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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file Number 000-22731
MINERA ANDES INC.
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(Exact name of small business issuer as specified in its charter)
ALBERTA, CANADA
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(State or other jurisdiction of incorporation or organization)
NONE
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(I.R.S. Employer Identification No.)
111 E. MAGNESIUM ROAD, SUITE A, SPOKANE, WA 99208
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(Address of principal executive offices)
(509) 921-7322
-------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes |X| No |_|
Shares outstanding as of November 12, 2004: 71,139,060 shares of common stock,
with no par value
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets ................................ 3
Consolidated Statements of Operations and
Accumulated Deficit ........................................ 4
Consolidated Statements of Mineral Properties and
Deferred Exploration Costs ................................. 5
Consolidated Statements of Cash Flows ...................... 6
Notes to Consolidated Financial Statements ................. 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 17
Item 3 Controls and Procedures .................................... 21
PART II - OTHER INFORMATION
Item 2 Changes in Securities ...................................... 22
Item 6 Exhibits and Reports on Form 8-K ........................... 22
SIGNATURES ............................................................... 23
-2-
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars - Unaudited)
September 30, December 31,
2004 2003
------------ ------------
ASSETS
Current:
Cash and cash equivalents $ 3,407,281 $ 2,234,342
Receivables and prepaid expenses 49,588 228,123
------------ ------------
Total current assets 3,456,869 2,462,465
Mineral properties and deferred exploration costs 2,052,853 915,299
Investment 5,584,696 4,063,127
Equipment, net 104,847 88,238
------------ ------------
Total assets $ 11,199,265 $ 7,529,129
============ ============
LIABILITIES
Current:
Accounts payable and accruals $ 46,843 $ 96,640
Due to related parties -- 30,531
------------ ------------
Total current liabilities 46,843 127,171
------------ ------------
SHAREHOLDERS' EQUITY
Preferred shares, no par value, unlimited number
authorized, none issued -- --
Common shares, no par value, unlimited number authorized
Issued September 30, 2004 - 70,442,990 shares
Issued December 31, 2003 - 59,740,865 shares 28,354,367 23,597,468
Contributed surplus - stock option compensation 1,287,143 160,888
Accumulated deficit (18,489,088) (16,356,398)
------------ ------------
Total shareholders' equity 11,152,422 7,401,958
------------ ------------
Total liabilities and shareholders' equity $ 11,199,265 $ 7,529,129
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(U.S. Dollars-Unaudited)
Period from
July 1, 1994
Three Months Ended Nine Months Ended (commencement)
---------------------------- ---------------------------- through
September 30, September 30, September 30, September 30, September 30,
2004 2003 2004 2003 2004(Cumulative)
------------ ------------ ------------ ------------ ------------
Administration fees $ -- $ 7,358 $ -- $ 21,769 $ 286,487
Audit and accounting 13,017 2,500 64,857 18,641 445,196
Consulting fees 202,730 54,508 431,927 232,850 1,870,313
Depreciation 10,816 367 28,187 1,498 92,337
Equipment rental -- -- -- -- 21,522
Foreign exchange (gain) loss (241,049) 2,929 (124,899) (51,098) 232,333
Insurance 18,419 2,364 55,289 6,641 308,180
Legal 35,780 77,416 118,438 169,983 1,013,331
Maintenance -- -- -- 329 3,748
Materials and supplies 361 -- 361 -- 45,873
Office overhead 170,808 39,848 322,641 86,733 1,898,619
Telephone 8,871 9,652 24,033 20,084 418,011
Transfer agent 1,602 2,160 6,127 4,628 113,806
Travel 14,354 16,621 49,281 35,529 442,917
Wages and benefits 359,967 46,686 456,616 141,695 2,004,690
Write-off of deferred costs -- -- -- -- 8,540,235
------------ ------------ ------------ ------------ ------------
Total expenses 595,676 262,409 1,432,858 689,282 17,737,598
Gain on sale of equipment (4,614) -- (4,614) -- (109,202)
Gain on sale of property -- -- -- -- (898,241)
Interest income (21,042) (131) (60,703) (3,394) (529,269)
------------ ------------ ------------ ------------ ------------
Net loss for the period 570,020 262,278 1,367,541 685,888 16,200,886
------------ ------------ ------------ ------------ ------------
Accumulated deficit, beginning of the period,
as previously reported 17,919,068 14,687,510 16,356,398 14,263,900 --
Adjustment for change in accounting for
stock-based compensation -- -- 678,569 -- 678,569
------------ ------------ ------------ ------------ ------------
Accumulated deficit, beginning of period,
as restated 17,919,068 14,687,510 17,034,967 14,263,900 678,569
Adjustment on acquisition of royalty interest -- -- -- -- 500,000
Share issue costs -- -- 86,580 -- 1,092,418
Deficiency on acquisition of subsidiary -- -- -- -- 17,215
------------ ------------ ------------ ------------ ------------
Accumulated deficit, end of the period $ 18,489,088 $ 14,949,788 $ 18,489,088 $ 14,949,788 $ 18,489,088
============ ============ ============ ============ ============
Basic and diluted net loss per common share $ 0.01 $ 0.01 $ 0.02 $ 0.02
============ ============ ============ ============
Weighted average shares outstanding
(basic and diluted) 70,333,061 37,469,614 67,475,720 37,170,044
============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF MINERAL PROPERTIES
AND DEFERRED EXPLORATION COSTS
(U.S. Dollars-Unaudited)
Period from
July 1, 1994
Three Months Ended Nine Months Ended (commencement)
--------------------------- --------------------------- through
