investors to bring and enforce suits against the Company. The Company is a corporation incorporated in British Columbia under the Business Corporations Act (British Columbia) and, consequently, there is a risk that Canadian courts may not enforce judgements of U.S. courts or enforce, in an original action, liabilities directly predicated upon the U.S. federal securities laws. A majority of the Company’s directors and officers are residents of Canada and all of the Company’s assets are located outside of the United States. Consequently, it may be difficult for United States investors to affect service of process upon those directors or officers who are not residents of the United States, or to realize in the United States upon judgements of United States courts predicated upon civil liabilities under United States securities laws. It is unlikely that an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities under U.S. securities laws.
Cream has been operating in Mexico, which has different risks than those of British Columbia, or Manitoba, Canada. Cream’s activities in Mexico may be subject not only to risks common to operations in the mining industry, but also to the political and economic uncertainties of operating in foreign jurisdictions, namely Mexico. This may result in misinterpretation of laws, unilateral modification of mining or exploration rights, operating restrictions, increased taxes or environmental regulation, any or all of which could have an adverse impact upon Cream. Cream’s operations may also be affected to varying degrees by political and economic instability, terrorism, crime, extreme fluctuations in currency exchange rates and inflation. Cream’s operations and exploration activities in Mexico are subject to Mexican federal and state laws and regulations governing protection of the environment. These laws are evolving and, as a general matter, are becoming more restrictive.
Mineral exploration and mining activities may be affected in varying degrees by political stability and government regulations relating to the mining industry and foreign investors. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. Operations may be affected in varying degrees by government regulations, policies or directives with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, and repatriation of income, royalties, environmental legislation and mine safety.
Risks Relating to an Investment in the Securities of the Company
Cream could be deemed a Passive Foreign Investment Company which could have negative consequences for U.S. Holders. Potential investors who are U.S. Holders (defined below) should be aware that Cream expects to be a passive foreign investment company (“PFIC”) for the current fiscal year, may have been a PFIC in prior fiscal years and may continue to be a PFIC in subsequent years. If Cream were to be treated as a PFIC, U.S. Holders of the Cream common shares would be subject to adverse U.S. federal income tax consequences, including a substantially increased U.S. income tax liability and an interest charge upon the sale or disposition of the Cream common shares and upon the receipt of distributions on the Cream common shares to the extent such distributions are treated as “excess distributions” under the U.S. federal income tax rules relating to PFICs. U.S. Holders could potentially mitigate such consequences by making certain elections with respect to the Cream common shares. U.S. Holders are urged to consult their tax advisors regarding Cream’s PFIC classification, the consequences to them if Cream is a PFIC, and the availability and the consequences of making certain elections to mitigate such consequences. (See Item 10 Taxation -United States Tax Consequences).
Cream’s stock price may limit its ability to raise additional capital by issuing common shares. The low price of Cream’s common shares also limits Cream’s ability to raise additional capital by issuing additional shares. There are several reasons for this effect. First, the internal policies of certain institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker’s commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, Cream’s shareholders pay transaction costs that are a higher percentage of their total share value than if Cream’s share price were substantially higher.
The liquidity of Cream’s shares in the United States markets may be limited or more difficult to effectuate because Cream is a “Penny Stock” issuer. Cream’s stock is subject to U.S. “Penny Stock” rules which make the stock more difficult for U.S. shareholders to trade on the open market. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny” stocks. Penny stocks are equity securities with a price of less than US$5.00 per share, other than securities registered on certain national securities exchanges or
quoted on the NASDAQ system provided that current prices and volume information with respect to transactions in such securities is provided by the exchange or system.
The Penny Stock Rules require a broker-dealer, prior to effecting a transaction in a penny stock not otherwise exempt from such rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.
In addition, the Penny Stock Rules require that prior to a transaction in a penny stock not otherwise exempt from such 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 acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. At the present market prices, Cream’s common shares will (and in the foreseeable future are expected to continue to) fall within the definition of a penny stock. Accordingly, United States broker-dealers trading in Cream’s shares will be subject to the Penny Stock Rules. Rather than complying with those rules, some broker-dealers may refuse to attempt to sell penny stocks. As a result, shareholders and their broker-dealers in the United States may find it more difficult to sell their shares of Cream, if a market for the shares should develop in the United States.
The market for the Company’s stock has been subject to volume and price volatility which could negatively affect a shareholder’s ability to buy or sell the Company’s shares. The market for the common shares of the Company may be highly volatile for reasons both related to the performance of the Company or events pertaining to the industry (e.g. mineral price fluctuation/high production costs/accidents) as well as factors unrelated to the Company or its industry.
Market demand for products incorporating minerals in their manufacture fluctuates from one business cycle to the next, resulting in a change of demand for the mineral and an attendant change in the price for the mineral. The Company’s common shares can be expected to be subject to volatility in both price and volume arising from market expectations, announcements and press releases regarding the Company’s business, and changes in estimates and evaluations by securities analysts or other events or factors. In the last decade, securities markets in the United States and Canada and internationally have experienced periods of high price and volume volatility, and the market prices of securities of many companies, particularly small-capitalization companies such as the Company, have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values, or prospects of such companies. For these reasons, the Company’s common shares can also be expected to be subject to volatility resulting from purely market forces over which the Company will have no control. Further, despite the existence of a market for trading the Company’s common shares in Canada, shareholders of the Company may be unable to sell significant quantities of common shares in the public trading markets without a significant reduction in the price of the stock. The trading price of Cream’s shares have ranged between $0.05 and $1.38 in the last five calendar years.
Significant potential equity dilution. A summary of Cream’s diluted share capital at July 29, 2012 is as follows:
Cream had stock options outstanding (11,386,500 at March 31, 2012 and 9,985,000 at July 29, 2012), which are exercisable at prices ranging from $0.12 to $0.50 per share which are, respectively, below and above the current market price for the Company’s shares. In the money options could be exercised prior to expiry while the higher priced options may not be exercised before expiry. In either case, the outstanding options could act as an upside damper on the price of Cream’s shares. As a consequence of the passage of time since the date of their original sale and issuance, there are no shares of Cream remaining subject to hold period restrictions in Canada or the United States as of March 31, 2012. At March 31, 2012, there were 50,408,500 warrants exercisable at an average price of $0.22 and at July 29, 2012, 44,650,000 exercisable at an average price of $0.23. The resale of outstanding shares from the exercise of dilutive securities would have a depressing effect on the market for Cream’s shares. Dilutive securities based on the trading range of Cream’s common shares at March 31, 2011, including the warrants and the stock options noted above, collectively represent approximately 40% of Cream’s issued shares as at March 31, 2012.
A. History and Development of the Company
The Company’s executive office is located at:
Suite 1400 – 570 Granville Street, Vancouver, British Columbia, Canada, V6C 3P1
Telephone: (604) 687-4622
Facsimile: (604) 687-4212
The contact person in Vancouver, British Columbia, is Michael O’Connor, President, CEO, and Director.
The mailing address of the Company is the Company’s executive office at the address noted above. Cream operates directly and also through one wholly-owned subsidiary in Mexico, Cream Minerals de Mexico, S.A. de C.V. (“Cream de Mexico”). References to “Cream” or to “the Company” include Cream de Mexico except where otherwise indicated.
The Company’s fiscal year end is March 31.
The Company’s common shares are listed on the TSX Venture Exchange under the symbol “CMA.” Cream is also quoted on the Over the Counter Bulletin Board in the United States under the symbol CRMXF, and quoted on the Frankfurt market under the symbol “DFL”.
The Company was incorporated under the laws of the Province of British Columbia, Canada as Cream Silver Mines N.P.L. on October 12, 1966, with an authorized capital of 3,000,000 shares, each having a par value of $0.50. By Special Resolution passed on July 12, 1974, Cream cancelled its Memorandum and Articles and substituted a new Memorandum and Articles therefore providing for the limited liability of members and the increase of the authorized capital to 10,000,000 shares with a par value of $0.50 each. By Special Resolution passed September 24, 1987, Cream again altered its Memorandum, changing its name to Cream Silver Mines Ltd. in its English form and "Mines Cream Silver Ltee." in its French form and amending its authorized share capital to 30,000,000 common shares without par value. By Special Resolution passed September 15, 1994, Cream altered its Memorandum to consolidate its authorized and issued share capital of 30,000,000 common shares on a five-for-one basis into 6,000,000 common shares authorized, and issued common shares were consolidated from 18,707,937 common shares on a five-for-one basis into 3,741,587 common shares; to further increase its authorized capital to 50,000,000 common shares without par value (the "Common Shares"); and to change its name to Cream Minerals Ltd. Cream has been listed on the TSX Venture Exchange (the "TSX Venture"), formerly the Vancouver Stock Exchange (“VSE”), since June 3, 1970. The Company subsequently altered its Memorandum to increase its authorized capital to 500,000,000 common shares.
At Cream’s request, the VSE placed the Company on inactive status on August 12, 1994. Cream had requested inactive status in order to reorganize its affairs after the government of the Province of British Columbia placed Cream’s Vancouver Island mineral claims adjoining those of Westmin Resources Ltd. in moratorium, and refused to grant Cream a permit to explore these claims. The claims, in Strathcona Park on Vancouver Island, were placed in moratorium in connection with the Strathcona Park area being declared a provincial park in 1972. These actions by the provincial government left Cream with no viable project at the time and with little working capital. The claims currently remain in moratorium. Throughout the early to mid-1970s, Cream initiated several court cases seeking compensation for these claims. The matter was ultimately decided by a decision of the British Columbia Court of Appeal denying Cream’s right to compensation. Leave to appeal this decision to the Supreme Court of Canada was refused and Cream was then advised that it was without further legal recourse with respect to its Vancouver Island claims. Recently, the British Columbia Court of Appeal specifically overruled its previous decision in the Cream case. The Company reviewed its legal position in the light of this development, but has been advised that it remains bound by the previous decision.
Following Cream’s entry into inactive status, Cream embarked on a reorganization program that included a consolidation of its issued and outstanding share capital and subsequent increase of authorized capital (as described above); a restructuring of the Board of Directors and appointment of new officers; a review of its financial affairs which included completing two private placements for the issuance of a total of 680,000 units, each consisting of one common share and one warrant, at a price of $0.35 per unit, which raised a total of $231,000; and a review of its property holdings. During Cream’s inactive period, certain of its claim groups in British Columbia were allowed to
lapse, and others were sold off. Following completion of this reorganization, Cream resumed active status on April 11, 1996.
Effective March 29, 2004, the Company Act (British Columbia) was replaced by the Business Corporations Act (British Columbia). The Business Corporations Act (British Columbia) does not require a company’s Notice of Articles to contain a numerical limit on the authorized capital with respect to each class of shares. Effective September 21, 2004, the Company altered the authorized capital of the Company from 500,000,000 shares without par value to an unlimited number of shares without par value. By Special Resolution effective June 23, 2011, shareholders approved the adoption of new articles for Cream. See Item 10B – Memorandum and Articles of Association.
Since its incorporation in 1966, the Company has been in the business of acquiring and exploring mineral properties. For most of the past three completed years, and prior thereto, the Company has been principally attempting to locate deposits of precious metals in Mexico and the Provinces of British Columbia and Manitoba, Canada. In 2005 the Company acquired a property in Sierra Leone.
The Company’s primary exploration project is Nuevo Milenio, located south of Tepic in the municipality of Xalisco, State of Nayarit, Mexico, having denounced (staked) the property in 2000 and receiving title to the property in 2001. Mineral licenses in Mexico have a term of 50 years following which an application can be made to extend the term. Carrying costs are comprised of annual taxes. Work requirements are nominal and cash payment can be made in lieu.
In 2001, Cream entered into an exploration program on the Property. Cream explored the Property until the year ended March 31, 2005, at which time it wrote it down by $1,523,030 to a nominal carrying value of $1. No acquisition costs are associated with the Property, as it was located, or denounced (staked). In 2006, the Company re-commenced exploration on Nuevo Milenio. Exploration has been conducted since that time.
On July 24, 2009, the Company entered into an option agreement with Roca Mines Inc. (“Roca”) that would have allowed Roca to earn up to a 70% interest in the Project. In order to acquire a 50% legal and beneficial interest in the Project, Roca was to spend a cumulative US$12,000,000 for exploration work on the property by July 24, 2013.
On July 22, 2010, Roca notified the Company that it was not proceeding with the option agreement and the agreement was terminated.
On December 7, 2010, Cream agreed to a bought deal financing of $5 million with the provision of an overallotment of $1 million. The terms of the bought deal were $0.16 per unit with a full warrant exercisable at $0.24 for two years from the date of closing.
