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Minco Base Metals Corporation(An exploration stage enterprise)
Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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Management's Responsibility for Financial Reporting
To the Shareholders of Minco Base Metals Corporation:
Management is responsible for the preparation and presentation of the accompanying consolidatedfinancial statements, including responsibility for significant accounting judgments and estimates inaccordance with International Financial Reporting Standards and ensuring that all information in theannual report is consistent with the statements. This responsibility includes selecting appropriateaccounting principles and methods, and making decisions affecting the measurement of transactions inwhich objective judgment is required.
In discharging its responsibilities for the integrity and fairness of the consolidated financial statements,management designs and maintains the necessary accounting systems and related internal controls toprovide reasonable assurance that transactions are authorized, assets are safeguarded and financial recordsare properly maintained to provide reliable information for the preparation of consolidated financialstatements.
The Board of Directors is responsible for overseeing management in the performance of its financialreporting responsibilities, and for approving the financial information included in the annual report. TheBoard fulfils these responsibilities by reviewing the financial information prepared by management anddiscussing relevant matters with management and external auditors. The Board is also responsible forrecommending the appointment of the Company's external auditors.
MNP LLP is appointed by the shareholders to audit the consolidated financial statements and reportdirectly to them; their report follows. The external auditors have full and free access to, and meetperiodically and separately with, both the Board and management to discuss their audit findings.
Dr. Ken Cai Ellen Wei, C.A.President and CEO Chief Financial Officer
Vancouver, CanadaDecember 20, 2013
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Minco Base Metals Corporation
We have audited the accompanying consolidated financial statements ofand its subsidiary. (the “Company”) which comprise the consolidated statements of financial position asat September 30, 2013 and 2012, and the consolidated statements of operations and comprehensiveincome, changes in shareholders’ equity and cash flows for the years then ended, and a summary ofsignificant accounting policies and other explanatory information.
Management’s Responsibility for the Financial StatementsManagement is responsible for the prepstatements in accordance with International Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financialare free from material misstatement, whether due to fraud or error.
Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordancestandards require that we comply with ethical requirements and plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditors’ judgment,including the assessment of the risks ofwhether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the financial statements iprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropra basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financialposition of the Company as at September 30, 2013 and 2012, andflows for the years then ended, in accordance with International Financial Reporting Standards.
December 20, 2013Vancouver, BC
INDEPENDENT AUDITORS' REPORT
Minco Base Metals Corporation:
We have audited the accompanying consolidated financial statements of Minco Base Metals Corporation. (the “Company”) which comprise the consolidated statements of financial position as
at September 30, 2013 and 2012, and the consolidated statements of operations and comprehensive, changes in shareholders’ equity and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financialare free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with Canadian generally accepted auditing standards. Thosestandards require that we comply with ethical requirements and plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free from material
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditors’ judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
es used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropr
In our opinion, the consolidated financial statements present fairly, in all material respects, the financialposition of the Company as at September 30, 2013 and 2012, and its financial performance aflows for the years then ended, in accordance with International Financial Reporting Standards.
, 2013 Chartered AccountantVancouver, BC
Base Metals Corporation. (the “Company”) which comprise the consolidated statements of financial position as
at September 30, 2013 and 2012, and the consolidated statements of operations and comprehensive, changes in shareholders’ equity and cash flows for the years then ended, and a summary of
aration and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statements that
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free from material
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditors’ judgment,
material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal control
n order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
es used and the reasonableness of accounting estimates made by management, as well as
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
In our opinion, the consolidated financial statements present fairly, in all material respects, the financialfinancial performance and its cash
flows for the years then ended, in accordance with International Financial Reporting Standards.