September 30, September 30, September 30, September 30, September 30,
2004 2003 2004 2003 2004 (Cumulative)
------------ ------------ ------------ ------------ ------------
Administration fees $ -- $ 4,873 $ -- $ 15,633 $ 392,837
Assays and analytical 44,256 -- 93,553 5,542 1,038,499
Construction and trenching -- -- 170 -- 523,860
Consulting fees 13,977 21,574 53,447 87,244 1,116,461
Depreciation -- -- -- -- 170,625
Drilling 1,383 -- 244,343 -- 1,173,176
Equipment rental -- -- 132,688 -- 377,612
Geology 43,581 2,500 335,172 52,046 3,355,080
Geophysics -- -- -- -- 309,902
Insurance -- 2,125 -- 6,375 255,559
Legal -- -- 220 -- 694,048
Maintenance 4,231 156 15,994 936 179,111
Materials and supplies 2,648 354 31,641 1,474 467,825
Project overhead 1,488 882 15,597 4,591 336,752
Property and mineral rights 13,208 36 54,477 3,523 1,378,314
Telephone 2,211 873 9,780 3,161 96,099
Travel 10,925 9,072 60,712 59,242 1,180,776
Wages and benefits 23,777 32,486 89,760 98,855 1,270,294
------------ ------------ ------------ ------------ ------------
Costs incurred during the period 161,685 74,931 1,137,554 338,622 14,316,830
Deferred costs, beginning of the period 1,891,168 3,600,139 915,299 3,536,448 --
Deferred costs, acquired -- -- -- -- 576,139
Deferred costs, contributed to MSC -- -- -- -- (2,320,980)
Deferred costs written off -- -- -- -- (8,540,235)
Mineral property option proceeds -- (200,000) -- (400,000) (1,978,901)
------------ ------------ ------------ ------------ ------------
Deferred costs, end of the period $ 2,052,853 $ 3,475,070 $ 2,052,853 $ 3,475,070 $ 2,052,853
============ ============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars-Unaudited)
Period from
July 1, 1994
Three Months Ended Nine Months Ended (commencement)
---------------------------- ---------------------------- through
September 30, September 30, September 30, September 30, September 30,
2004 2003 2004 2003 2004(Cumulative)
------------ ------------ ------------ ------------ ------------
Operating Activities
Net loss for the period $ (570,020) $ (262,278) $ (1,367,541) $ (685,888) $(16,200,886)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write-off of incorporation costs -- -- -- -- 665
Write-off of deferred expenditures -- -- -- -- 8,540,235
Depreciation 10,816 367 28,187 1,498 92,337
Stock option compensation 413,507 6,984 447,686 35,616 608,574
Gain on sale of equipment (4,614) -- (4,614) -- (109,202)
Gain on sale of mineral properties -- -- -- -- (898,241)
Change in:
Receivables and prepaid expenses 154,794 7,536 178,535 (95,224) (47,602)
Accounts payable and accruals (33,897) (10,881) (49,797) 36,913 27,642
Due to related parties -- 37 (30,531) 5,341 --
------------ ------------ ------------ ------------ ------------
Cash used in operating activities (29,414) (258,235) (798,075) (701,744) (7,986,478)
------------ ------------ ------------ ------------ ------------
Investing Activities
Incorporation costs -- -- -- -- (665)
Purchase of equipment (35,277) (1,053) (46,682) (1,053) (275,107)
Proceeds from sale of equipment 6,500 -- 6,500 -- 904,741
Mineral properties and deferred
exploration (161,685) (74,931) (1,137,554) (338,622) (14,146,205)
Acquisition of investment (1,921,569) -- (1,921,569) -- (3,663,716)
Proceeds from sale of subsidiaries -- -- -- -- 9,398
Acquisition of royalty interest -- -- -- -- (500,000)
Recovery of investment 200,000 200,000 400,000 400,000 2,378,901
------------ ------------ ------------ ------------ ------------
Cash provided by (used in) investing
activities (1,912,031) 124,016 (2,699,305) 60,325 (15,292,653)
------------ ------------ ------------ ------------ ------------
-6-
MINERA ANDES INC.
"An Exploration Stage Corporation"
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars-Unaudited)
Period from
July 1, 1994
Three Months Ended Nine Months Ended (commencement)
-------------------------- ------------------------- through
September 30, September 30, September 30, September 30, September 30,
2004 2003 2004 2003 2004(Cumulative)
----------- ----------- ----------- ----------- -----------
Financing Activities
Shares and subscriptions issued for cash, less
issue costs 40,267 2,900 4,670,319 68,611 26,686,412
----------- ----------- ----------- ----------- -----------
Cash provided by financing activities 40,267 2,900 4,670,319 68,611 26,686,412
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (1,901,178) (131,319) 1,172,939 (572,808) 3,407,281
Cash and cash equivalents, beginning of period 5,308,459 567,769 2,234,342 1,009,258 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 3,407,281 $ 436,450 $ 3,407,281 $ 436,450 $ 3,407,281
=========== =========== =========== =========== ===========
and Financing Activities
Stock option compensation $ 413,507 $ 6,984 $ 447,686 $ 35,616 $ 1,287,143
----------- ----------- ----------- ----------- -----------
Deferred costs, contributed to MSC $ -- $ -- $ -- $ -- $ 2,320,980
----------- ----------- ----------- ----------- -----------
Shares issued for acquisition of mineral
properties $ -- $ -- $ -- $ -- $ 575,537
----------- ----------- ----------- ----------- -----------
Interest and taxes paid $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of
these consolidated financial statements.
-7-
MINERA ANDES INC.
"An Exploration Stage Corporation"
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars-Unaudited)
1. Accounting Policies, Financial Condition and Liquidity
The accompanying consolidated financial statements of Minera Andes Inc. (the
"Company") for the three and nine months periods ended September 30, 2004 and
2003 and for the cumulative period from commencement (July 1, 1994) through
September 30, 2004 have been prepared in accordance with accounting principles
generally accepted in Canada which differ in certain respects from principles
and practices generally accepted in the United States, as described in Note 3.
