News Column

Auramex Resource Corp. - Management's Discussion and Analysis for the Three Months Ended March 31, 2014

May 30, 2014



ENP Newswire - 30 May 2014

Release date- 28052014 - The following management discussion and analysis of financial position and results of operations of Auramex Resource Corp. is prepared as at May 23, 2014 and should be read in conjunction with the audited financial statements of the Company, and the notes thereto, for the year ended December 31, 2013.

In this discussion, unless the context otherwise dictates, a reference to the business and operations of the Company includes the business and operations of the Company's wholly owned Mexican subsidiary, Exploracion Auramex S. A. de C. V. ('Auramex Mexico'). Additional information relating to the Company is available on SEDAR at www.sedar.com.

Management is responsible for the preparation and integrity of the financial statements, including the maintenance of appropriate information systems, procedures and internal controls and to ensure that information used internally or disclosed externally, including the financial statements and MD&A, is complete and reliable.

Forward Looking Statements

All statements in this discussion, other than statements of historical facts, that address future exploration drilling, exploration activities, anticipated metal production, internal rate of return, estimated ore grades, commencement of production estimates and projected exploration and capital expenditures (including costs and other estimates upon which such projections are based) and events or developments that the Company expects, are forward looking statements.

Although the Company believes the expectations expressed in such forward looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include metal prices, exploration success, continued availability of capital and financing, as well as general economic, market or business conditions. Accordingly, readers should not place undue reliance on forward-looking statements.

Description of the Business

The Company is engaged in the business of acquiring interests in mineral properties with exploration potential and exploring those properties to determine if they may host economic deposits of minerals. If the Company determines that a property likely does not host an economic deposit, or if maintaining a property becomes uneconomic for any other reason, it abandons the property and writes off the capitalized acquisition and deferred exploration and development costs associated with the property.

As existing properties are abandoned, the Company seeks out new properties for acquisition that it considers may have the potential to host the economic mineral deposit or deposits that will result in its evolution into a producing, revenue generating entity. The exploration of mineral properties and subsequent development involves a high degree of risk and few properties that are explored are ultimately developed into producing properties.

Overall Performance

As the Company does not have a producing mineral property, it has no source of cash other than debt financing and equity financing from the sale of its common shares and share purchase warrants. The cash raised in this manner is used to cover ongoing administrative expenses and to fund exploration activities on its mineral exploration properties. The amount of money available for exploration is directly related to the amount that the Company is able to raise from these sources, after administrative expenses have been paid.

The Company is continually engaged in the process of raising money and allocating the proceeds between its current administrative needs and desired exploration activities. As funds become depleted, new financing is sought and the process is repeated. The determination as to which properties to explore, what programs to undertake and how much money to spend in each instance is made on an ongoing basis by the Company's management, in consultation with its Board of Directors and professional advisors.

As a result of the foregoing, the true measure of the Company's performance for any given period lies in the amount of money it was able to raise, the amount of exploration it was able to undertake and the results of those exploration efforts.

Results of Operations

The Company is engaged in the business of acquiring and exploring mineral exploration properties in the hope of discovering economic deposits of minerals that can eventually be placed into production. The Company has yet to identify and develop an economic mineral deposit, and accordingly has no sales or other significant revenue and no profit.

At December 31, 2013 the Company held two mineral exploration and evaluation assets, the Magenta property, Mexico and the Stewart properties, British Columbia. No field exploration was conducted on the Stewart properties during 2013, but extensive data analysis, interpretation and compilation of geophysical data was done.

During 2013, the Company cancelled the Brandywine Mining Lease in the Vancouver Mining Division. The Company held an additional property, La Perla II, Mexico which is not being carried as exploration and evaluation assets, but expensed to operating costs.

A description of each project is as follows:

Magenta Property, Mexico

The Company's Magenta property is located near Culiacan, Sinaloa State, Mexico. The property consists of 1,267 hectares of staked ground in three concessions, Magenta Reduction, Magenta 2 and Magenta 3, the purchased 275 hectare Ana concession and the optioned 733 hectare El Fierro concession. In Mexico, the cost to maintain mineral concessions increases each year and is related to the size of the concession.