The Company subsequently closed the bought deal financing on December 21, 2010, and received gross proceeds of $6 million.
On April 30, 2010, the Company signed a letter of intent (“LOI”), pursuant to which it acquired an option from an arm's length party on the Las Habas Project, comprised of 336 hectares (“Ha”) located in the State of Sinaloa, Mexico. The LOI was for a period of three months. The proposed option agreement outlined in the LOI calls for total payments of US$1 million over a 5-year period and a 2% NSR royalty, payable out of production. On June 1, 2010, Cream filed an application to denounce approximately 700 hectares adjoining the Las Habas property. The Company let the LOI lapse and has not pursued title to the adjacent 700 Ha’s.
The Company holds an option to acquire a 100% interest in the Goldsmith property located near Kaslo, British Columbia. The Goldsmith option agreement calls for the issuance of 200,000 common shares (issued) and cash payments totaling $110,000 (paid) over six years. The final payment of $20,000 was extended over a period of four months, at $5,000 per month from June to September 26, 2010. All the payments of $5,000 have been made pursuant to the amended agreement as of the date of this Annual Report. The Company wrote down the carrying value of Goldsmith Property to $Nil in fiscal 2012.
The Company, ValGold Resources Ltd. and Sultan Minerals Inc. (the “Companies”) each hold a one third interest in two staked claims, namely the Trout and Trout 1 claims, located approximately 130 km east of Gillam, Manitoba (the “Trout Claim Group”) and encompassing an area of 256 hectares. Under the terms of the Trout Claim Group agreement, the Companies agreed to make a total cash payment of $110,000 and issue 200,001 common shares (66,667 shares in the capital of each of the three companies), all of which were issued, to the optionor over a 36-month period from July 22, 2004. Upon earning its 75.0% interest, the Companies and the optionor would enter into a 75:25 joint venture for the further exploration and development of the Trout Claim Group. The joint venture agreement has not yet been completed. The Companies have reduced the Stephens Lake claims held to the Trout Claim Group, and are reviewing their options with respect to the property. The carrying value of the property has been written down to $Nil.
During fiscal 2007, and in fiscal 2008, the Company entered into option agreements to acquire up to 100% interest in two mineral property interests in the Province of Manitoba, the Wine claims and the Grand Nickel Project. In March 2006, the Company entered into an option agreement, subsequently amended, to acquire 100% interest in the Wine Claim, MB 3964 and Wine 1 Claim, all located approximately 60 km southeast of Flin Flon, Manitoba. The Company earned its interest by making payments totaling $105,000 (paid) and issuing 200,000 common shares over a 48-month period (issued). The Company must also incur exploration expenditures on the property of $5,000 annually for four years which have been made. On completion of these obligations, the property will be subject only to a 2.0% NSR royalty payable to the optionor from the production of gold, silver and all base metals and other minerals. The Company has the right to reduce the NSR royalty to 1.0% by the payment of $1,000,000 to the optionor at any time up to and including the commencement of commercial production.
In October 2007, the Company entered into an agreement to acquire 100% interest in the Grand Nickel Project, being the Cedar 1, MB7355 and MEL 324B claims, located in the Thompson Nickel Belt, approximately 40 km north-west of the town of Grand Rapids, Manitoba. After a short exploration program, the Company determined that the property did not meet its expectations, returned the property to the optionor and recorded a write-down of acquisition costs of $34,250 in fiscal 2009. The grand Nickel project was written off in the year ended March 31, 2009.
In November 2009, the Company entered into an option agreement to acquire the Blueberry property from W.S. Ferreira Ltd. and the Company staked additional claims which have been appended to the option agreement. The property is located approximately 20 km north-east of Flin Flon, Manitoba. The option agreement provides for a cash payment of $100,000 (of which $40,000 has been paid) and the issuance of 400,000 shares (of which 160,000 have been issued) over five years with a down payment of $10,000 (paid). The cash payments are to be made as follows: $10,000 on regulatory approval (paid), $10,000 on the first anniversary (paid), and $20,000 on each of the second (paid) to the fifth anniversary dates. The shares are to be issued as follows: 40,000 on regulatory approval (completed) and 40,000 on the first anniversary of regulatory approval (completed), and 80,000 common shares on each of the second (completed) to the fifth anniversary dates. During the year ended March 31, 2012, the $20,000 cash payment was made and 80,000 shares were issued. One payment of $20,000.00 and the issuance of 80,000 shares remains.
The Company must incur cumulative exploration expenditures totaling $30,000 following the date of regulatory approval, commencing with expenditures of $5,000 prior to the first anniversary date and a minimum of $5,000 annually by each anniversary date on or prior to the fifth anniversary. The total incurred to March 31, 2012 is $152,476. On completion of these obligations, the property will be subject only to a 2.0% NSR royalty payable to the optionor from the production of gold, silver and all base metals and other minerals. The Company has the right to reduce the NSR royalty to 1.0% by the payment of $1,000,000 to the optionor at any time up to and including the commencement of commercial production.
B. Business Overview
Cream has historically been a mineral exploration company. The Company is currently focused on exploration of the Nuevo Milenio Silver-Gold Property in Mexico. Cream also has a portfolio of early-stage mineral exploration projects in British Columbia and Manitoba that may contain silver, gold, and other mineralization. These properties have been explored by a number of companies over the years, with further work being completed by Cream since their acquisition.
Nuevo Milenio Project, Mexico
Cream began exploring the Nuevo Milenio Silver-Gold Project in 2001. Exploration work has continued to date. Two limited drill programs were completed, one in 2003 and the second in 2006/2007. Cream began a significant diamond drill program on February 6, 2011, which ended in September 2011.
The Company is in the process of obtaining an independent NI 43-101 Technical Report encompassing all historical data and the data acquired during the 2011 drill program.
The Company has no plans to complete further exploration work on its properties located in British Columbia in the immediate future.
C. Organizational Structure
The Company has one direct subsidiary, Cream Minerals de Mexico, S.A. de C.V., incorporated in Mexico. Unless the context otherwise requires, references herein to the “Company” or “Cream” includes the subsidiary of the Company.
D. Property, Plant and Equipment
The Company has mineral exploration interests in five properties: the Nuevo Milenio Project (Mexico), the Goldsmith (British Columbia), the Kaslo (British Columbia) property, the Wine (Manitoba) property and the Blueberry (Manitoba) property, as well as a joint interest in the Trout Claims. The Company’s primary property is the Nuevo Milenio Project.
The Company’s mineral property interests in Canada and Mexico are in good standing and all payments on the properties are up to date.
None of the Company’s projects have known reserves, and its proposed programs are exploratory in nature. The Nuevo Milenio Project has an Inferred Mineral Resource estimated in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101").
Nuevo Milenio Project
The Nuevo Milenio Property, Nayarit State, Mexico, is hosted by a sequence of intermediate to felsic lithic tuff’s, ash tuffs and ash flow and breccias within a large collapsed caldera setting. The Property encompasses 2,560 Ha’s and is 100% owned by the Company.
History of the Property
In 2000, Cream entered into an exploration program on Nuevo Milenio. Work on the property began in 2001 and until 2004 was focused on the Eastern rim of the caldera and associated areas. In the year ended March 31, 2005, the Company determined that it was not going to conduct further exploration on the property for the foreseeable future and as a result the property exploration costs were written down to a nominal carrying value of $1. Nuevo Milenio originally consisted of 4 lots encompassing 6927.8482 Ha’s. and was denounced in February 2000 by Arnoldo Carrera Gamboa on behalf of Cream Minerals de Mexico. Titles to the lots were received in February 2001 with the agreements to transfer the lots to Cream Minerals de Mexico signed in 2003 and registered with the Department of Mines with Cream Minerals de Mexico as beneficiary. In June 2005, an application to reduce Nuevo Milenio Fraccion 1 and to drop CMM II was filed with the Department of Mines. The remaining lot comprises the current 2,560 Ha Nuevo Milenio property.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Nuevo Milenio is located south east of the city of Tepic in the State of Nayarit, Mexico. Nuevo Milenio is 27 kms by road (24 kms by highway, 3 kms by dirt road) from Tepic, the capital of Nayarit State, Mexico. Tepic has a population of approximately 300,000 people, and is an important commercial centre. It is 150 km’s northeast of Puerto Vallarta. A railway, airport, power lines and water are within reasonable distance of the property providing cost-effective access to infrastructure.
Regionally, Nuevo Milenio is located within an early Miocene caldera field located at the southern end of the Sierra Madre Occidental Volcanics. The area is traversed by the Tepic Zacoalco rift zone, a boundary zone with the Jalisco block. The Tepic area is overlain by the young volcanics of the Trans Mexican Volcanic Belt. The confluence of two historically active volcanic zones and proximity to large regional faults provide a geological setting which has the potential to host significant mineralization.
Nuevo Milenio is a low sulphidation, epithermal precious metal prospect containing silver-gold mineralization in quartz vein and quartz stock work zones. There is minimal base metal content. The Project is hosted by a sequence of intermediate to felsic volcanic flows, tuffs and breccias within a large collapsed caldera setting. The collapsed caldera is set in an area of Micocene volcanics which further enhances the Project’s potential. Younger rhyolite does and basalt vents define volcanic centres along the caldera rim. To date, three principal north west-trending zones have been identified on the property, Dos Hornos-Veta Tomas, Once Bocas North-Once Bocas South and Chacuaco-Cafetal.
Drilling was first commenced in the spring of 2002. The program was comprised of five drill holes totaling 726 metres. A follow-up drill program was initiated in November 2003 and was completed in April 2004. The program consisted of 19 drill holes totaling 3,544 metres.
A report prepared in late 2005 recommended further work, and an additional $59,655 in exploration costs were written off in the first half of the year ended March 31, 2006,
Drilling re-commenced on the Dos Hornos zone in late 2006. In January 2007, the focus of the drill program was shifted to in-fill drilling followed by drill testing the segment between Section 5 (Trench 3) to Section 12 (Mina Santa Gertrudis). The Company completed 31 diamond drill holes along the Dos Hornos 1 Zone for a total of approximately 5,200 metres. Diamond drilling established that additional “Inferred Mineral Resources” are located within Dos Hornos 1, Dos Hornos 2 and Veta Tomas, a newly defined and higher grade vein.
In May of 2009, Cream outlined a revised, staged underground development plan. The intention was to stage underground diamond drilling and begin upgrading the inferred mineral resources to the measured and indicated categories as well as to add additional inferred mineral resources.
In support of the revised underground development plan, Cream initiated the required environmental studies, including biological, hydrological and land use, as well as a survey of the proposed area for the portal. The Company did not pursue completion of the environmental permits and negotiations to secure surface rights or commence work on a planned cross-cut due to the signing of an option agreement with Roca Mines Inc. (“Roca”) effective July 24, 2009.
In May 2009, Cream announced that a channel sample taken just inside a recently discovered historic Spanish working on Cerro Dos Pinos, which is located approximately 500 metres southeast of the high-grade silver-gold Veta Tomas vein, yielded assays of 0.95 g/t Au and 452 g/t Ag respectively.
Cerro Dos Pinos lies approximately 500 metres southeast of drill hole DDH 07 – 23 which was drilled on the Veta Tomas Structure. The Company believes that the new discovery is a probable fault segment of the high-grade silver-gold Veta Tomas Structure that could extend the known strike length of the Veta Tomas - Dos Hornos Zones from 1,200 metres to approximately1,800 metres. The historic Spanish adit, 1.60 metres wide and caved, was driven on a quartz vein structure outcropping within a window of younger devitrified rhyolite flows.
On July 24, 2009, the Company entered into an option agreement with Roca that would have allowed Roca to earn up to a 70% interest in the Nuevo Milenio Project. On July 22, 2010, Roca notified the Company that it would not be preceding with the option agreement, and the agreement was terminated.
Roca’s drill program consisted of approximately 1,000 metres of diamond drilling on Dos Hornos 1, Dos Hornos 2, Veta Tomas and Once Bocas. Five holes were drilled with the intention of twinning existing Cream holes. Drill results largely confirmed the results obtained by Cream.
2011 Exploration and Drilling Program
Cream began a diamond drill program on February 6, 2011. The 2011 drill program called for 10,000 metres of drilling with an option for a second 10,000 metres of drilling. The first 10,000 metres of drilling was completed in mid-May. The Company elected to exercise its option for the second 10,000 metres of drilling. The Company completed the drill program at Nuevo Milenio in late September 2011 ahead of schedule and on budget.