Also, they are unaudited but, in the opinion of management, include all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation. Interim results are not necessarily indicative of results which
may be achieved in the future. The December 31, 2003 financial information has
been derived from the Company's audited consolidated financial statements.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 2003 included in our annual report on Form 10-KSB ("the 2003
10-KSB") for the year ended December 31, 2003 on file with the Securities and
Exchange Commission and with the TSX Venture Exchange. The accounting policies
set forth in the audited annual consolidated financial statements are the same
as the accounting policies utilized in the preparation of these consolidated
financial statements, except as described in Note 2 and as modified for
appropriate interim presentation.
The recoverability of amounts shown as mineral properties and deferred
exploration costs is dependent upon the existence of economically recoverable
reserves, the ability of the Company to obtain necessary financing to complete
their development, and future profitable production or disposition thereof. The
accompanying consolidated financial statements have been prepared using
accounting principles generally accepted in Canada applicable to a going
concern. The use of such principles may not be appropriate because, as of
September 30, 2004, there was substantial doubt that the Company would be able
to continue as a going concern.
For the nine months ended September 30, 2004 the Company had a loss of
approximately $1,368,000 and an accumulated deficit of approximately $18
million. In addition, due to the nature of the mining business, the acquisition,
exploration and development of mineral properties requires significant
expenditures prior to the commencement of production. To date, the Company has
financed its activities through the sale of equity securities and joint venture
arrangements. The Company expects to use similar financing techniques in the
future.
Although there is no assurance that the Company will be successful in these
actions, management believes that they will be able to secure the necessary
financing to enable it to continue as a going concern. Accordingly, these
financial statements do not reflect adjustments to the carrying value of assets
and liabilities, and the reported revenues and expenses and balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate. Such adjustments could be material.
Although we have taken steps to verify title to mineral properties in which we
have an interest, in accordance with industry standards for the current stage of
exploration of such properties, these procedures do not guarantee title.
Property title may be subject to unregistered prior agreements and noncompliance
with regulatory requirements.
-8-
2. Change in Accounting Policy
Effective January 1, 2004, the Company has adopted, on a retroactive basis
without restatement, the recommendations of CICA Handbook Section 3870,
"Stock-based compensation and other stock-based payments", which now requires
companies to adopt the fair value based method for all stock-based awards
granted on or after January 1, 2002. Previously the Company was only required to
disclose the pro forma effect of stock options issued to employees and directors
in the notes to the financial statements. The effect of this change in
accounting policy was to increase the deficit at January 1, 2004 by $678,569
with a corresponding increase to reported contributed surplus.
3. Differences Between Canadian and United States Generally Accepted Accounting
Principles
Differences between Canadian and U.S. generally accepted accounting principles
("GAAP") as they pertain to the Company relate to accounting for the acquisition
of Scotia Prime Minerals, Incorporated, compensation expense associated with the
release of shares from escrow, mineral properties and deferred exploration costs
and stock-based compensation and are described in Note 10 to the Company's
consolidated financial statements for the year ended December 31, 2003 in the
2003 10-KSB.
As discussed in Note 2, as at January 2004, the Company adopted new Canadian
GAAP rules regarding the utilization of the fair value based method to account
for options granted to employees. U.S. GAAP does not require the fair value
based method to account for employee based options as of January 1, 2002. Since
the Company has granted options to employees in 2004, the retroactive adoption
without restatement of the new Canadian requirements has created differences
between Canadian and U.S. GAAP with respect to the Company's shareholder's
equity at September 30, 2004 nor the net loss for the three and nine months
ended September 30, 2004. There would however have been no adjustment to
retained earnings as well as contributed surplus at January 1, 2004 under U.S.
GAAP as was required under Canadian GAAP.
The impact of the above on the interim consolidated financial statements is as
follows:
Sept. 30, Dec. 31,
2004 2003
------------ ------------
Shareholders' equity, end of period, per
Canadian GAAP $ 11,152,422 $ 7,401,958
Adjustment for acquisition and deferred
exploration costs (2,052,853) (915,299)
Adjustment for change in accounting policy
(Note 2) (302,614) --
Adjustment for investment (5,584,696) (4,063,127)
------------ ------------
Shareholders' equity, end of period, per
U.S. GAAP $ 3,212,259 $ 2,423,532
============ ============
-9-
Period from
July 1, 1994
Three Months Ended Nine Months Ended (commencement)
-------------------------- -------------------------- Through
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003 2004(Cumulative)
----------- ----------- ----------- ----------- -----------
Net loss for the period,
per Canadian GAAP $ 570,020 $ 262,278 $ 1,367,541 $ 685,888 $16,200,886
Adjustment for acquisition
of Scotia -- -- -- -- 248,590
Adjustment for compensation
expense (302,614) -- (302,614) -- 6,022,300
Adjustment for deferred
exploration costs, net 161,685 (125,069) 1,137,554 (61,378) 2,052,853
Adjustment for investment 1,721,569 -- 1,521,569 -- 5,584,696
----------- ----------- ----------- ----------- -----------
Net loss for the period,
per U.S. GAAP $ 2,150,660 $ 137,209 $ 3,724,050 $ 624,510 30,109,325
=========== =========== =========== =========== ===========
Net loss per common share,
per U.S. GAAP,
basic and diluted $ 0.03 $ 0.00 $ 0.05 $ 0.02
=========== =========== =========== ===========
The Company continues to account for stock-based compensation awarded to
employees using the intrinsic method. Consequently, related pro-forma
information as described in SFAS No. 123 has been disclosed, as follows:
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net loss for the period under US
GAAP as reported $2,150,660 $ 137,209 $3,724,050 $ 624,510
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards 302,614 -- 302,614 112,362
---------- ---------- ---------- ----------
Pro-forma net loss for the period $2,453,274 $ 137,209 $4,026,664 $ 736,872
========== ========== ========== ==========
Basic and diluted - pro-forma $ 0.03 $ 0.00 $ 0.06 $ 0.02
========== ========== ========== ==========
The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option-pricing model with assumptions as disclosed in Note 8.