For this reason, Auramex reduced the Magenta concession from 4,686 hectares to less than 1,000 hectares to obtain a lower rate. Title to the reduced area of 998 hectares, which includes the most prospective areas, was issued April 27, 2012.

With respect to the El Fierro concession, Auramex Mexico entered into an option agreement with Exploracion Azteca S. A. de C.V. ('Azteca') under which Auramex Mexico would earn an 85% interest in the property. Azteca could either participate in a joint venture for the remaining 15% or convert to a 2% net smelter returns royalty.

Azteca automatically converts to a 2% NSR in the event that its interest under the joint venture is diluted to 10% or less. Formal resolution of the joint venture and dilution to a 2% NSR has been delayed due to changes in management and corporate affairs of Azteca.

During November and December of 2012, two diamond core holes were drilled. One tested an IP anomaly 150 metres west of the La Prieta #1 vein where gold values to 340 grams per tone have been reported. The targeted anomaly, 400 by 200 metres, contained gold values of approximately 200 ppb over 40 metres from 180 to 220 metres down hole. Results were reported in a news release dated February 26, 2013.

The second hole was collared on the eastern edge of the El Fierro concession and tested a geophysical anomaly identified in a 1996 Aerodat survey. Thirty seven samples were marked for assay which has not yet been done. Core from the two holes is stored in Culiacan for future evaluation as funds become available.

Stewart Properties, British Columbia

The Stewart properties consist of three mineral claim blocks covering approximately 37,000 hectares located in the Skeena Mining Division, near Stewart, British Columbia. The properties are the Bear River/Surprise Creek claim block, north and northeast of Stewart, Georgie River claim block 18 kilometres south of Stewart, and Tide North claim block 45 kilometres north northwest of Stewart.

Under various agreements between 2005 and 2009, the Company has acquired a 100% interest in the Stewart properties for cash totalling $27,900 (paid) and the issuance of 135,000 common shares (issued). The tenures acquired are subject to net smelter returns royalty interests, two of which entitle the vendor to receive a royalty equivalent to 1% of net smelter returns capped at $2,000,000, the third of which entitles the vendor to receive a royalty equivalent to 2% of net smelter returns capped at $1,000,000, and the fourth of which entitles the vendor to receive a royalty equivalent to 1% capped at $1,000,000.

In March 2006, the Company staked 235.36 hectares contiguous to its Bear River claims. In December 2009, the Company purchased 324.49 hectares (VON property) contiguous to the Bear River/Surprise Creek for the sum of $3,000. These claims were allowed to lapse in December, 2013.

In June 2010, the Company purchased the Col group of claims contiguous to the Georgie Girl claims held since 2006 for $4,500 and the issuance of 50,000 common shares. In July 2010, the Company purchased the Georgia River Gold Mine, consisting of 8 crown granted claims, 5 reverted crown granted claims and 2 cell staked claims for 250,000 common shares.

In July 2010, the Company purchased 449 hectares contiguous to Tide North at a cost of $10,000. In January 2013, the Company staked an additional 90 hectares contiguous to the Georgie River claims.

In January 2012, the Company staked 36 hectares contiguous to the Georgie River claims. In August 2010, the Company staked additional claims contiguous to the Col claims, the Georgie Girl claims and to the Georgia River Gold Mine. In October 2010, the company purchased the property known as the Ashwood contiguous to the other Georgie River and Col claims for cash of $10,000, the issuance of 100,000 common shares and a 1% royalty capped at $2,000,000.

In October 2010, the Company staked 143 hectares contiguous to the Tide North claims. During 2009 the Company contracted a VTEM-M airborne survey by Geotech Ltd. covering 1,053 line kilometres over parts of the Tide North claim block and over parts of the Bear River area of the Bear River/Surprise Creek block.