The objective of the drill program was three fold:
Sampling and Analysis
As of September 19, 2011, 89 drill holes were completed for a total of 20,292 metres of drilling at Nuevo Milenio and completed the 2011 diamond drill program a. Of the 20,292 metres drilled 13,500 were of in-fill drilling and 6,792 were cof exploration drilling.
The following is an overview of the drill results by zone:
Dos Hornos 1
Drill results for the Dos Hornos 1 structure demonstrated a semi-continuous s structure along strike and down dip in sections 0 through 9. In addition, repetition of the structure through faulting (stacked sections) was observed in sections drilled off. Drill holes cut several semi-blind or blind veins identifying what might be a transitional zone. This area is now referred to as the Northern Transitional Zone. Additional drilling is required to determine the nature and extent of this newly identified zone. The veins cut returned lower grade silver-gold values. The identification of the Northern Transitional Zone structure identifies a future exploration target at Nuevo Milenio.
Dos Hornos 2
Drilling on Dos Hornos 2 demonstrated semi continuity of the structure with continuity being evident by section 19. As with Dos Hornos 1 In addition, repetition of the structure through faulting (stacked sections) was observed in sections drilled off. Access difficulties due to challenging terrain impacted the results as additional data required to permit upgrading the inferred resources to indicated resources in sections of Dos Hornos 2 could not be obtained. The 2003 and 2011 drill programs intersected unknown quartz vein structures. The intersected quartz veins are blind veins or semi blind veins outlining what might be a transitional zone. This area is now referred to as the the Southern Transitional Zone. The vein structures trend parallel to the Dos Hornos and Once Bocas structures. Additional drilling is required to determine the nature of this newly identified zone. The Southern Transitional Zone identifies future exploration target at Nuevo Milenio.
Drilling on the Veta Tomas structure has demonstrated continuity of the structure along strike and down dip in several sections. In addition, repetition of veins resulting from sub-parallel faults moving down dip segments up (stacked sections) was observed in sections drilled off. The challenging topography eliminated several important drill site locations which impacted the overall drill plan. As in Dos Hornos 1 and Dos Hornos 2 sub-parallel fault planes cutting the mineralized structure returned low assay values from quartz breccia and gouge. Drill hole VT 07 – 11 was drilled at 180 degrees to the strike of Veta Tomas. The drill hole cut a zone 72 metres in width. It is a blind zone of silver and gold mineralization associated with quartz veins and quartz stock work overlain by rhyolite flows. Structural considerations suggest the structure may be a fault segment of Dos Hornos 2 however additional drilling is required to define the structure and confirm this initial interpretation. This structure is a future exploration target.
Once Bocas North
Drilling on Once Bocas North was centered in the 1,000 metre strike length of the structure as mapped on surface. Drilling has confirmed the semi-continous extension of the quartz veins and quartz stock work to the northwest. At approximately 300 metres to the northwest, a structure containing quartz veins was intersected. The structure is not directly on strike with Once Bocas North. At this time it is not known if this structure is a northwest extension of Once Bocas North or a new structure. Once Bocas North remains open along strike to the northwest.
Once Bocas South
Once Bocas South was previously identified by surface mapping with an indicated width of 30 metres and an indicated strike length of 600 metres. Drilling in four sections consisting of six drill holes defined a strike length of 230 metres and a width of 100 metres. The zone consists of two distinct segments of quartz veins and/or quartz stock work. The upper segment is comprised of quartz veining while the lower segment consists mainly of quartz stock work of variable intensity. Follow up drilling is required to define the geological setting of the structure and to confirm the surface mapping defined strike length of Once Bocas South at 600 metres. Initial indications point to the possibility of Once Bocas South representing open pit potential however additional drilling is required to confirm this. Once Bocas South is open along strike to the southeast.
Veta Olvidada is a quartz breccia zone demonstrating oxidation and leaching which was identified in 2008. The 2011 drill program defined a strike length of 400 metres. Veta Olvidada exhibits intense weathering and oxidation in the northwest. An increase in the silver-gold grade is indicated with the transition to the south east from quartz
breccia veins to a quartz vein quartz stock work zone. Veta Olvidada along with the other known structures within Cafetal are open to the northwest and southeast. Veta Olvidada may represent an open pit target however additional drilling is required to confirm this.
Cerro Chacuaco is characterized by intense silification in the upper part of the hill changing to less silicified and altered lithic rhyolite tuff. These veins are hosted by lithic rhyolite tuff. The upper elevations of the hill show strong silica flooding. Along the western portion of Cerro Chacuaco and within Arroyo Chacuaco channel samples and rock geochemistry of silicified tuffs trending under basalt cover indicated a large area of highly anomalous silver-gold values. This area has approximate dimensions of 200 metres by 600 metres and is an exploration target.
An independent mineral resource estimate for the Nuevo Milenio project as at July 30, 2012 was prepared by Derek McBride P. Eng. which incorporates the results of the Company's 2011 drill program on the project (the "2012 Resource Estimate").
The 2012 Independent Mineral Resource Estimate replaces in entirety the 2008 Inferred Mineral Resource Estimate previously disclosed by the Company and the Company advises that the 2008 Inferred Mineral Resource Estimate can no longer be relied upon.
Cream Minerals Limited Commentary
Dr. Derek McBride P.Eng, is convinced of the exploration potential at Nuevo Milenio. Dr. McBride P.Eng, has noted “Nuevo Milenio is a property of merit”. The 2012 updated Independent Mineral Resource Estimate has identified 2,829,000 tonnes containing 9,660,000 ounces silver equivalent which is in the Measured and Indicated categories and 3,554,000 tonnes containing 7,270,000 ounces silver equivalent in the Inferred category. The property contains a minimum of seven mineralized zones; previous drilling has provided resources on four zones and indicated significant targets on all zones. The 2011 drill program identified a resource on Once Bocas South which had not previously been drilled. All the mineralized zones with significant data suggest that the best mineralization occurs within 100 metres of surface and forms hills.
The 2011 drill program was based on a geological interpretation employing all historical exploration data up to 2008 including widely spaced drill holes. In-fill drilling and a portion of the step out drilling generated data which upon review did not support the original geological interpretation which formed the basis of the 2008 Inferred Mineral Resource Estimate. As a result the in-fill drilling did not consistently generate assays to support the previously estimated grades and as a result the average grade decreased. A review of the data indicates that Dos Hornos-Veta Tomas is a near surface epithermal system with mineralization occurring within 150 metres of surface.
Based on the results of the 2011 exploration program and reviewed by Dr. McBride the following targets have been identified as warranting further exploration:
1) Once Bocas North and Once Bocas South are potential open pit targets that can be expanded both at depth and on strike.
2) The transition zones identified on Dos Hornos 1 and Dos Hornos 2, in particular the Southern Transition zone are potential exploration targets based on intercepts of blind and semi-blind veins which returned assays in excess of 300 g/t silver and 700 g/t silver both over one metre. These veins appear to lie parallel to Dos Hornos 2 and Veta Tomas possibly forming a parallel zone.
3) A structure identified through surface exploration work containing colonial trenches and colonial shafts extends 500 metres to the south east and is on strike with Veta Tomas. Preliminary exploration work suggests this structure may be an extension of Veta Tomas. This would open a potential exploration zone if the structure is a faulted segment of Veta Tomas.
4) Chacuaco and Cafetal while earlier stage exploration targets warrant drill testing based on exploration work which includes sampling of trenches and Spanish workings and limited drilling having identified several high priority drill targets.
5) Drilling to the east of Veta Tomas intersected a blind structure which based on preliminary examination may be a fault block of Dos Hornos 2. If this initial interpretation is correct a potential exploration zone may be opened.
6) Earlier stage but important exploration targets include the silica cap to the west of Once Bocas North, the northern extension of Once Bocas North which has a surface mapped strike length of over 400 metres and the Cafetal East zone. Each has the potential to be potential future exploration targets.
Dr. Derek McBride P.Eng., prepared the 2012 mineral resource estimate for Nuevo Milenio and has supervised the preparation of information of a scientific or technical nature in this news release.
Quality Control and Data Verification
Ferdinand Holcapek, director of Cream and director-general of Cream Minerals de Mexico, is the Company's qualified person responsible for the Company's quality control and quality assurance program and has verified technical data underlying the opinions and information in this news release. Details of the Company's quality assurance and quality control program are contained in News Release dated February 27, 2012.
All data disclosed in this document was obtained from previously issued Cream news releases. All data and opinions contained herein and within the previously issued news releases were reviewed and verified by Mr. Ferdinand Holcapek P. Eng. Mr. Holcapek is the Company’s Qualified Person for the purpose of NI 43-101 with respect to this property.
Gold-Silver Mineral Resource Estimates
Cautionary Note to U.S. Investors concerning estimates of Measured and Indicated Resources
This section uses the terms “measured” and “indicated resources.” We advise U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
Cautionary Note to U.S. Investors concerning estimates of Inferred Resources
This section uses the term “inferred resources.” We advise U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable. See Page 5 of this Annual Report for information relating to Inferred Resources.
The 2012 Independent Mineral Resource Estimate replaces in entirety the 2008 Inferred Mineral Resource Estimate previously disclosed by the Company and the Company advises that the 2008 Inferred Mineral Resource Estimate can no longer be relied upon.
Independent Mineral Resource Estimate Summary
The updated Independent Mineral Resource Estimate was prepared by Dr. McBride P.Eng, a qualified person independent of the company under National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
Notes and Assumptions: The Independent Mineral Resource Estimate employed a cut-off grade of 50 g/t silver for underground resources and 20 g/t for open pit resources. Metal prices assumed were $30.00per ounce for silver and $1,500.00 for gold. Average true widths ranged from three metres to five metres.
The distance from a data point used to classify the resources is; 0 to 25 metres for Measured; 25-50 for Indicated; and 50 to 75 metres for Inferred mineral resource categories. Using a square pattern, the influence of each data point is as defined above, or less depending on the actual distance between data points. The mineralization is considered to be in vertical shoots so that true widths are equal to horizontal widths. All data was presented on a spreadsheet that automatically calculated the tonnages, grades and metal content.
The Company intends to file an updated NI-43-101 technical report within 45 days of the date of this 20F.
A sensitivity analysis was conducted employing a cut-off grade of 160 g/t silver. Performed on Dos Hornos 1, Dos Hornos 2 and Veta Tomas (underground resources) a higher grade zone averaging 1.4 metres true in width containing 6,470,000 tonnes grading 1.03 g/t gold and 178.70 g/t silver averaging 229.98 g/t silver equivalent was identified. Of this 5,960,000 tonnes grading 1.17 g/t gold and 170.54 g/t silver averaging 231.22 g/t silver equivalent were defined in the measured and indicated category. The sensitivity analysis confirms the existence of higher grade mineralization contained within the wider three metre to five metre medium grade veins and indicates possible commercially viable grades and widths.
The 2011 drill program was based on a geological interpretation employing all historical exploration data up to 2008 including widely spaced drill holes. In-fill drilling and a portion of the step out drilling generated data which upon review did not support the original geological interpretation which formed the basis of the 2008 Inferred Mineral Resource Estimate. As a result the in-fill drilling did not consistently generate assays to support the previously estimated grades and as a result the average grade decreased. A review of the data indicates that Nuevo Milenio is a near surface epithermal system with mineralization occurring within 150 metres of surface.
Measurement uncertainty and impairment assessments
Mineral resources estimates are inherently uncertain. See "Item 3D - Risk Factors - Risks Associated with Mineral Exploration".
Cream is currently in the exploration stage on its mineral property interests, and has expensed its exploration costs. The mineral property costs that are capitalized relate to mineral property acquisition costs. At March 31, 2012, the carrying value of mineral property interests was $0.1 million. To the extent that the cumulative exploration amounts expensed to date were significantly in excess of the property carrying value and in the absence of negative exploration results or a decision to abandon the property management has concluded that the fair values of the properties is at least equal to or greater than its book value. The Company also used an overall global valuation test, and compared the market capitalization to its net book value at March 31, 2012, as well as an assessment as to what premium, if any, would be reasonable and concluded that no property impairment charges were identified.
In addition, the Company re-evaluates the carrying values of equipment when events or changes in circumstance indicate that carrying values may not be recoverable. If it is determined that the estimated net recoverable amount based on non-discounted cash flows is less than the carrying value, a write-down to the estimated fair value is made by a charge to earnings. Where estimates of future cash flows are not available and where other conditions suggest impairment, management assesses whether the carrying value can be recovered.
The Company completed an impairment assessment for each of its mineral property interests for the year ended March 31, 2012. It is management’s opinion that the carrying value of its properties is supported by recent exploration expenditures in excess of the properties’ carrying values and the Company’s near-term exploration plans. Although management believes that estimates applied in these impairment assessments are reasonable, such estimates are subject to significant measurement uncertainty and judgments.