Recent U.S. Accounting Pronouncements
In April 2004, the Financial Accounting Standards Board ("FASB") ratified
Emerging Issues Task Force ("EITF") Issue No. 04-2, which amends Statement of
Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" to the
extent all mineral rights are to be considered tangible assets for accounting
purposes. There has been diversity in practice related to the application of
SFAS No. 141 to certain mineral rights held by mining entities that are not
within the scope of SFAS No. 19 "Financial Accounting and Reporting by Oil and
Gas Producing Companies." The SEC staff's position previously was entities
outside the scope of SFAS No. 19 should account for mineral rights as intangible
assets in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets."
The adoption of EITF 04-02 has no effect on the consolidated financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
"Consolidation of Variable Interest Entities." In December 2003, the FASB issued
a revision to this interpretation (FIN 46(r)). FIN 46(r) clarifies the
-10-
application of Accounting Research Bulletin (ARB) No. 51, "Consolidated
Financial Statements." FIN 46 clarifies the application of ARB No. 51 to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. We adopted FIN 46(r) in its entirety for the three
and nine months periods ended September 30, 2004, which did not have a material
effect on our consolidated financial statements.
4. Changes to Share Capital
During the three months ended September 30, 2004, the Company issued 95,000
shares for the exercise of stock options; 50,000 shares for the exercise of
100,000 purchase warrants and 6,500 shares for the exercise of broker warrants
(from a November 13, 2003 financing), with gross proceeds to the Company of
Cdn$52,975 (US$40,267).
On September 10, 2004, 1,500,000 stock options were granted, at Cdn$0.55, to
employees, directors and consultants of the Company.
During the three months ended June 30, 2004, the Company issued 110,000 shares
for the exercise of stock options; 190,500 shares for the exercise of 381,000
purchase warrants and 180,125 common shares for the exercise of broker warrants
(from a November 13, 2003 financing), with gross proceeds to the Company of
Cdn$196,294 (US$147,426).
On June 3, 2004, 1,030,000 stock options expired, without being exercised.
During the three months ended March 31, 2004, the Company issued 70,000 shares
for the exercise of stock options with gross proceeds to the Company of
Cdn$31,750 (US$23,751).
On March 29, 2004, 100,000 stock options were granted, at Cdn$0.50, to a
consultant of the Company.
On March 12, 2004, we sold 10,000,000 units to accredited investors at a price
of Cdn$0.65 per unit for net proceeds of Cdn$5,929,908 (US$4,458,875). Each unit
consists of one common share and one-half of one common share purchase warrant.
One whole common share purchase warrant entitles the holder to purchase one
additional common share at an exercise price of Cdn$0.80 per share for a period
of 18 months from the closing date. The issued securities are subject to a
four-month hold period. The agents received a cash commission of 7% of the gross
proceeds of the financing. The agents also received agent's warrants equal to
10% of the aggregate number of units sold pursuant to the offering. Each agent's
warrant upon exercise will entitle the holder to acquire one common share at an
exercise price of Cdn$0.80 per common share for a period of 18 months from the
date of issue. A total of 10,000,000 common shares were issued pursuant to the
private placement, and 5,000,000 common shares are reserved for issuance on
exercise of the warrants and 1,000,000 common shares are reserved for issuance
on the exercise of the agent's warrants.
5. Basic and Diluted Loss Per Common Share
Basic earnings per share (EPS) is calculated by dividing the loss applicable to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
potentially dilutive securities were exercised or converted to common stock. Due
to the losses in the 2004 and 2003 periods, potentially dilutive securities were
excluded from the calculation of diluted EPS, as they were anti-dilutive.
Therefore, there was no difference in the calculation of basic and diluted EPS
in the three and nine months periods ended September 30, 2004 and 2003.
-11-
6. Mineral Properties and Deferred Exploration Costs
At September 30, 2004, the Company, through its subsidiaries, held interests in
approximately 200,000 hectares of mineral rights and mining lands in three
Argentine provinces, including approximately 40,000 hectares in the co-owned San
Jose project. Under its present acquisition and exploration programs, the
Company is continually acquiring additional mineral property interests and
exploring and evaluating our properties. If, after evaluation, a property does
not meet the Company's requirements, then the property and deferred exploration
costs are written off to operations. Mineral property costs and deferred
exploration costs, net of mineral property option proceeds, are as follows:
2004 COSTS BY PROPERTY
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Santa Cruz General
Description San Juan Cateos Cateos Chubut Cateos Exploration Total
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Balance, beginning of period $ 378,807 $ 393,886 $ 142,606 $ -- $ 915,299
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Assays and analytical 31,093 62,013 -- 447 93,553
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Construction and trenching -- 170 -- -- 170
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Consulting fees 14,612 29,212 7,587 2,036 53,447
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Drilling 242,798 1,383 -- 162 244,343
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Equipment Rental 132,688 -- -- -- 132,688
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Geology 163,492 155,660 1,774 14,246 335,172
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Legal -- 220 -- -- 220
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Maintenance 3 13,473 -- 2,518 15,994
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Materials and supplies 17,779 13,017 192 653 31,641
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Project overhead 5,142 6,262 316 3,877 15,597
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Property and mineral rights 9,984 37,440 7,053 -- 54,477
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Telephone 2,843 6,420 10 507 9,780
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Travel 7,945 32,448 475 19,844 60,712
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Wages and benefits 12,463 18,774 -- 58,523 89,760
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Overhead allocation 42,582 59,384 847 (102,813) --
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
Carrying value, end of period $ 1,062,231 $ 829,762 $ 160,860 $ -- $ 2,052,853
---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
The San Juan Province project is comprised of six properties totaling
approximately 38,000 hectares ("ha") in southwestern San Juan province. Property
fees for 2004 are estimated at $10,000. Expenditures in the first half of 2004
largely relate to ongoing land maintenance and exploration work at the remote
Los Azules project, a large porphyry copper mineralized system in San Juan
province, Argentina.