The program was completed on September 15, 2009 at a cost of $236,000. During 2010, the Company contracted two VTEM-M surveys by Geotech Ltd., the first covering 744.3 line kilometres on the Surprise Creek and the second covering 681.4 line kilometres on the Georgie River claim block.

Exploration on the three claim blocks to date is summarized as follows: Bear River/Surprise Creek-Numerous VTEM conductors were identified on the Bear River area by the 2009 survey. Two anomalies (Gravel and Gravel North) were further evaluated in 2011, using MMI soils sampling. A 2010 drilling program conducted on the Enterprise zone consisted of three holes collared above several old tunnels and pits completed before WW II.

Although the drilling did not encounter any ore grade mineralization, the area still has good exploration potential as the area with alteration and mineralization is quite extensive and only a small portion was drill tested.

The VTEM-M airborne survey of 744.3 line kilometres on the eastern section of the property (Surprise Creek area) was completed on August 21, 2010. The 2010 survey identified five Surprise Creek anomalies which require ground follow up to assess priority for drilling. In 2012, drill permits valid to March 16, 2016 have been received for four locations in the Bear River/Surprise Creek claim block.

Georgie River - A hand held magnetic and VLF-em geophysical survey in 2007 outlined an anomaly of about 700 metres by 250 metres lying north of the historic Lydden showing where copper (4.3%) and anomalous gold were obtained along 25 metres of northerly strike, across 1.1 metres of width. Drilling has been recommended. Readers are referred to a news release dated January 10, 2008.

A VTEM-M airborne survey conducted by Geotech Ltd., designed to cover the properties contiguous to the Georgia River gold mine and the Lydden showing, was completed on August 30, 2010. Five anomalies were identified; the strongest occurred 500 metres west of the Southwest vein of the old Georgia River mine, and is identified as the Hume Creek anomaly for future reference.

An exploration program in 2011 located a gold occurrence, identified for future reference as the Gamebreaker, in the southern part of the property. The Company has received a drill permit, valid to March 16, 2016 for the Georgia River Mine and Hume Creek anomaly. In 2013, the Company retained SJ Geophysics to provide more detailed interpretation of geophysical data from the 2010 Geotech Aerodat Survey and from the 1996 Geonex Aerodat Survey.

Tide North - The VTEM survey outlined a conductor of approximately 1,000 metres length in the area where previously reported gold values were obtained in 2006 and 2007 from rocks at surface and stream sediment samples. Interpretation was provided by Mira Geoscience on a 900 x 300 metre anomaly identified by this survey. The Company has received a drill permit, valid to March 31, 2015, for this target.

Our consultants are continually adding to a comprehensive model that includes information from various sources, notable geology, topographic features, historical third party data, satellite imagery, stream sediment assays, etc, which will be used to better pinpoint locations for future drilling.

Brandywine Property, British Columbia

The Brandywine property consisted of a 45 hectare mining lease, and 1,440 hectares in mineral tenures located in the Vancouver Mining Division, British Columbia. Due to lack of funds, the Company allowed the mineral tenures to lapse on July 31, 2012. The Company cancelled the Mining lease in 2013. The Company will provide photographs of the reclaimed drill sites when weather permits.

This should result in the refund of the reclamation deposits of $5,000.00 The Company's business of exploring mineral exploration properties with available equity and debt financing is a long term endeavour that may take several years to yield any meaningful results. Fluctuations in results from quarter to quarter are caused primarily by whether the Company raised financing or incurred exploration expenditures in any given quarter, and are not indicative of any particular trend in the Company's overall performance.

The fourth quarter loss in 2013 is higher than the first three quarters as it includes a mineral property write-down, a deferred tax expense in Mexico, and expenses related to the Annual General meeting. The fourth quarter loss in 2012 is higher than the first two quarters as it includes expenses related to the Annual General meeting and to filing fees related to the share consolidation and to the private placement completed in November.