Expenditures incurred by the Company on Nuevo Milenio in fiscal 2012 (fiscal 2011 numbers in parentheses) include the following: assays and analysis - $142,656 ($8,827); drilling – $1,997,886 ($714,320); geological and geophysical - $284,690 ($241,170); site activities - $277,023 ($167,941); stock-based payments - $Nil ($440,824) and travel and accommodation- $19,537 ($41,213).
Drilling on Nuevo Milenio was completed in September 2011.
Following review and interpretation of the data obtained from the recently completed 20,292 metre drill program in combination with the historical exploration data, the Company will determine the next appropriate step in the exploration of Nuevo Milenio.
Exploration Projects, British Columbia Properties
The Company has two early-stage exploration projects in British Columbia, Canada. The locations are shown on the map below, with details of the projects following.
Exploration activities on the Kaslo and Goldsmith properties have been planned and carried out under the supervision of Linda Dandy, P.Geo, and Perry Grunenberg, P. Geo both “Qualified Persons” for the purpose of NI 43-101, “Standards of Disclosure for Mineral Projects”.
Kaslo Property, British Columbia
The Kaslo Property in British Columbia is without known mineral resources and reserves and the proposed programs are exploratory in nature. In fiscal 2012, the Company wrote down the value of the Kaslo Property to $nil.
Property Location and Geology
The 100% owned Kaslo Silver Property (“Kaslo”) encompasses nine former high-grade silver-lead-zinc historic small scale mines located in south-eastern British Columbia, Canada. The various mines operated at different times during the period from 1895 to 1966. The property currently consists of 7 modified grid claims, 13 crown grants, 8 reverted crown grants, 37 two-post claims and one mining lease of three units, for a total 160 units.
In October 2004 Cream commenced a diamond drill program on the Kaslo Silver Property. This two-hole drill program was designed to test the lateral and down dip extensions of the high grade silver mineralization found within the strongly faulted Silver Bear shear structure. Diamond drilling was suspended after attempts to drill through the highly mineralized fault zone were unsuccessful. The initial drill hole was abandoned at 34 metres when the drill proved incapable of coring the shear zone. A second steeper angled drill hole was successful in intersecting the hanging wall of the mineralized shear structure. However, the second hole did not penetrate the entire width of the shear zone and did not intersect the high-grade footwall mineralization.
Prior drilling by Cream in 1998 returned values up to 2,271 g/t silver over 0.51 metres within a 3.25 metre interval that assayed 390.05 g/t silver from drill hole 98SB-05. The highest silver values intersected in the previous drill program were obtained from the strongest part of the shear zone tested during that program. These step-out holes intersected what appears to be broader and more intense shearing that may be related to higher-grade silver values.
Location and Access
The 4,000-hectare Kaslo Silver Property is located 12 km west of the town of Kaslo in southern British Columbia. Access to the Kaslo Silver Property is via Highway 31A for seven km west from Kaslo, then 4.5 km southwest along Keen Creek Road to the property boundary. The property lies along the Keen Creek Road for approximately 10 km. Logging roads and numerous old mining roads and trails, some of which are heavily overgrown, bisect the property. Power lines come to within 4 km of the property boundary, and water is abundant throughout.
Kaslo is located in an area of rugged mountainous terrain. Topography on the property is steep with elevations ranging from 1,050 metres along the Keen Creek valley to 2,200 metres on the Gold Cure ridge.
The Keen Creek valley runs along the northwest boundary of the property, with numerous tributaries crossing the property and emptying into Keen Creek. The major tributaries, from northeast to southwest are Ben Hur, Briggs, Klawala, Kyawats and Desmond Creeks.
The Kaslo Silver Property includes nine former, small mines, which were originally discovered and worked for high-grade silver ores during the heyday of the Slocan Mining Camp at the end of the 19th century. Intermittent exploration, development and production have taken place at various locations on the property since that time, most notably in the 1920s and 1950s. The Cork-Province Mine was consolidated in 1914 and was the longest-lived producer in the camp when it closed in 1966. Five former workings, the Silver Bear, Hartford, Gibson, Gold Cure, and Bismark are situated along the Gold Cure Shear Zone, which has been traced northeast across the property for 7.1 km. Five additional workings, the Black Bear, Cork, Province, Dublin and Black Fox workings lie along the parallel 4.1 km long Cork Shear Zone, located in the Keen Creek valley approximately 1 km north of the Gold Cure Shear Zone. Both shears are open along strike to the north and at depth.
Since it acquired the property, Cream has completed 51.7 km of VLF-EM geophysical coverage over the mineralized Cork and Gold Cure Shear Zones. The geophysical surveys clearly define the location and extent of the controlling shears, as they are very conductive by nature.
In 1999, a gravity geophysical survey was conducted over the Cork North zone to define which of the several limestone beds have the best potential to host massive sulphide mineralization. Targets generated by the gravity survey have not been drill tested.
Soil geochemical surveys have been completed over the length of the Cork and Gold Cure Shear Zones. Linear trends of anomalous values for silver, lead and zinc in soil have been found running coincident with the shear zones. Occasionally gold, arsenic, cadmium and other elements occur with the silver, lead and zinc anomalies.
Black Bear Group of Claims
For a description of Cream’s interest in this property, see “Kaslo Silver Property” under this Item 4.
Location and Access
The Black Bear claims are located immediately north of and are contiguous with the Bismark Claims. The Property is presently composed of a three-claim mining lease and three reverted, crown-granted mineral claims situated just 600 metres along strike to the north of the former Cork-Province Mine on the adjacent Bismark Claims. The Black Bear claims can be accessed through the Kaslo Silver Property, which is located 12 km west of the town of Kaslo in southern British Columbia. Access to the Kaslo Silver Property is via Highway 31A for seven km west from Kaslo, then 4.5 km southwest along Keen Creek Road to the property boundary.
The property encompasses three former silver producers, the Mastodon, Liberty, and Black Bear workings. The Mastodon and Liberty workings were discovered and operated in the late 1890s. The Black Bear was probably discovered at the same time but the only government reports of this occurrence are from 1920 when the mine was rehabilitated to explore a 48-centimetre wide vein that yielded 2.74 g/t gold, 181.7 g/t silver, 15.0% lead and 3.6% zinc.
The Liberty and Mastodon workings were on adjacent crown grants that were initially worked in 1899. Workings consist of eight or more short adits and shafts that explore two or more fissure-vein lodes striking northeast and in part conforming with the structure of the host metasediments. Exploration completed by Cream in 1997 on the adjacent Bismark Claims suggests that the Black Bear workings are probably hosted by the same shear structure that hosts the Cork-Province Mine. The Liberty and Mastodon workings are believed to be on parallel structures.
Cream completed a preliminary program of geological mapping, geochemical surveys, VLF electro-magnetometre surveys, a reconnaissance gravity geophysical survey, excavator trenching and 110 metres of diamond drilling in three short holes over the Black Bear Claims in 1998 and 1999. The trenching program successfully encountered several small massive sulphide bodies that were tested with three short, wide spaced, diamond drill holes. Sulphides were primarily pyrite, arsenopyrite and sphalerite containing low-grade silver values.
Black Fox Claims
In June 1998, Cream purchased a 100% interest in the Black Fox Claims located near Kaslo, British Columbia. The property comprises three crown-granted mineral claims: the Daisy, Black Fox and California. The former Black Fox mine workings are located on the Daisy Claim, immediately adjacent to the Cork-Province area on Cream’s Bismark Claims. The claims lie on the southwest extension of the Cork Shear Zone.
There was no material work carried out on the property in fiscal 2003 or 2004 as Cream did not have sufficient working capital to conduct a full-scale exploration program on the properties that make up the Kaslo Silver Property. As a result, in 2003, Cream wrote down deferred acquisition and exploration costs to a nominal carrying value of $1 to reflect the extended period of inactivity on the property. The claims remain in good standing and the property is considered a long-term asset of the Company. Exploration costs incurred since the year ended March 31, 2005, to March 31, 2008 of $162,099 have been expensed. Additional costs of $359 were expensed in fiscal 2009.
No significant exploration work is proposed for fiscal 2013.
Ms. Linda Dandy, P.Geo. of P&L Geological Services, has supervised the Company’s Canadian exploration programs summarized above and is the Company’s supervisor and “Qualified Person” for the purpose of NI 43-101.
Goldsmith Property, British Columbia
The Goldsmith Property in British Columbia is without known mineral resources and reserves and the proposed programs are exploratory in nature.
The Company holds an option to acquire a 100% interest in the Goldsmith property located near Kaslo, British Columbia. The Goldsmith option agreement calls for the issuance of 200,000 common shares (issued) and cash payments totaling $110,000 (paid) over six years. The optionors will retain a 2% NSR royalty on all metals. The Company may acquire one half of the NSR for $1,000,000 upon commencement of commercial production or earlier. The last payment of $20,000 was paid in four installments subsequent to March 31, 2010.
The Goldsmith Property contains numerous historic, small-scale, high-grade gold workings (Lucky Jack, Bullock, Swede, Goldsmith, Gold Park, etc.) throughout a three km long belt of altered volcanic and sedimentary host rocks. High-grade gold mineralization in the workings is found in numerous quartz veins which range from a few centimetres to five metres in width. Also of interest on the Goldsmith Property are reported historic gold values obtained from the sulphide-altered wall rock between and adjacent to the quartz veins.
Location and Access
The Goldsmith Property is located west of the small community of Poplar Creek along Highway 31, 66 km north of Kaslo, BC. The claims are located on map sheets 082K.035 and 045 in the Slocan Mining Division of southeastern British Columbia.
The south side of the claim block (south of Poplar Creek) can be accessed off the Cascade Creek Forest Service Road and the north side of the claim block can be accessed from the Poplar Creek Forest Service Road.
Portions of the Goldsmith Property were worked by Westmin Resources in 1980 and 1981. Work included soil sampling, geological mapping, trenching and diamond drilling. The 1981 drilling and trenching programs were concentrated on the Lucky Jack and Goldsmith areas. Trenching and/or drilling returned narrow widths of high grade gold mineralization in both areas.
No significant exploration programs were carried out on the property after 1982. l The next significant exploration work conducted was Cream’s exploration programs.
Cream began exploration programs on the Goldsmith Property in 2003. Between 2003 and 2008 the Company conducted a series of exploration programs including grab sampling and chip sampling from areas of the historic workings including samples from waste dumps, adits and trenches associated with the historic workings. A
geochemical soil survey was carried out over a 2.8 km by 2.2 km grid which included the main part of the historical workings, in particular the Bullock and Goldsmith. The program results highlighted a 2 km long gold in soil anomaly. Follow-up work included detailed geological and structural mapping with additional soil sampling. The soil sampling grid was expanded to include the Lucky Jack zone. In addition, detailed geological and structural mapping and rock chip sampling was conducted in order to define trench locations within the anomalous zone. A HTEM-HELIMAG airborne geophysical survey was flown over the property in 2006. Results from the 160-line km magnetic and AeroTem II Electromagnetic survey demonstrate in general that conductors line up well with the regional lithological trends. Field magnetics illustrate a large magnetic high trend averaging 800 metres in width and lying between the two conductive zones. An excavator trenching program was conducted on the property. The trenches were excavated in the area of the Bullock and Goldsmith historic workings. The trenches exposed some veins and uncovered others. All of the trenches and exposed veins were chip sampled to determine average grades.
Total exploration incurred in fiscal 2010 on the Goldsmith and Lucky Jack Claims (2009 includes the Kootenay Gemstone) totaled $2,815, compared to $44,649 in fiscal 2009.
No significant exploration work is proposed for fiscal 2013. In fiscal 2012, the Company wrote down the value of the Goldsmith property from $213,524 to $0.
Ms. Linda Dandy, P.Geo. of P&L Geological Services, is the Company’s project supervisor and “Qualified Person” for the purpose of NI 43-101.
Exploration Projects, Manitoba Properties
The Wine and Blueberry Properties in Manitoba are both without known mineral resources and reserves and the proposed programs are exploratory in nature.
The Company has two early-stage exploration projects in Manitoba, Canada. The locations are shown on the map below, with details of the projects following.
Blueberry Property, Manitoba
In November 2009, the Company entered into an option agreement to acquire the Blueberry property from W.S. Ferreira Ltd. and the Company staked additional claims which have been appended to the option agreement. The property is located approximately 20 km north-east of Flin Flon, Manitoba. The option agreement provides for a cash payment of $100,000 ($40,000 paid) and the issuance of 400,000 shares (160,000 issued) over five years with a down payment of $10,000. The cash payments are $10,000 on regulatory approval, $10,000 on the first anniversary, and $20,000 on each of the second to the fifth anniversary dates. Share issuances are 40,000 on regulatory approval and 40,000 on the first anniversary of regulatory approval, and 80,000 common shares on each of the second to the fifth anniversary dates.
