Read Report - Nuinsco Resources Limited

18
2005 ANNUAL REPORT
OUTLOOK
The Company continued to be very active on a
number of its projects during 2005. Exploration
and property evaluation costs totaled $3.0
million, compared to $3.1 million in 2004, and
these levels of activity are expected to be
sustained, and possibly increased, in 2006. The
improved environment for metal prices that has
been witnessed over the past 12-18 months is
being called a super cycle and significantly alters
the Company’s ability to advance its high-quality
projects through exploration as higher metal
prices enhance both the attractiveness of mineral
exploration projects in general and the access
to capital for junior exploration companies like
Nuinsco.
In Canada, the Diabase Peninsula property and
Minago nickel project are expected to be a key
focus for the Company during 2006. At the Lac
Rocher property in northwestern Quebec,
evaluation of the potential to mine the high
grade resource is being reviewed and looks
positive at current elevated nickel prices.
With the exercise of Falconbridge’s right to
participate in the Berta property in Turkey,
accelerated activity is also expected to be
generated at this project during 2006. Plans are
to complete an airborne electromagnetic and
magnetic survey (AEM and AMAG) to identify
the most favourable targets not only on the
Berta property but also on the Company’s
recently acquired Elmalaan property located
nearby. The Company considers Turkey a very
favourable environment which provides the
potential for significant mineral discoveries.
While there is no guarantee that favourable
economic conditions will prevail, metal prices
are expected to remain buoyant with the
continuing need for virtually all metals generated
by increasing demand in both China and India.
The Company is very optimistic that the current
conditions will continue, allowing Nuinsco to
develop into a junior mining company with
exploration projects financed by cash flow from
mining activities.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2005, the
Company incurred fees in respect of services
and consulting activities provided by directors
and corporations controlled by them of $42,800
(2004 - $43,000).
Certain of the Company’s properties are subject
to a discovery incentive plan (the “DIP”) to
reward certain directors and officers of the
Company with a 2% net smelter royalty (the
“NSR”) for the discovery of new mines on the
properties during the period to April 26, 2004.
The NSR is payable only on revenues earned
after recovery of all development costs for any
mine on the property. The terms of the DIP provide
the Company with a right of first refusal on
any proposed disposition of the NSR. In addition,
the DIP contains put/call provisions in which the
Company may be required to purchase, or may
exercise an option to purchase, the NSR at the
value of its discounted cash flows, as defined
therein. As none of the Company’s properties
subject to the royalty are being developed or in
production, no royalties are currently payable.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates used in the
preparation of the consolidated financial
statements include the Company’s estimate of
recoverable value of its mineral properties and
related deferred exploration expenditures as
well as the value of stock-based compensation.
Both of these estimates involve considerable
judgment and are, or could be, affected by
significant factors that are out of the
Company’s control.
The factors affecting stock-based compensation
include estimates of when stock options might
be exercised and the stock price volatility. The
timing for exercise of options is out of the
MANAGEMENT’S DISCUSSION & ANALYSIS