The third quarter loss in 2012 includes mineral property write-offs of $135,964. The Company's current liabilities include $117,500 owing to related parties from 2011 and 2012. These liabilities will only be repaid from future financing, thus the working capital deficiency at May 23, 2014 is effectively $67,702.

The Company's primary source of cash is equity financing from the sale of the Company's common shares and share purchase warrants on a private placement basis. Additional cash is generated when convertible securities, such as previously issued share purchase warrants and stock options, are exercised.

The Company has two primary requirements for working capital: administrative costs and exploration expense.

During the three months ended March 31, 2014, general and administrative expense totaled $38,847, compared to $46,487 in 2013. The decrease is due mainly to less activity overall in the first quarter of 2014. Management and consulting fees in 2014 were $19,805 compared to $22,514 in 2013, and professional fees were $7,126 in 2014 compared to $10,369 in 2013.

During the three months ended March 31, 2014, the company expended $21,488 on its exploration and evaluation assets, compared to $31,489 in the same period in 2013. On September 27, 2013, the company completed a private placement of 940,000 units at a price of $0.03 per unit for total proceeds of $28,200. Each unit consisted of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share for a period of two years, at a price of $0.05 in the first year and $0.10 in the second year.

On November 4, 2013, the Company completed a flow-through private placement of 500,000 shares at a price of $0.05 per share for total proceeds of $25,000. On November 27, 2012, the Company completed a private placement of 6,733,334 units at a price of $0.075 per unit for total proceeds of $505,000; each unit consisted of one common share and one share purchase warrant.

Each share purchase warrant entitles the holder to purchase one additional common share for a period of five years, at a price of $0.10 per share in the first two years, $0.15 per share in the third year, $0.20 per share in the fourth year and $0.25 per share in the fifth year. The proceeds of the placement have provided funds for exploration, working capital and retirement of accounts payable.

The Company's ability to obtain sufficient funding for the medium to long terms will be dependent on the availability of equity and debt financing in the future, which the Company cannot predict. The availability of such funding will be dependent on a number of factors beyond the Company's control, including commodity prices, stock market performance and any number of other economic conditions. Accordingly, the ability of the Company to continue as a going concern cannot be assured.

Transactions with Related Parties

The Company was party to the following transactions with related parties during the three months ended March 31, 2014. Wayne Crocker, the Company's President, CEO and a director, billed $2,400 for consulting services and $311 in expenses. As at March 31, 2014, these amounts are included in accounts payable. Subsequent to the quarter end, Mr. Crocker has billed $25 expenses and $600 consulting fees. Mr. Crocker does not have a formal consulting contract with the Company but bills for professional services at a per diem rate of $600.

Judie Whitby, the Company's Chief Financial Officer and a director, receives $2,500 per month for providing accounting, office and general management services to the Company, for a total of $7,500 in the first three months of 2014. Ms. Whitby has billed $2,500 subsequent to the quarter end. Ms. Whitby submits expense claims for expenses incurred on the Company's behalf, such as TSX Venture exchange and British Columbia Securities Commission filing fees, and travel expenses.

In this regard Ms. Whitby submitted reimbursement claims in the amount of $1,185, and $130 subsequent to the quarter end. As at March 31, 2014, $585 of expenses and $7,500 of the consulting fees are included in accounts payable.

The Company's primary supplier of legal services is Venex Law, which is a sole proprietorship of Clive Forth, an officer of the Company. There were no fees from Venex Law for services rendered in the three months ended March 31, 2014. Subsequent to the quarter end, there have been fees for services rendered included taxes totalling $13,535.

The Company considers all of the foregoing transactions and the amounts related thereto to be reasonable and representative of normal commercial transactions.

Adoption of Accounting Standards and Pronouncements under IFRS

Future accounting changes

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory for accounting periods beginning on or after January 1, 2014. Updates which are not applicable or are not consequential to the Company have been excluded. The Company expects little or no impact from this new and amended standard on its consolidated financial statements.