The Company must incur cumulative exploration expenditures totaling $30,000 following the date of regulatory approval, commencing with expenditures of $5,000 prior to the first anniversary date and a minimum of $5,000 annually by each anniversary date on or prior to the fifth anniversary.
On completion of these obligations, the property will be subject only to a 2.0% NSR royalty payable to the optionor from the production of gold, silver and all base metals and other minerals. The Company has the right to reduce the NSR royalty to 1.0% by the payment of $1,000,000 to the optionor at any time up to and including the commencement of commercial production.
The Company conducted a line cutting and induced polarization (“IP”) survey program in late November to early December 2009. A strong chargeability response - the IP response parameter - was obtained over the 250-metre by 400-metre outcrop containing numerous gold occurrences. The outcrop is in the northeastern end of a strong response of some 900 metres length that strikes southwesterly paralleling numerous splays of the Mikanagan fault zone. Three other smaller zones of higher chargeability were recorded to the northwest and southeast of the main anomaly. At present the data is being compiled and will be assessed with that of historical exploration work done in the immediate area, to better define targets for a follow-up drill program.
No significant exploration work is proposed for fiscal 2013.
Mr. Peter Walcott P.Eng supervised the IP programs on the Blueberry Project. He is responsible for the technical reporting and is the Company’s “Qualified Person” for the purpose of National Instrument NI 43-101.
Wine Nickel-Copper Property, Manitoba
In March 2006, the Company entered into an option agreement, as amended, to acquire 100% interest in the Wine Claim, MB 3964 and Wine 1 Claim, all located approximately 60 km southeast of Flin Flon, Manitoba. The Company can earn its interest by making payments totaling $105,000 (paid) and issuing 200,000 common shares (issued) over a 48-month period. The Company must also incur exploration expenditures on the property of $5,000 annually for four years. On completion of these obligations, the property will be subject only to a 2.0% NSR royalty payable to the optionor from the production of gold, silver and all base metals and other minerals. The Company has the right to reduce the NSR royalty to 1.0% by the payment of $1,000,000 to the optionor at any time up to and including the commencement of commercial production.
Cream’s exploration plans included investigating the Wine showing with a single vertical drill hole to determine if the mineralization could be similar to the Sherritt Gordon Mines ore-bodies at Lynn Lake, Manitoba. The Sherritt Gordon Mine produced 20,151,146 tonnes of ore with an average grade of 1.023% Nickel and 0.535% Copper from eleven discrete vertical pipes that are hosted by a mafic to ultramafic igneous pluton (Pinset, R.H.; 1980). A second drill hole was to investigate a large geophysical anomaly situated 100 metres west of the Wine showing.
The first test hole, RAD 07 – 01, on its Wine – Radar Lake property, assayed 1.30% Nickel, 2.27% Copper, 0.319 g/t Gold, 0.132 g/t Platinum and 0.270 g/t Palladium over 66.8 feet core length at a dip of –49 degrees (true width is estimated to be 43.6 feet).
The hole was drilled to test and confirm an earlier hole DDH EEL – 346, drilled in 1987 by Hudson Bay Exploration and Development Co. Ltd., which assayed 0.85% Nickel and 1.42% Copper over 54.0 feet at a dip of –45 degrees (Refer to Cream News Release dated February 6, 2006).
A second drill hole, RAD 07 – 02 was collared at approximately 230 feet southeast of RAD 07 – 01. It was drilled at –60 degrees to a depth of 837 feet with the hope of intersecting mineralization should the zone plunge vertically to that point. The favourable horizon was not intersected in this hole; however, the main purpose of the hole was to locate the downward plunge of the upper zone and the hole was to be used for a down the hole Pulse EM Survey. The work was not carried out.
Results of drilling completed in the summer of 2007 on the Wine Property recommended a VTEM airborne survey be conducted. The VTEM survey was flown over the Wine Property and the Company’s Cedar Claims in late spring of 2008. Exploration expenditures on the property in fiscal 2009 included the VTEM airborne survey and geological and geophysical studies amounting to $70,739 and site activities costing $1,742. In fiscal 2008, the Company drilled one hole and a second was started but abandoned after 200 metres of drilling. Drilling, assay and other costs in fiscal 2008 totalled $212,029.
The Company wrote-off the property during fiscal 2012.
Mr. A. J. Spooner, P.Eng. of A.J. Spooner Exploration Services, Inc., Flin Flon, Manitoba, is the “Qualified Person” for NI 43-101.
Stephens Lake Property (Trout Claim Group), Manitoba
The Trout Claim Group is situated 100 km east of Gillam, Manitoba. In order to facilitate the exploration of the property, Sultan Minerals Inc., ValGold Resources Ltd., and the Company (the “Companies”), agreed to pool three respective and contiguous exploration licences, so that each would hold an undivided one-third interest in all three of the exploration licenses. The Companies have since reduced the size of the property to the Trout Claim Group. The Trout Claim Group was acquired under an option agreement whereby the Companies made combined cash payments totaling $110,000 and issued a combined 200,001 common shares. Having earned the 75% interest, the Companies and the optionor may enter into a 75:25 joint venture for the further exploration and development of the Trout Claim Group. To date, a joint venture agreement has not been entered into. The Companies formerly held additional claims in the province of Manitoba, which surrounded the Trout Claim Group. These claims are no longer held by the Companies. The Trout Claim group has been written down to a nominal carrying value of $1.00 as no exploration work is currently planned for this property.
The Company wrote-off the property during fiscal 2012.
Mr. Arthur Troup, P.Geo of Sultan Minerals Inc., is the Company’s project supervisor and “Qualified Person” for the purpose of NI 43-101.
Capital Expenditures and write-downs
Cream’s principal capital expenditures and write-downs over the two fiscal years ended March 31, 2012, are as follows:
Exploration expenses in the five fiscal years ended March 31, 2012:
The Company’s sole source of funding has been the issuance of equity securities for cash, primarily through private placements to sophisticated investors and institutions. The Company has issued common shares in each of the past few years, pursuant to private placement financings and the exercise of warrants and options.
The following discussion and analysis should be read in conjunction with the audited consolidated financial statements of Cream for the years ended March 31, 2012 and 2011 and the related notes thereto. Cream’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.
Cream is a mineral exploration company with no producing properties and consequently has no current operating income or cash flow. All of Cream’s short to medium-term operating and exploration cash flow must be derived from external financing. Cream expects to raise additional financing to continue its planned exploration of the Nuevo Milenio Project. Additional financing will be required should the Company initiate a limited drill program on the Blueberry property.
Critical accounting policies and changes in accounting policies
The preparation of financial statements requires management to establish accounting policies, estimates and assumptions that affect the timing and reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes to be reasonable under the circumstances, and require judgment on matters which are inherently uncertain. A summary of the Company’s significant accounting policies is set out in Note 2 of the Company’s consolidated financial statements for the years ended March 31, 2012 and 2011.
Recent accounting pronouncements
A summary of recent accounting pronouncements issued which may affect the Company in the future are set out in Note 2 (p) of the Company’s consolidated financial statements for the years ended March 31, 2012 and 2011.
A. Operating Results
Year Ended March 31, 2012 (“fiscal 2012”), Compared to Year Ended March 31, 2011 (“fiscal 2011”)
In fiscal 2012, Cream incurred a loss of $4,883,290, a loss per common share of $0.03, compared to a loss of $4,605,246, a loss of $0.06 per common share in fiscal 2011.
Exploration costs of $2,763,119 were incurred in fiscal 2012, compared to $1,702,150 in fiscal 2011, contributing to the loss in each year. Expenditures in fiscal 2012 by project area, with comparative figures for fiscal 2011 in parentheses are as follows: Casierra Property, Sierra Leone - Nil ($Nil); Kaslo Silver Property, British Columbia - $39,027 ($580); Goldsmith and other properties, British Columbia - $Nil ($80,019); Manitoba Properties, Manitoba - $2,300 ($7,256) and Nuevo Milenio, Mexico - $2,721,792 ($1,614,295).
In fiscal 2011, the Company incurred and wrote-down the acquisition costs (this being a one year renewal of its Kalso Silver Property by $12,806, to a nominal carrying value of $1, and in fiscal 2012, wrote down the property to $Nil).
Total expenses other than exploration costs and write-down of exploration and evaluation assets totaled $1,720,277 in fiscal 2012, compared to $2,907,436 in fiscal 2011. Significant differences between the levels of expenditures in the two fiscal years include a significant increase in legal and other fees relating to the Company’s responses to the unsolicited take-over bid, and the initial and amended offers from Endeavour in fiscal 2011. These take-over defense costs totaled $Nil in fiscal 2012, compared to $524,212 in fiscal 2011. This included a $150,000 settlement fee paid to Minco. The increase in expenditures from the prior year is also due to the following: foreign exchange loss decreased from $14,438 in fiscal 2011 to a loss of $12,638 in fiscal 2012; shareholder communications increased from $297,859 in fiscal 2011 to $496,437 in fiscal 2012; share-based payments decreased from $1,339,990 in fiscal 2011 to $480,229 in fiscal 2012 due to 2,300,000 stock options being granted during the year (6,575,000 in 2011); and salaries and benefits increased from $381,433 to $453,463 from fiscal 2011 to fiscal 2012.
Cream conducted most of its exploration activities in Mexico and in Canada in fiscal 2012, and as such, the Company has foreign exchange risks associated with exploration in foreign jurisdictions. The Company had a foreign exchange loss of $12,638 in fiscal 2012, compared to a foreign exchange gain of $14,438 in fiscal 2011. The Company’s cash balances are primarily held in Canadian dollars with nominal funds held in United States dollars and in Mexican pesos.
Consulting fees of $22,500 (2011 - $30,000) were paid or are payable to Kent Avenue Consulting Ltd. for services rendered by Sargent H. Berner, a director of the Company.
Quorum Management and Administrative Services Inc. (“Quorum”) provides accounting, administrative and other services on a full cost recovery basis to Cream and other public companies sharing office space. Office and administration costs decreased from $169,200 in fiscal 2011 to $155,691 in fiscal 2012. The office and administration costs include rent, telephone, shared office services and other costs related to administration of a public company, and may vary from period to period. Salaries and benefits have increased from $381,433 in fiscal 2011 to $453,000, in fiscal 2012. Salaries in fiscal 2011 include a bonus paid to the president of the Company that was related to the previous two years.
Shareholder communications have increased from $297,859 in fiscal 2011 to $496,437 in fiscal 2012. The increase includes services of Robert Paul and other external investor relations consultants. Website, printing, conference fees, annual general meeting materials, and related shareholder communications make up the balance of costs.
B. Liquidity and Capital Resources
Financial Conditions for year ended March 31, 2012
The Company’s major source of funding has been the issuance of equity securities for cash, primarily through private placements to sophisticated investors and institutions. The Company has issued common shares in each of the past few years, pursuant to private placement financings and the exercise of warrants and options.
There is no assurance that the Company will be successful with any financing ventures. Please refer to Item 3 – Key Information – section D - Risk Factors in this document.
At March 31, 2012, the Company had working capital of $308,778, defined as current assets less current liabilities, compared with working capital of $4,433,482 at March 31, 2011. The Company’s consolidated financial statements were prepared using IFRS applicable to a going concern. Several adverse conditions cast substantial doubt on the validity of this assumption – see “Going Concern” disclosure below. When the Company has unused cash, it primarily invests its unused cash in guaranteed investment certificates which are redeemable in full after 30 days with interest or in treasury bills. There have been no investments in commercial paper. Where the initial term of the guaranteed investment certificate is greater than 90 days, it is recorded as a short-term investment.
Operations for the year ended March 31, 2012, have been funded primarily from private placement financings.
Potential Restrictions on Transfer of Funds by Subsidiaries
The Company’s subsidiary is a Mexican incorporated corporation. There are no currency restrictions on transfer of funds from Mexico to Canada. The Company currently has no source of operating cash flow and has a history of operating losses. Cream currently has no revenue from operations and all of its mineral property interests are in the exploration or development stages. The Company does not expect to receive significant revenue from operations at any time in the near future, and Cream has had no prior years’ history of earnings or operating cash flow. Neither Cream nor its predecessors have paid dividends on their shares since incorporation and the Company does not anticipate doing so in the foreseeable future.