In Santa Cruz, the Company controls 17 cateos and 30 manifestations of discovery
totaling approximately 81,000 ha. Land holding costs for 2004 are estimated at
$15,000. Expenditures to date in 2004 on the Santa Cruz properties reflect the
continuation of a regional reconnaissance program.
The Company currently controls 12 cateos and 19 manifestations of discovery,
totaling approximately 41,000 ha, in Chubut province. Expenditures in the first
half of 2004 relate to an ongoing reconnaissance exploration program on lands
acquired in 2002. The Company's expenditures have been minimal in Chubut
province as the Company has given priority to exploration in Santa Cruz
province.
-12-
Wages and benefits were approximately $90,000 during the nine months ended
September 30, 2004, compared to approximately $99,000 during the same period in
2003. During 2004 and 2003 wage and benefit expense was for the benefit of
individual properties and was charged directly to each project.
7. Investment
During 2004, the Company received payments of $400,000 on the option agreement
entered into with the majority shareholder of the Argentine Corporation formed
to develop the San Jose project. The amounts received have been reflected in
these financial statements as a reduction or recovery of the Company's
investment.
There are plans to spend in excess of $5 million for exploration over the next
12 months on the San Jose project that is owned by Minera Santa Cruz S.A.
("MSC"), an Argentine corporation owned by Minera Andes Inc. (49%) and Mauricio
Hoschschild & Cia. Ltda. ("MHC") (51%). Our obligation will be 49% of the
exploration costs related to the San Jose project, to maintain our interest in
MSC.
During the nine months ended September 30, 2004, $1,921,569 has been advanced to
MSC as an additional investment in the San Jose project.
8. Stock Options
a. A summary of the status of the Company's stock option plan as of
September 30, 2004 is:
Weighted Ave.
Options Exercise Price (Cdn)
------- --------------------
Outstanding and exercisable, January 1, 2004 4,408,500 $0.44
Granted 1,600,000 $0.55
Exercised (275,000) $0.35
Expired (1,030,000) $0.55
-----------
Outstanding and exercisable, September 30, 2004 4,703,500 $0.48
========= =====
The range of exercise prices is from Cdn$0.16 to Cdn$0.59 with a
weighted average remaining contractual life of 4.5 years at September
30, 2004.
At September 30, 2004, there were options held by directors, officers,
employees and consultants of the Company for the purchase of common
shares as follows:
Number of Shares Exercise Price Expiry Date
---------------- -------------- -----------
308,500 Cdn$0.16 August 28, 2005
715,000 Cdn$0.40 June 27, 2007
25,000 Cdn$0.36 August 27, 2008
1,500,000 Cdn$0.59 December 5, 2008
100,000 Cdn$0.50 March 29, 2009
555,000 Cdn$0.31 March 21, 2013
1,500,000 Cdn$0.55 September 10, 2009
---------
4,703,500
-13-
b. Prior to January 1, 2004, Canadian generally accepted accounting
principles required disclosure of compensation expense for the stock
option plan as if the value of all options granted had been determined
based on the fair market value-based method. The Company's net loss for
the prior period and net loss per common share would have been increased
to the pro forma amounts below had the fair value based method, adopted
as at January 2004, been followed:
Three Months Nine Months
Ended Ended
Sept. 30, 2003 Sept. 30, 2003
------------------- -------------------
Loss applicable to common shareholders:
As reported $ 262,278 $ 685,888
Stock-based employee compensation expense included in
reported loss -- --
Stock-based employee compensation expense determined under
fair value based method for all awards -- 112,362
------------------- -------------------
Pro forma $ 262,278 $ 798,250
=================== ===================
Loss applicable to common shareholders per share:
As reported $ 0.01 $ 0.02
Pro forma net loss $ 0.01 $ 0.02
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for employee and non-employee option grants:
2004 2003
----------------- ----------------
Dividend yield (%) - -
Expected volatility (%) 90 110
Risk-free interest rates (%) 3.40 3.97
Expected lives (years) 5.0 10.0
In connection with the vesting of certain non-employee stock options,
the Company has recorded $447,686, and $35,616 of stock option
compensation during the nine months ended September 30, 2004 and 2003,
respectively.
-14-
9. Warrants
a. A summary of the status of the Company's Warrants as of September 30,
2004 is:
Weighted Ave.
Warrants Exercise Price (Cdn)
-------- --------------------
Purchase Warrants
Outstanding and exercisable, January 1, 2004 22,000,000 $0.50
Issued 10,000,000 $0.80
Exercised (481,000) $0.50
---------
Outstanding and exercisable, September 30, 2004 31,519,000 $0.60
----------
Two purchase warrants entitle the holder to
purchase one common share.
Broker Warrants
Outstanding and exercisable, January 1, 2004 2,200,000 $0.35
Issued 1,000,000 $0.80
Exercised (186,625) $0.35
---------
Outstanding and exercisable, September 30, 2004 3,013,375 $0.50
---------
Each broker warrant entitles the holder to purchase
one common share.
Total Warrants 34,532,375 $0.59
==========
-15-
10. Subsequent Events
a) Subsequent to the third quarter ended September 30, 2004, the Company
issued 55,000 shares for the exercise of stock options; 390,875 shares
for the exercise of 781,750 purchase warrants and 250,195 shares for the
exercise of broker warrants (from a November 13, 2003 private
placement), with net proceeds to the Company of Cdn$291,806
(US$227,341).
b) On October 20, 2004, the Company advised that the advanced-stage San
Jose silver/gold project in southern Argentina can proceed directly to a
large-scale milling operation under an agreement reached with the
project's operating partner should the feasibility study underway reach
a positive production decision outcome.