Chartered Accountant
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Index
Page
Consolidated Financial Statements 5 - 8
Consolidated Statements of Financial Position 5
Consolidated Statements of Operation and Comprehensive Income (Loss) 6
Consolidated Statements of Changes in Shareholders’ Equity 7
Consolidated Statements of Cash Flows 8
Notes to the Consolidated Financial Statements 9 - 25
1 General information 9
2 Basis of preparation 9
3 Significant accounting policies 9
4 Cash and cash equivalents 16
5 Short-term investments 16
6 Other receivables 17
7 Property, plant and equipment 17
8 Related party transactions 18
9 Share capital 19
10 Income tax 21
11 Financial instruments and fair values 22
12 Capital management 25
13 Subsequent event 25
Minco Base Metals Corporation(An exploration stage enterprise)Consolidated Statements of Financial Position(Expressed in Canadian dollars, unless otherwise stated)
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September 30, September 30,
2013 2012Assets
$ $
Current assets
Cash and cash equivalents (note 4) 4,110,322 3,808,683
Short-term investments (note 5) 18,133,539 16,818,034
Other receivables (note 6) 421,562 536,989
Prepaid expenses and deposits 9,054 5,615
22,674,477 21,169,321
Property, plant and equipment (note 7) 4,927 -
22,679,404 21,169,321
Liabilities
Current liabilities
Accounts payable and accrued liabilities 46,042 50,183
Current taxes payable (note 10) 927,300 1,157,129
Due to related parties (note 8(a)) 56,710 4,924
1,030,052 1,212,236Shareholders’ equity
Share capital (note 9(a)) 504,995 504,995
Contributed surplus 508,971 402,463
Retained earnings 20,635,386 19,049,627
21,649,352 19,957,085
22,679,404 21,169,321
Subsequent event (Note 13)
Approved by the Board of Directors: “Ken Cai” “Paul Haber”Ken Cai Paul HaberDirector Director
The accompanying notes are an integral part of these consolidated financial statements.
Minco Base Metals Corporation(An exploration stage enterprise)Consolidated Statements of Operation and Comprehensive Income (Loss)For the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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2013 2012
$ $
Administrative expenses
Accounting and audit 55,839 45,591
Amortization 1,297 -
Consulting 37,500 45,778
Directors' fees 51,500 44,783
Foreign exchange loss (gain) (1,650,781) 820,820
Investor relations 7,750 6,573
Legal, regulatory and filing 39,513 155,506
Office expenses 42,718 20,356
Property investigation 137,621 85,408
Rent 30,961 11,675
Travel 3,516 3,202
Salaries and benefits 97,537 34,060
Share-based compensation (note 9 (b)) 106,508 101,248
Income (loss) before other income 1,038,521 (1,375,000)
Finance and other income
Interest income 656,749 620,527
Income (loss) for the year before income taxes 1,695,270 (754,473)
Provision for income tax (note 10) (109,511) (175,554)
Net income (loss) and comprehensive income (loss) for the year 1,585,759 (930,027)
Earnings (loss) per share- basic- diluted
0.120.11
(0.07)(0.07)
Weighted average number of common shares outstanding- basic- diluted
13,104,25713,966,360
13,068,32813,068,328
The accompanying notes are an integral part of these consolidated financial statements.
Minco Base Metals Corporation(An exploration stage enterprise)Consolidated Statements of Changes in Shareholders’ EquityFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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Number ofshares
Sharecapital
Contributedsurplus
Retainedearnings Total
$ $ $ $
Balance – October 1, 2011 13,054,257 495,966 305,244 19,979,654 20,780,864
Comprehensive loss for the year - - - (930,027) (930,027)
Share-based compensation - - 101,248 - 101,248Proceeds on issuance of sharesfrom exercise of options 50,000 9,029 (4,029) - 5,000
Balance – September 30, 2012 13,104,257 504,995 402,463 19,049,627 19,957,085
Comprehensive income for the year - - - 1,585,759 1,585,759
Share-based compensation - - 106,508 - 106,508
Balance – September 30, 2013 13,104,257 504,995 508,971 20,635,386 21,649,352
The accompanying notes are an integral part of these consolidated financial statements.