As at March 31, 2012, Cream has capitalized $97,080 (2011 - $483,605) representing costs associated with the acquisition of its mineral property interests Manitoba.
At March 31, 2012, Cream’s working capital, defined as current assets less current liabilities, was $308,778 compared to a working capital of $4,433,482 at March 31, 2011. The Company’s continued operations are dependent upon the Company’s ability to obtain sufficient financing to carry on planned operations. At the date of this Annual Report, the Company has sufficient working capital to meet its obligations in the ordinary course for approximately 6 months. This does not include continuation of drilling at Nuevo Milenio.
At March 31, 2012, the Company had 152,642,916 common shares issued and outstanding.
Additional financing will be required in fiscal 2012 to advance Nuevo Milenio. Such financing may be achieved through the exercise of share purchase warrants and through the issuance of common shares, or other forms of financing.
The Company’s continued operations are dependent upon the Company’s ability to obtain sufficient financing to carry on planned operations.
On April 13, 2010, the Company completed a private placement of a total of 22,963,214 units at a price of $0.07 per unit for gross proceeds of $1,607,425. Each unit is comprised of one common share and one non-transferable share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company for a period of 24 months at the exercise price of $0.10 for a period of 12 months from the date of issue of the warrant and at a price of $0.15 for the remaining 12-month period. Compensation was paid to certain eligible arms-length parties in an amount equal to 10% of the total proceeds raised from the sale of the units to subscribers, and payable at their election in cash or units of the Company or a combination thereof. A cash commission of $59,185 was paid, and a total of 144,000 finder's units were issued. The finder's units have the same terms as the units. The finder’s warrants and share purchase warrants were valued using a Black Scholes option pricing model using the following assumptions: weighted average risk free interest rate of 1.15%-1.98%, volatility factors of 94%-131% and an expected life of 2 years. The total value ascribed to the finder’s warrants and share purchase warrants was $659,782.
If the Company's common shares trade at or above $0.30 per share for 10 consecutive trading days, the Company may, at its discretion, accelerate the expiration of the warrants (and including the warrants forming part of the finder's units) by providing notice in writing to the holders of such securities, whereby such warrants will expire within 30 days from the date of such written notice. Mr. Frank A. Lang, a former President and director and the former Non-Executive Chairman of the Company who resigned subsequent to the fiscal year end, acquired 5,100,000 units in the private placement for the subscription price of $357,000.
On December 21, 2010, the Company completed a bought deal financing of a total of 37,500,000 units at a price of $0.16 per unit for gross proceeds of $6,000,000. Each unit consisted of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one common share of the Company at an exercise price of $0.24 per common share until December 21, 2012, provided that if after four months and one day following the Closing Date, the closing price of the common shares of the Company traded on the TSX Venture Exchange, close at a price in excess of $0.60 per common share for 20 consecutive days, the Company will be able to accelerate the expiry of the warrants to the date that is 30 days after notice of the new expiry date is provided to the holders of the warrants. The share purchase warrants were valued using a Black Scholes option pricing model using the following assumptions: weighted average risk free interest rate of 1.64%, volatility factors of 102.24% and an expected life of 2 years. The total value ascribed to the share purchase warrants was $2,073,168.
Compensation was paid to certain eligible arms-length parties in an amount equal to 8% of the total proceeds raised from the sale of the units to subscribers, and payable in cash. A cash commission of $480,000 was paid, and a total of 3,750,000 finder's units were issued. Each finder’s warrant entitles the warrant holder to acquire one common share and warrant at a price of $0.16 until December 21, 2012. The warrant entitles the holder to acquire an additional warrant at a price of $0.24 until December 21, 2012. The finder’s warrants were valued using a Black Scholes option pricing model using the following assumptions: weighted average risk free interest rate of 1.33%-1.64%, volatility factors of 97.46%-102.24% and an expected life of 2 years. The total value ascribed to the finder’s warrants was $755,565.
The securities offered have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an available exemption from the registration requirements.
Options and Warrants
In April 2010, the Company issued 22,963,214 share purchase warrants relating to a private placement. Each warrant entitles the holder to subscribe for one common share for a period of 24 months following the date of issue, exercisable at $0.10 in the first 12 month period, and $0.15 in the remaining 12 month period. Finder’s warrants totaling 144,000 were awarded in relation to the financing. The finder’s warrants have the same terms as the warrants included in the units sold to purchasers. If the Company's common shares trade at or above $0.30 per share for 10 consecutive trading days, the Company may, at its discretion, accelerate the expiration of the warrants (and including the warrants forming part of the finder's units) by providing notice in writing to the holders of such securities, whereby such warrants will expire within 30 days from the date of such written notice. The shares and warrants issued in connection with this non-brokered private placement are subject to a minimum hold period of four months.
On December 21, 2010, the Company issued 37,500,000 share purchase warrants relating to a private placement. Each warrant entitles the holder to subscribe for one common share for a period of 24 months following the date of issue, exercisable at $0.024. Finder’s warrants totaling 3,750,000 were awarded in relation to the financing. The finder’s warrants entitle the holder to acquire one common share and warrant at a price of $0.16 until December 21, 2012. The warrant entitles the holder to acquire an additional warrant at a price of $0.24 until December 21, 2012. The shares and warrants issued in connection with this non-brokered private placement are subject to a minimum hold period of four months. Following expiry of the four month hold period, if the closing price of the common shares of the Company traded on the TSX Venture Exchange, close at a price in excess of $0.60 per common share for 20 consecutive days, the Company will be able to accelerate the expiry of the warrants to the date that is 30 days after notice of the new expiry date is provided to the holders of the warrants.
During the year ended March 31, 2011, the Company granted a total of 6,575,000 incentive stock options to directors, officers, employees and consultants of the Company exercisable over a five year period expiring March 4, 2016 valued at a price of $0.38 per share using the Black-Scholes valuation model, in accordance with the Company’s 10% rolling stock option plan.
Further financing will be required to advance Nuevo Milenio and for general and administrative costs. This could involve joint venture, equity financing, sale of assets, or other forms of financing.
At March 31, 2012, the Company has a working capital surplus. However, it is anticipated that additional financing will be required by Q3 2012.
The Company has incurred operating losses since inception, has no source of operating cash flow, minimal income from short-term investments, and there can be no assurances that sufficient funding, including adequate financing will be available to explore its mineral properties and to cover general and administrative expenses necessary for the maintenance of a public company. The ability of the Company to arrange additional financing in the future depends in part, on the prevailing capital market conditions and mineral property exploration success.
The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded assets, or the amounts of, and classification of liabilities that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material.
Plans for Fiscal 2013
The Company continues to focus on Nuevo Milenio. Following the review, analysis and interpretation of data acquired from the recently completed 20,292 metre diamond drill program as well as historical data, the Company will design and implement an exploration program for 2013.
The Company is in the process of exploring its mineral property interests and has not yet determined whether its mineral property interests contain mineral reserves that are economically recoverable. The Company’s continuing operations and the underlying value and recoverability of the amounts shown for mineral property interests are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests and on future profitable production or proceeds from the disposition of the mineral property interests.
Contractual Obligations in 2012
See Item 5 (f) for a table of contractual obligations at March 31, 2012.
As a natural resource exploration company, Cream’s activities can be cyclical as metal prices have traditionally been cyclical in nature. Recent price trends for gold and silver have exhibited volatility.
The information is drawn from the summary silver market research conducted by The Silver Institute in conjunction with GFMS Limited who publish their findings in an annual report of worldwide silver supply and demand trends available at www.silverinstitute.org, the World Silver Survey 2012, ThomsonReutersGFMS and the Gold Survey 2012 ThomsonReutersGFMS. These annual surveys also include current information on prices and leasing rates, mine production, investment and fabrication. While the following is believed to be reliable the Company has not and is not in a position to independently verify any such information.
Sources: Thomson Reuters GFMS World Silver Survey 2012
Thomson Reuters GFMS Gold Survey 2012
The Silver Institute
See the Risk Factors section for average, high and low gold and silver prices to the date of the filing of this Annual Report on Form 20-F.
In 2011, total fabrication demand fell by approximately by 13.5 Moz to 876.60 Moz. Industrial applications fell by 2.7% to 486.5 Moz, the majority of the decrease occurring in the fourth quarter. This drop offset a sharp increase in the first half of 2011. The fourth quarter contraction in industrial applications appears to be end users cutting orders in response to ongoing financial difficulties in the Eurozone and the possibility of slower global economic growth in 2012. In addition high prices encouraged reduced usage and substitution in all areas of industrial employment where possible. It should be noted that in many applications other metals cannot be substituted for silver. With the exception of China all major markets saw a drop in off take in 2011. Jewelry demand dropped by 4.5% to 159.8 Moz. mostly due to a drop in consumption and inventory reductions in the majority of Western markets. Silverware off take dropped by 10% to 46.0 Moz. due to lower demand in India in response to higher prices and a continuation of the year over year decline in Western markets. Photographic demand fell again, the rate of decline being 8%. Photographic demand share of total fabrication demand continued its decline in 2011, a trend that has been in place since 1990. Silver-related demand in the medical sector (the largest portion of photographic demand) recorded a modest fall while demand for silver in film fell by 25% as the move to digital cameras continues.
Total silver supply in 2011 fell by 34.1 Moz. to 1,040.6 Moz. Mine production increased for the ninth year in a row, growing by 1.4% in 2011 to 761.6 Moz. Mine output from silver producers fell, mostly as a result of lower processed grades in combination with one time production losses at some of the world’s largest silver mines. Production from the lead/zinc and gold sectors increased primarily through a ramp up at Penasquito and growth at silver rich gold mines. Primary silver total cash costs rose by 33% year over year to $USD7.25/oz. in response to higher labour costs and falling processed grades. This was in spite of an increase in by-product credit prices. Silver producers engaged in net hedging in 2011. In total producer hedges added 10.7 Moz of supply to the market. The hedging activity was concentrated in the first half of the year as producers sought to take advantage of high prices. At year end 2011 silver hedges on balance were comprised of downside price protection. The hedge structures were dominated by put sales with strike prices in the $USD20.00 to $USD25.00 range and writing of calls at strike prices significantly higher than the spot market price.
Scrap supply rose for the second year in a row by 12% to a new high of 256.7 Moz in 2011. Significant increases in industrial recycling and increases in scrapping of jewelry and silverware in response to much higher silver prices accounted for the increases in scrap supply. The largest gains were seen in the US and Europe. Government sales fell by an unprecedented 74% mainly due to a sharp drop in Russian sales. Sales by Russia fell by approximately 90%. At the end of 2011 total government stocks were estimated to be 97 Moz.
Silver investment demand defined in terms of ounces fell marginally in 2011 though the dollar value remained the same for 2010 over 2011 due to an increase in the average price. Silver ETF holdings fell by 24.2 Moz in 2011. Net investor long positions in COMEX Silver futures contracts fell to 38k contracts in 2011 from 53k contracts in 2010. Purchases of coins and medals increased by some 18 Moz in 2011 to almost 120 Moz. Purchases of silver bars pushed holdings of coins, medals and bars to slightly in excess of 210 Moz in 2011.
The Silver Market
Fabrication demand combined with investment demand versus annual total mine production are the primary drivers of silver prices. Beginning in 2005 silver mine production and scrap supply began to exceed silver demand as a function of fabrication. The gap has widened every year since then. The excess supply has been absorbed by increased investment in silver through coins, medals, bars and ETF’s. The expected growth in employment of silver in a variety of uses including but not limited to electronics, technology, medical applications, solar power and water purification should help underpin demand suggesting strong market fundamentals. Silvers role as an investment vehicle can induce significant changes in the price of silver as investors move from net buyers to net sellers and back.
Global gold fabrication fell in 2011 over 2010 by 0.9% or 24 tonnes to 2,759 tonnes. Jewelry manufacturing fell in 2011 by 2.2% to 1,973 tonnes. Demand from China increased significantly, the only market to experience an increase. Excluding increased jewelry demand from China global demand fell by 7%. Global industrial off take fell by 3% mostly attributable to stagnating demand in the industrialized world and price driven substitution by copper. Official coin minting increased by 15%. Official sector purchases increased in 2011 over 2010 from just over 200 tonnes to in excess of 400 tonnes.