The property payment structure from MHC to the Company has also been
changed in the amendment where original payments totaled US$400,000 a
year until a 50-ton per day pilot was built. In lieu of building a pilot
plant, the Company will receive reduced payments from MHC of US$200,000
annually that will continue until a positive feasibility study is
received and the MSC board of directors approves a project financing
plan.
c) On October 21, 2004, the Company accepted an offer letter from Macquarie
Bank Limited ("Macquarie") to provide a loan facility of up to $4
million. This facility is to be provided in two tranches to provide
funding to the Company for its 49% portion of the costs of completing a
bankable feasibility study and related development work for the San
Jose/Huevos Verdes gold/silver project in Argentina. Macquarie is an
international banking group active in providing project financing to the
mining sector.
The commercial terms of the loan include a facility fee of 1.5% of the
principal amount of the initial tranche and interest of Libor plus 2%
per year, currently totaling approximately 4.1% per year. In addition,
the Company is to issue share purchase warrants to acquire approximately
2,738,700 Common Shares of the Company at an exercise price of
approximately Cdn$0.91 per share. The warrants exercise price is
calculated at a 20 percent premium to the volume weighted average of the
Company's common stock determined from the ten business days prior to
acceptance of this offer. Each warrant is to be exercisable for two
years. Additional share purchase warrants may be issued in regard to the
second tranche of US$2.0 million, on terms calculated in a similar
manner at that time, upon fulfillment of conditions precedent for that
tranche.
d) On November 2, 2004, the Company made a cash call of $1.12 million
to fund its 49% interest in the San Jose project through November 2004.
-16-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Note Regarding Forward-Looking Statements
-----------------------------------------
The information in this report includes "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 ("1934 Act"), and is subject to the safe harbor
created by those sections. Factors that could cause results to differ materially
from those projected include, but are not limited to, results of current
exploration activities, the market price of precious and base metals, the
availability of joint venture partners or sources of financing, and other risk
factors detailed in Minera Andes Inc.'s ("Minera Andes" or the "Company")
Securities and Exchange Commission filings.
Overview
--------
Minera Andes was incorporated in Alberta in July 1994 and went public in
November 1995 through an amalgamation with Scotia Prime Minerals, Incorporated,
also an Alberta corporation. We are a reporting issuer in Alberta, British
Columbia, Ontario and Nova Scotia and trade our common shares on the TSX Venture
Exchange under the symbol MAI. We are also a Form 10-KSB filer in the U.S. and
trade on the NASD OTCBB under the symbol MNEAF.
The principal business of Minera Andes is the exploration and development of
mineral properties, located primarily in the Republic of Argentina, consisting
of mineral rights and applications for mineral rights, covering approximately
200,000 hectares in three provinces in Argentina, including approximately 40,000
hectares in the co-owned San Jose project. We carry out our business by
acquiring, exploring and evaluating mineral properties through our ongoing
exploration program. Following exploration, we either seek to enter joint
ventures to further develop these properties or dispose of them if the
properties do not meet our requirements. Our properties are all early stage
exploration properties and no proven or probable reserves have been identified.
Through our subsidiaries and joint ventures we own a 49% equity interest in MSC,
which owns the San Jose gold/silver property in Southern Argentina, and a 100%
interest in over 10 mineral properties in Argentina. San Jose is currently in
advanced exploration and underground development and a production decision is
expected in the first half of 2005. A significant exploration and development
program is underway at the San Jose project. This program consists of a
comprehensive program that includes underground exploration/development,
environmental studies, metallurgical studies, and construction.
In addition, drilling in the first quarter of 2004 has resulted in the discovery
of a large, enriched (chalcocite) copper zone at our wholly-owned Los Azules
property. The overall target area is approximately 1500 meters by 2000 meters.
Core drilling returned up to 0.8% copper over 36 meters and 120 meters of 0.54%
copper within an area defined by geology and geophysical surveys. This new zone
has been confirmed by four drill holes showing enriched copper over an area 1000
meters by 500 meters.
During the second quarter of 2004 a feasibility study was commissioned by MSC at
the San Jose project and is planned to be completed in the first half of 2005.
In addition, multi ounce silver values were identified at the Company's wholly
owned Cerro Mojon and El Trumai properties in Santa Cruz province, Argentina.
During the third quarter of 2004 construction work at Minera Andes' Huevos
Verdes gold/silver vein, part of the San Jose project in southern Argentina, was
expanded and accelerated to complete underground workings. The expanded and
accelerated construction schedule is in part due to the recent underground work
at the site that has indicated much higher gold and silver grades from the
underground development sampling relative to the grades encountered in drilling
from surface and to facilitate completion of the announced feasibility study.
-17-
Plan of Operations
------------------
The Company has working capital of approximately $3.4 million, sufficient,
together with funds from the joint venture on the San Jose property, as
estimated by management, to cover our budgeted expenditures for mineral property
and exploration activities on its properties in Argentina, and general and
administrative expenses through at least the end of 2004, however our cash needs
may change for the San Jose project, as new exploration may cause the budget to
increase or decrease depending on its success.
We have budgeted and plan to spend approximately $2.5 million on our mineral
property and exploration activities and general and administrative expenses
through 2004. Work is being conducted on several properties including an ongoing
reconnaissance program designed to make new acquisitions. Additionally, there
are plans to spend in excess of $5 million for exploration over the next 12
months on the San Jose project that is owned by Minera Santa Cruz S.A. ("MSC"),
an Argentine corporation owned by Minera Andes (49%) and Mauricio Hoschschild &
Cia. Ltda. ("MHC") (51%). Our obligation will be 49% of the exploration costs
related to the San Jose project, to maintain our interest in MSC.
In the fourth quarter of 2003, the Company notified MHC of its intent to
subscribe for additional equity in MSC, so as to maintain a 49% interest. We
made a payment to MSC for $1.7 million that is estimated to fund our 49%
interest in the San Jose project through MSC until early in the third quarter
2004.