IAS 32, Financial Statements Presentation has been amended to provide clarification on the application of offsetting rules. These amendments are effective for annual periods beginning on or after January 1, 2014.

Financial Instruments

The fair value of the Company's receivables, reclamation deposits, accounts payable and accrued liabilities and shareholder loans approximate carrying value which is the amount recorded on the consolidated statement of financial position. The Company's other financial instrument, cash, under the fair value hierarchy is based on level one quoted prices in active markets for identical assets and liabilities.

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

Liquidity risk

The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at March 31, 2014, the Company has $24,127 in cash (March 31, 2013 - $162,744) to settle current liabilities of $222,278 (March 31, 2013 - $ 160,136). As at May 23, 2014, the Company has cash and cash equivalents of $10,442 to settle current liabilities of $235,327. Included in current liabilities at December 31, 2013 and at May 23, 2014 is $117,500 owing to related parties which, due to regulatory restrictions, can only be paid out of future financings or by shares for debt settlement.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's credit risk is primarily attributable to cash and cash equivalents. Cash is held with highly rated financial institutions and management believes the risk of loss to be remote.

The Company has no significant concentration of credit risk arising from operations. Most receivables consist of input tax credits receivable from the Government of Canada and Mexico. The Company does not believe it is subject to significant credit risk in relation to its receivables.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.

Interest rate risk

The Company has cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in investment-grade short-term deposit certificates issued by its banking institutions. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks. As of December 31, 2013, the Company had no funds invested in investment-grade short-term deposit certificates.

Foreign currency risk

The Company is exposed to foreign currency risk or fluctuations related to cash, receivables and taxes recoverable, and accounts payable and accrued liabilities that are denominated in US Dollars and Mexican Pesos.

Sensitivity Analysis

The Company has cash, receivables and taxes recoverable and accounts payable and accrued liabilities that are denominated in US Dollars and Mexican Pesos. A 10% fluctuation in the US Dollar and Mexican Peso against the Canadian Dollar would affect net income for the year by approximately $2,500.

Price risk

The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.

Disclosure of Outstanding Share Data

At the Company's Annual and Special General Meeting held October 18, 2012, the Company's shareholders approved a consolidation of the Company's authorized and issued common share capital on the basis of 10 old shares for each one new share. The consolidation was effected, and the consolidated shares began trading on the TSX Venture Exchange, on November 15, 2012.

At the same meeting, the shareholders approved the re-pricing of stock options outstanding after the consolidation, to a price consistent with the post-consolidation market price for the Company's shares. Pursuant to that approval the outstanding stock options have been re-priced and are now exercisable at $0.10 per share. The following data reflects the share consolidation and stock option re-pricing.

The Company has the following securities outstanding at May 23, 2014:

16,332,483 common shares.

Incentive stock options for the purchase of 825,000 common shares at an exercise price of $0.10 per share. 525,000 options are exercisable on or before December 16, 2019, 150,000 are exercisable on or before June 12, 2014, and 150,000 are exercisable on or before August 14, 2014.

7,673,334 share purchase warrants.

Each of 6,733,334 share purchase warrants entitles the holder to purchase one common share until November 27, 2017, at a price of $0.10 per share in the first two years (beginning November 27, 2012), $0.15 per share in the third year, $0.20 per share in the fourth year and $0.25 per share in the fifth year.

Each of 940,000 share purchase warrants entitles the holder to purchase one common share until September 27, 2015 at a price of $0.05 per share in the first year and at a price of $0.10 per share in the second year.

Other

The Company has no off-balance sheet arrangements.

While the Company is in discussions regarding property acquisitions and disposals on an ongoing basis, the Company has no proposed material asset or business acquisition or disposition that the Company's Board of Directors has decided to proceed with, or that the Company's senior management has decided to proceed with in the belief that confirmation by the Board is probable.

Contact:

Judie Whitby

Tel: (604) 924-9376

www.auramex.com


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Source: ENP Newswire


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