Gold investment dropped 10% in 2011 to 1,605 tonnes, however this is still well above historical standards, and its share of total gold demand being 36%. In value terms investment achieved a significant increase to an all-time high of approximately $USD 81 billion. The primary drivers of this trend, which has been in place for several years was the continuation of very low interest rates in the developed world, fear of increasing long-term inflation, and in certain emerging markets negative real interest rates combined with limited investment alternatives to gold and a strong desire to own gold as a store of wealth. The majority of investment was accounted for by physical investment. Combined demand for bars and coins rose 30% to a new record of 1,543 tonnes. Gold ETF holdings increased is 2011 by 162 tonnes over 2010 investment. Net investor long positions in COMEX Gold futures contracts fell to 219 thousand contracts in 2011 from 263 thousand contracts in 2010. Combined demand for bars and coins rose 30% to a new record of 1,543 tonnes with holdings of bars being approximately 1,200 tonnes.
Global mine production increased by 2.8%, or 78 tonnes marking the third year of growth and a successive second year of all-time highs. The majority of the increase in mine production came from mine start up or ramp-up of new operations. This source of supply accounted for 47 tonnes of the 78 tonnes of total supply increase. The largest regional source of growth was Africa which contributed 51 tonnes to the growth. Annual average cash costs increased by 15% to $USD 643 per ounce due to increased operating costs and a decline in average mill head grades. The total cost of producing an ounce of gold rose by 22% in 2011 to $USD 1,044 per ounce. At the end of 2011 above ground stock stood at 171,300 tonnes being comprised of 50% jewelry, 12% other, principally industrial fabrication, 19% private investment, 17% official holdings and 2% unaccounted for. 2011 saw the first year of net hedging by producers in over a decade, the total hedged being six tonnes. Since 2000 supply from scrap, hedging and official sales has been relatively flat, a significant change from the dramatic increases from 1987 to 1999.
The Gold Market
Fabrication demand combined with investment demand versus annual total mine production are the primary drivers of gold prices. Beginning in the mid 2000’s gold mine production and scrap supply began to exceed gold demand based on fabrication. The excess supply has been absorbed by increased investment in gold through coins, medals, bars and ETF’s. Gold’s role as an investment vehicle can induce significant changes in the price of gold as investors move from net buyers to net sellers and back.
As a natural resource company, Cream’s activities are cyclical as metal prices have been cyclical in nature. Historically Cream has strategically focused its exploration activities on potential silver and gold prospects. Beginning in 2004 prices for both gold and silver began a sustained increase in price that has largely persisted through fiscal 2011. During this time the funds available to finance junior mining companies has grown dramatically as has the number of junior resource exploration companies. However, during the period from 2004 and in particular from the 2008 financial crisis onward the availability of financing has been periodic. The factors cited above have acted to restrict the availability of funding at certain times.
Cream’s Management and Board of Directors are not financial or commodity analysts and therefore cannot and should not forecast prices for silver and gold. Management and the Directors do monitor silver and gold industry trends, specifically demand supply data and believe that the silver and gold markets should continue to experience positive fundamentals. As such Cream will continue to advance its silver-gold properties, subject to available funds.
B. Off-statement of financial position arrangements
The Company does not have any off-statement of financial position arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
C. Tabular disclosure of contractual obligations
The following table summarizes the Company’s short-term and long-term obligations as at March 31, 2012:
See above – “Cautionary Statement Regarding Forward-Looking Information.”
The following table lists the directors and senior management of the Company. The directors have served in their respective capacities since their election and/or appointment and will serve until the next annual general meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles/By-Laws of the Company. Mr. Michael O’Connor was appointed President and Chief Executive Officer on October 2, 2008, and Ms. Angela Yap was appointed Chief Financial Officer on May 30, 2011. Ms. Shannon Ross resigned as Chief Financial Officer on May 30, 2011. Mr. Christopher Hebb, Mr. Ronald Lang and Mr. Dwayne Melrose were appointed directors on June 23, 2011. Mr. Frank Lang resigned as a director of the Company on June 23, 2011.
Christopher Hebb has been Chairman of Cream since June 23, 2011. Mr. Hebb's career includes substantial experience at a senior management level in investment management, expansion capital, private client wealth management, diamond exploration, consumer products, real estate development, steel manufacturing and fabrication, coal mining, and oil and gas exploration and production. He is currently President and CEO of Cavell Capital Corporation, a Vancouver-based investment management company.
Michael E. O’Connor has been President and Chief Executive Officer since October 2008. Mr. O’Connor has over twenty years of experience in the financial services industry including extensive experience in brokerage, banking, investor relations and corporate communications positions. He is an experienced capital markets and communications professional with national and international contacts and has a strong background in the financing of development stage companies. Mr. O’Connor is a graduate of the University of British Columbia where he received his B.A. in 1978.
Angela Yap was appointed CFO on May 30, 2011. Ms. Yap brings over fourteen years of accounting and financial management experience. She began her career at KPMG in the resource group auditing mining and forestry companies, and then transferred to KPMG’s tax group. In 2003 Ms. Yap moved to private industry and has held successively senior positions, most recently as Director of Corporate Accounting with the Anthem Properties Group. Ms. Yap holds a Bachelor of Commerce degree from the University of British Columbia and is a Chartered Accountant.
Ferdinand Holcapek is a geologist, and has been the Sole Administrator and Director General of Cream Minerals de Mexico, S.A. de C.V. since its incorporation in 1999. From 1996 to 2001 he was the Sole Administrator and Director General of Valerie Gold de Mexico, S.A. de C.V.
Robin Merrifield is a chartered accountant with substantial international experience, gained in Canada, USA, Southern Africa and five Central Asian countries. Subsequent to his obtaining his professional designation at Deloittes in Cape Town, South Africa, he became the local group financial manager of a large UK shipping and industrial group. He has worked in the mining industry for more than 30 years where he has held a variety of executive financial positions. His corporate and operational experience, with both precious and base metals, was gained with the Anglo American group, Cameco, Uranium One, Centerra's predecessor company and other Canadian public companies. He is a Director of a number of junior exploration mining companies, and was previously an Executive Vice President of Uranium One, having also recently served as its CFO for four years.
Sargent Berner, Director, is a graduate of the University of British Columbia where he received his B.A. in 1963 and his LL.B. in 1966, and the London School of Economics, London, England where he received the degree of Master of Laws in 1967. From 1968 to 1976 he served as a full-time Assistant and Associate Professor of the Faculty of Law at the University of British Columbia and practiced corporate, securities and natural resources law as an associate and/or partner in the Vancouver law firm of DuMoulin Black from 1976 to 2006. He provides consulting services to the Company through his company; Kent Avenue Consulting Ltd. Mr. Berner is a Director of several junior mineral exploration companies.
Gerald Feldman is a director of the Company. Mr. Feldman is a Chartered Accountant and is the Vice-President of Corporate Development of Pinetree Capital Ltd. and the CFO of each of Pinetree Capital Ltd., Brownstone Ventures Inc. and Mega Uranium Ltd.
Ronald Lang is a director of the Company. Mr. Lang is a businessman and consultant with over twenty years' experience working with companies in the junior resource sector.
Mr. Melrose is a graduate of the University of Waterloo, Ontario and has over 30 years' experience as an exploration and mine geologist. He has been involved in all aspects of exploration from grass roots to the mine definition/feasibility stage and open pit mine geology. Mr. Melrose has worked globally with Cameco/Centerra's Gold companies' exploration departments spending over two decades in Canada, the USA, and Kazakhstan. He also served as Exploration Manager at the Kumtor Gold Mine in the Kyrgyz Republic where he was directly responsible for the discovery of the high grade SB Zone, significantly increasing the reserves and resources of the Kumtor Mine and extending its life of mine. Mr. Melrose served VP, Exploration, Minco Silver Corporation, where his responsibilities included managing the exploration program which increased and defined 157 million ounces of silver at the Fuwan project. Mr. Melrose then advanced Fuwan through the initial Preliminary Economic assessment stage to the completion of a successful and positive Feasibility Study. In addition Mr. Melrose also served as VP Exploration for Minco Gold Corporation, adding 1 million ounces to the resources (all categories) of the Changkeng gold property by December 31, 2008. Currently Mr. Melrose serves as the President, CEO and Director of Riverstone Resources Inc.
Executive officers are appointed by the Board of Directors to serve until terminated by the Board of Directors or until their successors are appointed. Certain of the directors serve as directors of other reporting companies and if a conflict of interest arises at a meeting of the Board of Directors, any director in a conflict will declare his interest and abstain from voting on such matter. All directors have a term of office expiring at the next annual general meeting of Cream.
There are no family relationships among any of the persons named above.
There are no arrangements or understandings regarding the selection of any of the persons named above.
Compensation of Executive Officers
“Named Executive Officer” (“NEO”) means each of the following individuals:
The Company had three NEOs during the year. The following disclosure sets out the compensation that the Board intended to pay, make payable, award, grant, give or otherwise provide to each NEO and director for the financial year ended March 31, 2012.
Compensation of Directors and NEOs
The Company’s Corporate Governance and Compensation Committee (“CGCC”) has responsibility for reviewing compensation for the Company’s directors and senior management. The independent directors are encouraged to meet at any time they consider necessary without any members of management including the non-independent directors being present. The Company's auditors, legal counsel and employees may be invited to attend. The independent directors exercise their responsibilities for independent oversight of management through a strong CGCC. The Board has appointed Mr. Sargent H. Berner as Chairman of the Corporate Governance and Compensation Committee to assist the Board in being effective, cohesive and independent from management.
To determine compensation payable, the CGCC reviews compensation paid for directors and NEOs of companies of similar size and stage of development in the mineral exploration industry and determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management while taking into account the financial and other resources of the Company. In setting the compensation, the CGCC annually reviews the performance of the NEOs in light of the Company's objectives and considers other factors that may have impacted the success of the Company in achieving its objectives and financial resources.
The Company’s compensation policies and its stock option plan (the “Stock Option Plan”) are intended to assist the Company in attracting, retaining and motivating Directors, officers and employees of the Company and of its subsidiaries and to closely align the personal interests of such directors, officers and employees with those of the shareholders by providing them with the opportunity, through stock options, to acquire shares in the capital of the Company.
The Board of Directors of the Company implemented a stock option plan, as amended (the “Plan”), effective June 23, 2011, which was approved by the TSX Venture Exchange and the shareholders of the Company on November 17, 2011, at the Company’s Annual General Meeting on that date. The number of shares which may be issued pursuant to options previously granted and those granted under the Plan is a maximum of 10% of the issued and outstanding shares at the time of the grant. In addition, the number of shares which may be reserved for issuance to any one individual may not exceed 5% of the issued shares on a yearly basis or 2% if the optionee is engaged in investor relations activities or is a consultant. Under the TSX Venture Exchange policy, all such rolling stock option plans which set the number of common shares issuable under the plan at a maximum of 10% of the issued and outstanding common shares must be approved and ratified by shareholders on an annual basis.
In accordance with good corporate governance practices and as recommended by Canadian National Policy 51-201 Disclosure Standards, the Company imposes black-out periods restricting the trading of its securities by directors, officers, employees and consultants during periods surrounding the release of annual and interim financial statements and at other times when deemed necessary by management and the Board. In order to ensure that Optionees are not prejudiced by the imposition of such black-out periods, the Plan includes a provision to the effect that any outstanding options with an expiry date that falls during a management imposed black-out period or within five days thereafter will be automatically extended to a date that is ten trading days following the end of the black-out period.
The Plan provides that if a change of control (as defined therein) occurs, or if the Company is subject to a take-over bid, all shares subject to stock options shall immediately become vested and may thereupon be exercised in whole or in part by the Optionees. The Board may also accelerate the expiry date of outstanding stock options in connection with a take-over bid.
The Plan contains a provision that, if pursuant to the operation of the plan's adjustment provisions, in respect of options granted under the Plan (the "Subject Options"), an optionee receives options to purchase securities of another company (the "New Company"), such new options shall expire on the earlier of: (i) the expiry date of the Subject Options; (ii) if the optionee does not become an eligible person in respect of the New Company, the date that the Subject Options expire pursuant to the applicable provisions of the Plan relating to expiration of options in cases of death, disability or termination of employment discussed in the preceding paragraph above (the "Termination Provisions"); (iii) if the optionee becomes an eligible person in respect of the New Company, the date that such new options expire pursuant to the terms of the New Company's stock option plan that correspond to the Termination Provisions; and (iv) the date that is one (1) year after the Optionee ceases to be an eligible person in respect of the New Company or such shorter period as determined by the Board.
The Plan allows the Board to impose vesting provisions and provides that, unless otherwise specified at the time of grant, all options shall vest and become exercisable in full immediately upon grant of such options. However, as required by the polices of the Exchange, options granted to Optionees performing Investor Relations Activities must vest in stages over 12 months with no more than ¼ of such options vesting in any three month period.