In the first quarter of 2004, we issued 10,000,000 units through a private
placement at a price of Cdn$0.65 per unit for gross proceeds of Cdn$6.5 million.
Under terms of the offering, each unit consists of one common share and one-half
of one common share purchase warrant. One whole common share purchase warrant
will entitle the holder to purchase one additional common share at an exercise
price of Cdn$0.80 per share for a period of 18 months from the closing date. The
securities are subject to a four-month hold period. Our agents received a 7%
commission and agents' warrants equal to 10% of the aggregate number of units
issued pursuant to the offering. Each agent's warrant upon exercise will entitle
the holder to acquire one common share at an exercise price of Cdn$0.80 per
common share for a period of 18 months from the date of issue.
We intend to use the proceeds from the offering to fund our investment in MSC
and for general corporate purposes.
In the second quarter of 2004, we announced the commissioning of a feasibility
study by MSC on the Huevos Verdes vein at the San Jose project. The purpose of
the study, to be completed in the first half of 2005, is to establish a basis
for project financing, and regulatory and permitting approvals. The study will
also serve a foundation for detailed engineering, including mine design and ore
reserve development.
In the third quarter of 2004, we made a cash call of $1.92 million to fund our
49% interest in the San Jose project and anticipate cash calls of approximately
$2.0 million for the fourth quarter of 2004 to fund feasibility study and
accelerated construction, underground development, and equipment purchases on
the project. Additional funds will be necessary for exploring other 100 percent
owned projects in Santa Cruz province. Preliminary discussions with
international banking groups to evaluate project financing options for the San
Jose project are ongoing.
We expect that the San Jose project will reach a production decision in the
first half of 2005, and additional cash will be required for the development of
the project described above. It is anticipated that exploration on other
projects and acquisition of new projects will require additional cash.
-18-
Results of Operations
---------------------
Third quarter 2004 compared with third quarter 2003
The Company had a net loss of approximately $570,000 for the third quarter of
2004, compared to a net loss of approximately $262,000 for the third quarter of
2003, due to stock compensation expense recognized for stock options granted to
employees, directors and consultants during the third quarter 2004 and increased
office overhead expenditures relating to our increased public and investor
relations program in 2004.
Nine months ended September 30, 2004 compared with nine months ended September
30, 2003
The Company had a net loss of approximately $1,368,000 for the nine months ended
September 30, 2004, compared with a net loss of approximately $686,000 for the
comparable period in 2003, due to stock compensation expense recognized for
stock options granted to employees, directors and consultants during the third
quarter 2004 and increased office overhead expenditures relating to our
increased public and investor relations program in 2004.
Administrative expenditures for the nine months ended September 30, 2004
included approximately $432,000 in consulting fees. This increase of $199,000
over the same period last year is related to an increased investor relations
program and stock compensation expense for consultants. Legal activities were
$118,438 for the nine months ended September 30, 2004 compared to $169,983 in
the same period last year. The nine months ending in September 30, 2003 had
higher legal costs due to the review of a potential merger that year. Travel for
the nine months ended September 30, 2004 was $49,281 compared with $35,529 in
the same period in 2003. The increase is due to a new public and investor
relations program. Foreign exchange gain was $124,899 for the nine months ended
September 30, 2004 compared with a gain of $51,098 in the same period in 2003,
due to the effect of a weakening U.S. dollar offset by the associated impact on
the value of cash equivalents invested in Canadian dollar instruments.
Liquidity and Capital Resources
-------------------------------
Due to the nature of the mining industry, the acquisition, exploration and
development of mineral properties requires significant expenditures prior to the
commencement of production. To date, the Company has financed its activities
through the sale of equity securities and joint venture arrangements. The
Company expects to use similar financing techniques in the future. However,
there can be no assurance that the Company will be successful with such
financings. See "Plan of Operations".
At September 30, 2004 the Company had cash and cash equivalents of approximately
$3,407,000 compared to approximately $2,234,000 at December 31, 2003. Working
capital at September 30, 2004 was approximately $3.4 million, sufficient,
together with funds from joint ventures on the San Jose project, as estimated by
management, to cover its budgeted expenditures for mineral property and
exploration activities on its properties in Argentina and general and
administrative expenses through the end of 2004. Cash and cash equivalents
decreased in the third quarter by approximately $1,901,000 in 2004 compared with
a decrease of approximately $131,000 in the same period in 2003. The Company's
operating activities used approximately $29,000 in the third quarter of 2004
compared with using approximately $258,000 in the third quarter of 2003, due to
stock compensation expense recognized in the third quarter 2004. Administrative
expenditures for the period included approximately $203,000 in consulting fees
(an increase of $148,000 over the same period last year, directly related to the
more advanced stage of the San Jose project, a new investor relations program
and stock option compensation expense); approximately $360,000 in wages and
benefits (an increase of $313,000 over the same period last year, directly
related to stock option compensation expense for employees and directors);
approximately $14,000 in travel; approximately $171,000 in office overhead and
approximately $9,000 in telephone expenditures. These costs are due to
advertising relating to our increased public and investor relations program in
2004.
Investing and financing activities used approximately $1,872,000 in the third
quarter of 2004 compared with approximately $127,000 provided in the third
quarter of 2003, due to an increase in our investment and expenditures on
properties. Total mineral property and deferred exploration costs, which are
-19-
capitalized for Canadian GAAP purposes, were approximately $162,000 during the
third quarter of 2004, compared with approximately $75,000 spent in the third
quarter of 2003. Total mineral property and deferred exploration costs for the
nine months ended September 30, 2004 were approximately $1,138,000 in 2004 and
$339,000 in the same period of 2003 (before mineral property option proceeds).
The increase reflects higher costs associated with expanding reconnaissance
exploration programs, new property acquisitions, evaluation of existing
properties, and exploration including drilling, sample preparation and analysis
at our Los Azules project.