The purpose of the Plan is to allow the Company to grant options to directors, officers, employees and service providers, as an incentive for performance, and as an opportunity to participate in the success of Cream. The granting of such options is intended to align the interests of such persons with that of the shareholders. Options are exercisable over periods of up to ten years as determined by the board of directors of Cream and are required to have an exercise price no less than the market price as defined in the Plan prevailing on the day that the option is granted. Pursuant to the Plan, the board of directors may from time to time authorize the issue of options to directors, officers and employees of and consultants to Cream and its subsidiaries or employees of companies providing management services to Cream or its subsidiaries.
At March 31, 2012, and at July 29, 2012, the maximum number of common shares which may be issued pursuant to stock options granted under the Plan is equal to 10% of the issued and outstanding common shares at the respective dates, or 15,264,291 and 15,534,058, respectively. A total of 11,386,500 and 9,985,000 stock options were outstanding at March 31, 2012 and July 29, 2012, respectively.
During the year ended March 31, 2012, 2,300,000 options were granted at an average price of $0.19 per share and 100,000 options were exercised at a price of $0.12 per share. Subsequent to March 31, 2012, no options were granted or exercised.
The Board of Directors generally grants options to corporate executives on the recommendation of the CGCC. As part of its annual work plan, the CGCC reviews, among other things, executive compensation and makes appropriate recommendations to the board regarding such compensation, including but not limited to the grant of options. Options may be granted at other times of the year to individuals commencing employment with the Company.
Summary Compensation Table
The compensation paid to the NEOs during the Company’s most recently completed financial year ended March 31, 2012, is as set out below:
Cream had a management contract with Lang Mining Corporation for the services of Frank A. Lang. Compensation was paid to Lang Mining at $10,000 per month up to December 31, 2008. All monies owing to Lang Mining Corporation including accrued and unpaid interest was paid before the end of fiscal 2011.
In the year ended March 31, 2012, $565,319 (2011 - $529,434; 2010 - $405,026) in management, administrative, geological and other services have been provided by Quorum on a cost recovery basis to the various entities currently sharing certain personnel costs, office space, and overhead with the Company. The Company has a 1/3 interest in Quorum. Three months of estimated working capital is required to be on deposit with Quorum under the terms of the services agreement. At March 31, 2012, the Company had a receivable from Quorum of 189,963 (2011 - $23,925 receivable).
As part of its annual work plan, the CGCC reviews, among other things, executive compensation and makes appropriate recommendations to the board regarding such compensation.
Incentive Plan Awards
Outstanding Share-Based Awards and Option-Based Awards
The following table sets out all share-based awards and option-based awards outstanding as at the financial year ended March 31, 2012, for each NEO:
Incentive Plan Awards – Value Vested or Earned During the Year
The following table sets out all incentive plans (value vested or earned) during the financial year ended March 31, 2012, for each NEO:
The Company accounts for stock options issued to employees at the fair value determined on the grant date using the Black-Scholes option pricing model. The fair value of the options is recognized as an expense using the graded vesting method where the fair value of each tranche is recognized over its respective vesting period. When stock options are forfeited prior to becoming fully vested, any expense previously recorded is reversed.
Share-based payments made to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined that the fair value of the goods or services cannot be reliably measured. These payments are recorded at the date the goods and services are received.
Warrants issued are recorded at estimated fair values determined on the grant date using the Black-Scholes model. If and when the stock options or warrants are ultimately exercised, the applicable amounts of their fair values in the reserves account are transferred to share capital.
See “Option Based Awards” and “Securities Authorized for Issuance under Equity Compensation Plans” for further information on the Stock Option Plan.
The Company does not have Incentive Plan Awards, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid.
Pension Plan Benefits
Defined Benefit Plan or Defined Contribution Plan
The Company has no pension plans for NEOs that provide for payment or benefits at, following, or in connection with retirement.
Deferred Compensation Plans
The Company has no deferred compensation plan for NEOs.
Termination and Change in Control Benefits
The Company and its subsidiaries have no contract, agreement plan or arrangement that provides for payment to a NEO at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or a change in an NEO’s responsibilities, with the exception of the following:
The contract of Michael E. O’Connor provides for payment to Mr. O’Connor of a minimum severance allowance if the Company should terminate the employment agreement without cause or Mr. O’Connor should terminate the agreement for good cause. The minimum severance allowance would be calculated as one year’s salary as in effect as at the termination date plus Mr. O’Connor’s average annual bonus, calculated as the average of the annual bonus, if any, paid for the three years prior to the termination date, and benefits will be covered, other than disability insurance coverage or comparable alternate benefits, for the same period as the severance. Additionally, the contract provides for payment to Mr. O’Connor of the same severance allowance in certain circumstances in the event of an acquisition or change of control by another company or other similar form of transaction.
The contract of Ms. Yap provides for the same terms as Mr. O’Connor except that Ms. Yap’s contract is with both Cream and Quorum.
On June 23, 2011 the Board of Directors approved a resolution to compensate all Directors of the Company, with the exception of two non-independent directors, Mr. O’Connor and Mr. Holcapek, as follows:
In addition, directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors. The Board of Directors may award special remuneration to any director undertaking any special services on behalf of the Company other than services ordinarily required of a director. This is subject to recommendation by the Compensation and Corporate Governance committee.
Director Compensation Table
The following table sets out all amounts of compensation provided to the directors who are not NEOs for the Company’s most recently completed financial year:
(1) Consulting fees were paid or are accrued, indirectly to Kent Avenue Consulting Ltd., a private company.
Outstanding Share-based Awards and Option-based Awards
The following table sets out all option-based awards outstanding as at the financial year ended March 31, 2012, for each director, excluding two directors whose awards are already provided in the disclosure for NEOs for the Company:
Incentive Plan Awards – Value Vested or Earned During the Year
The following table sets out all incentive plans (value vested or earned) during the financial year ended March 31, 2012, for each director, excluding a director who is already set out in disclosure for a NEO for the Company:
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
Indebtedness of Directors and Executive Officers
None of the directors, executive officers, or associates of any such person, has been indebted to the Company at any time during the most recently completed financial year.
Aggregated Options Exercises during the Most Recently Completed Financial Year
All directors of Cream at July 29, 2011 were elected at the November 17, 2011 annual general meeting for a term of office expiring at the next annual general meeting of Cream. All officers have a term of office lasting until their removal or replacement by the Board of Directors.
An “independent” director under the TSX governance guidelines is a director who is independent from management and is free from any interest and any business or other relationship which could materially interfere with his or her ability to act in the best interest to the Company other than interests arising from shareholding. Where a company has a significant shareholder, in addition to a majority of “independent” directors, the Board should include a number of directors who do not have interest or relationships with either the Company or the significant shareholder. The Board currently consists of eight directors, six of whom are independent based upon the tests for independence set forth in Canadian National Instrument 52-110. Robin M. Merrifield, Sargent H. Berner, Gerald M. Feldman, Ronald Lang, Christopher Hebb and Dwayne Melrose are independent. Michael E. O'Connor is not independent as he is the President and CEO of the Company. Ferdinand Holcapek is not independent as he receives consulting fees from the Company and is the Sole Administrator and Director General of the Company's wholly-owned subsidiary. Sargent Berner currently receives consulting fees for services through a private company, Kent Avenue Consulting Ltd.
Except as set out below, no director and/or executive officer has been the subject of any order, judgment, or decree of any governmental agency or administrator or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a director and/or executive officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony, or misdemeanor involving a security or in any aspect of the securities business of theft. In fiscal 2009 and fiscal 2010, Sargent H. Berner was a director of ValGold Resources Ltd., while such company was subject to a Management Cease Trade Order for failure to file financial statements in a timely manner.
There are no director’s services contracts with the Company providing for benefits upon termination of employment except for benefits to Mr. O’Connor as set out under “Termination and Change of Control Benefits” above. Cream and its subsidiaries have no compensatory plan or arrangement in respect of compensation received or that may be received by the directors of the Company in its most recently completed or current financial year to compensate such directors in the event of termination as director (resignation, retirement) or in the event of a change in control. There are no arrangements or understandings with any two or more directors or executive officers pursuant to which he was selected as a director or executive officer. Other than as disclosed in related party transactions, fees payable to Directors as disclosed above under "Director Compensation", and salaries for executive officers, there is no compensation paid to outside directors other than stock-based compensation.
The following information is provided with respect to the Company’s directors, and members of its administrative, supervisory or management body and includes the date of expiration of the current term of office and the period during which the person has served in that office.
Robin Merrifield, Gerald Feldman, and Christopher Hebb are the current members of Cream’s audit committee. The audit committee is appointed annually by the directors of Cream at the first meeting of the board held after Cream’s annual general meeting. Its primary function is to review the financial statements of Cream before they are submitted to the board for approval. The audit committee is also available to assist the board if required with matters relating to the appointment of Cream’s auditor and the overall scope and results of the audit, internal financial controls, and financial information for publication for various purposes.
Corporate Governance and Executive Compensation Committee
Members of the Corporate Governance and Executive Compensation Committee are Messrs. Feldman, Berner and Merrifield. The committee was formed for making recommendations to the board with respect to developments in the area of corporate governance, the practices of the board, finding appropriate candidates for nomination to the board and for evaluating the performance of the board, and senior executives and making recommendations as to their compensation.
At March 31, 2012, Cream had one employee, Michael O’Connor, the President and CEO, in its head office and otherwise contracts staff on an as-needed basis. Cream’s functions are primarily administered through Quorum (see Item 7) .Ms. Angela Yap is the CFO of Cream and Quorum, but is an employee of Quorum only. Quorum charges Cream for Ms. Yap’s services. Cream Minerals de Mexico, S.A. de C.V., Cream’s subsidiary in Mexico has less than five employees and Mr. Holcapek is engaged as a consultant.
See Item 6A. – “Directors and Senior Management”.
The following table sets forth, as at March 31, 2012, all stock options held by the directors and members of senior management of the Company, including the number of common shares issuable upon the valid exercise of the options, the exercise price and expiration date of the options.
A. Major Shareholders
The Company is a publicly traded corporation, incorporated in the province of British Columbia, the registered shareholders of which include residents of the United States, residents of Canada and other foreign residents. To the extent known by the directors and executive officers of the Company, the Company is not directly or indirectly owned or controlled by another corporation.
To the knowledge of the directors and executive officers of the Company as at July 29, 2012, there are no holders of 5% or more of the common shares of Cream, except as set out below:
The above information was obtained from Targeted Inc.
All shareholders, including major and/or controlling shareholders have the same voting rights with respect to the issued common shares.
Cream’s securities are recorded on the books of its transfer agent in registered form, however, the majority of such shares are registered in the name of intermediaries such as brokerage houses and clearing houses on behalf of their respective brokerage clients, and Cream does not have knowledge of or access to information about the beneficial owners thereof. To the best of its knowledge, Cream is not directly or indirectly owned or controlled by a corporation or foreign government. As of July 29, 2012 Cream had authorized an unlimited number of common shares without par value of which 155,340,582 were issued and outstanding.
As of July 29, 2011, there were 269 registered shareholders of record holding a total of 155,340,582 common shares of Cream. To the best of Cream’s knowledge there were 81 registered shareholders of record with registered addresses in Canada, 182 shareholders of record with registered addresses in the United States and 6 shareholders of record with registered addresses in other countries holding approximately 153,593,563 (98.88%), 1,644,533(1.06 %) and 102,486 (0.07%) of the outstanding common shares, respectively. Shares registered in the name of intermediaries are assumed to be held by residents of the same country in which the clearing-house was located.
The Company is not aware of any arrangements between shareholders or other persons which may result in a change of control of the Company.
B. Related Party Transactions
No director or senior officer, and no associate or affiliate of the foregoing persons, and no insider has or has had any material interest, direct or indirect, in any transactions, or in any other proposed transaction, during the year ended March 31, 2012, except as noted below.
Commencing August 1, 2001, management, administrative, geological and other services have been provided by Quorum, a private company held jointly by the Company and other public companies, to provide services on a cost recovery basis to the various public entities currently sharing office space with the Company. Currently the Company has a 1/3 interest in Quorum and is using the equity method to account for its investment. Three months of working capital is required to be on deposit with Quorum under the terms of the services agreement. All transactions are conducted in an arms-length manner. During the years ended March 31, 2012, 2011, and 2010, $565,319, $529,434, and $405,026 were paid to Quorum, respectively. These totals include salaries and benefits and full cost recoveries for rent and other administrative costs.
Consulting fees of $22,500 (2011 - $30,000; 2010 - $30,000) were paid or are payable to Kent Avenue Consulting Ltd., a private company controlled by Sargent H. Berner, for consulting services during the year. These amounts were paid