The recoverability of amounts shown as mineral properties and deferred
exploration costs is dependent upon the existence of economically recoverable
reserves, the ability of the Company to obtain necessary financing to complete
their development, and future profitable production or disposition thereof. The
accompanying consolidated financial statements have been prepared using
accounting principles generally accepted in Canada applicable to a going
concern. The use of such principles may not be appropriate because, as of
September 30, 2004, there was significant doubt that the Company would be able
to continue as a going concern.
For the nine months ended September 30, 2004, the Company had a loss of
approximately $1,368,000 and an accumulated deficit of approximately $18
million. In addition, due to the nature of the mining business, the acquisition,
exploration and development of mineral properties requires significant
expenditures prior to the commencement of production. To date, the Company has
financed its activities through the sale of equity securities and joint venture
arrangements. The Company expects to use similar financing techniques in the
future and is actively pursuing such additional sources of financing.
Although there is no assurance that the Company will be successful in these
actions, management believes that they will be able to secure the necessary
financing to enable it to continue as a going concern. Accordingly, these
financial statements do not reflect adjustments to the carrying value of assets
and liabilities, the reported revenues and expenses and balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate. Such adjustments could be material.
Critical Accounting Policies
----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a wide variety of estimates
and assumptions that affect (i) the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the
financial statements, and (ii) the reported amounts of revenues and expenses
during the reporting periods covered by the financial statements. Our management
routinely makes judgments and estimates about the effect of matters that are
inherently uncertain. As the number of variables and assumptions affecting the
future resolution of the uncertainties increases, these judgments become even
more subjective and complex. The most significant accounting policies that are
most important to the portrayal of our current financial condition and results
of operations relates to mineralization and deferred development costs. Other
accounting policies are disclosed in Note 2 of the 2003 10-KSB.
Mineral properties consist of exploration and mining concessions, options and
contracts. Acquisition and leasehold costs and exploration costs are capitalized
and deferred until such time as the property is put into production or the
properties are disposed of either through sale or abandonment. If put into
production, the costs of acquisition and exploration will be depreciated over
the life of the property, based on estimated economic reserves. Proceeds
received from the sale of any interest in a property will first be credited
against the carrying value of the property, with any excess included in
operations for the period. If a property is abandoned, the property and deferred
exploration costs will be written off to operations.
Effective January 1, 2004, the Company has adopted, on a retroactive basis
without restatement, the recommendations of CICA Handbook Section 3870,
"Stock-based compensation and other stock-based payments", which now requires
companies to adopt the fair value based method for all stock-based awards
granted on or after January 1, 2002. Previously the Company was only required to
disclose the pro forma effect of stock options issued to employees and directors
-20-
in the notes to the financial statements. The effect of this change in
accounting policy was to increase the deficit at January 1, 2004 by $678,569
with a corresponding increase to reported contributed surplus.
Recent Accounting Pronouncements
--------------------------------
In April 2004, the Financial Accounting Standards Board ("FASB") ratified
Emerging Issues Task Force ("EITF") Issue No. 04-2, which amends Statement of
Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" to the
extent all mineral rights are to be considered tangible assets for accounting
purposes. There has been diversity in practice related to the application of
SFAS No. 141 to certain mineral rights held by mining entities that are not
within the scope of SFAS No. 19 "Financial Accounting and Reporting by Oil and
Gas Producing Companies." The SEC staff's position previously was entities
outside the scope of SFAS No. 19 should account for mineral rights as intangible
assets in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets."
The adoption of EITF 04-02 has no effect on the consolidated financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
"Consolidation of Variable Interest Entities." In December 2003, the FASB issued
a revision to this interpretation (FIN 46(r)). FIN 46(r) clarifies the
application of Accounting Research Bulletin (ARB) No. 51, "Consolidated
Financial Statements." FIN 46 clarifies the application of ARB No. 51 to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. We adopted FIN 46(r) in its entirety for the period
ended September 30, 2004, which did not have a material effect on our
consolidated financial statements.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
As of the end of the period covered by this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 ("Exchange Act") Rules 13a-14(c) and 15d-14(c)) under the supervision
and with the participation of the Company's management, including the Company's
President and its Chief Financial Officer. Based upon that evaluation, the
Company's President and its Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include, but
are not limited to, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management to allow timely decisions regarding
required disclosure.
Changes in Internal Controls
----------------------------
In December 2003, we entered into an agreement with Degerstrom that cancelled an
agreement that was part of the original property assets vended into Minera
Andes. Terms of the Settlement Agreement are:
o The Operating Agreement was cancelled whereby management, accounting,
office and technical services were provided to us;
o A share bonus payable when a property reached a bankable feasibility
was cancelled;
o A potential underlying royalty on the San Jose project was also
purchased.
As a result of these changes, we have moved our offices to a new location, set
up our own internal accounting system, and set up a new U.S. corporation to
employ certain personnel directly.
There were no significant changes in our internal controls or, to our knowledge,
in other factors that could significantly affect our disclosure controls and
procedures during the three-month period ended September 30, 2004.
-21-
PART II - OTHER INFORMATION
Item 2. Changes in Securities
During the nine months ended September 30, 2004, the Company issued
10,000,000 shares through a private placement, 275,000 shares for the
exercise of stock options, 427,125 shares for the exercise of warrants
(from a November 13, 2003 private placement), with net proceeds to the
Company of Cdn$6,210,927 (US$4,670,319).
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Identification of Exhibit
31.1 Certification of President pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of President pursuant to
18 U.S.C. Section 1350, as adopted,
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K: None
-22-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MINERA ANDES INC.
Date: November 12, 2004 By: /s/ Allen V. Ambrose
----------------- --------------------------------
Allen V. Ambrose
President
Date: November 12, 2004 By: /s/ Bonnie L. Kuhn
----------------- ------------------------------
Bonnie L. Kuhn
Chief Financial Officer
and Secretary
-23-