Minco Base Metals Corporation(An exploration stage enterprise)Consolidated Statements of Cash FlowsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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2013 2012
$ $
Cash flows from operating activities
Net income (loss) for the year 1,585,759 (930,027)
Adjustments for:
Amortization 1,297 -
Share-based compensation (note 9 (b)) 106,508 101,248
Foreign exchange loss (gain) (1,319,082) 559,457
Changes in items of working capital:
Other receivables 115,427 (368,017)
Prepaid expenses and deposits (3,439) -
Accounts payable and accrued liabilities (4,141) 14,783
Due to related parties 51,786 (17,670)
Current taxes payable (229,829) 64,767
Net cash generated from (used in) operating activities 304,286 (575,459)
Cash flows from financing activities
Proceeds from exercise of stock options - 5,000
Net cash generated from financing activities - 5,000
Cash flows from investing activities
Purchase of property, plant and equipment (6,224) -
Proceeds from (purchase of) short-term investments 3,577 (6,344,877)
Net cash used in investing activities (2,647) (6,344,877)
Increase (decrease) in cash and cash equivalents 301,639 (6,915,336)
Cash and cash equivalents - Beginning of year 3,808,683 10,724,019
Cash and cash equivalents - End of year 4,110,322 3,808,683
Cash paid for income tax 339,339 110,787
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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1. General information
Minco Base Metals Corporation (formerly 0791852 B.C. Ltd.) (the “Company”) was incorporatedon May 22, 2007 under the Business Corporations Act (British Columbia) and changed its name toMinco Base Metals Corporation on October 22, 2007. Its principal business activity is theacquisition, exploration and development of base metals properties. The Company’s head andprincipal office is 2772 – 1055 West Georgia Street, Vancouver, British Columbia, Canada.
Following the disposition of the Company’s interest in previous owned mineral property in 2010,the Company continues to review and assess new mineral exploration or development projects forpossible acquisition.
2. Basis of preparation
These consolidated financial statements have been prepared in accordance with and usingaccounting policies in compliance with the International Financial Reporting Standards (“IFRS”)issued by the International Accounting Standards Board (“IASB”) and Interpretations of theInternational Financial Reporting Interpretations Committee (“IFRIC”).
These consolidated financial statements were approved by the board of directors for issue onDecember 20, 2013.
3. Significant accounting policies
The significant accounting policies used in the preparation of these consolidated financialstatements are described below.
Basis of measurement
These consolidated financial statements have been prepared on a going concern basis, under thehistorical cost convention and using the accrual basis of accounting, except for cash flowinformation.
Consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries,Minco Mining & Metals Corporation (“MM&M”), a company incorporated in British Columbia,and Minco Mining & Metals Limited (“MM&M HK”), a company incorporated in Hong Kong. OnMay 13, 2013, the Company amalgamated with its subsidiary MM&M and continues its operationsunder the name of Minco Base Metals Corporation. All intercompany transactions, balances andunrealized gains and losses from intercompany transactions are eliminated on consolidation.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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3. Significant accounting policies (continued)
Use of estimates and judgments
The preparation of these consolidated financial statements requires management to make judgments,estimates and assumptions that affect the application of accounting policies and the reportedamounts of assets, liabilities, income and expenses. Actual areas of estimate include assumptionsused in valuing options in share-based compensation and income taxes. Actual results may differfrom these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimates are revised and in any future periodsaffected.
Information about critical judgments in applying accounting policies that have the most significanteffect on the amounts recognized in the consolidated financial statements is included in the notes tothe financial statements where applicable.
a) Critical judgments in applying accounting policies
Determination of functional currency
In accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, managementdetermined that the functional currency of the Company and its wholly owned subsidiary is theCanadian dollar. The functional currency of the Company and its wholly owned subsidiary areassessed by management at each reporting period.
b) Key sources of estimation uncertainty
Share-based payments
The Company provides share-based awards to certain employees in the form of stock options. TheCompany follows the fair-value method to record share-based payment expense with respect tostock options granted. The fair value of each option granted is estimated based on the date of grantand a provision for the costs is provided for with a corresponding credit to reserves in shareholders’equity over the vesting period of the option agreement. Share-based payment expense associatedwith options issued to employees, consultants, officers and directors of the Company are expensed.The consideration received by the Company on the exercise of share options is recorded as anincrease to issued capital together with corresponding amounts previously recognized incontributed surplus. Forfeitures are estimated for each tranche, and adjusted as required to reflectactual forfeitures that have occurred in the period. In order to record share-based payment expense,the Company estimates the fair value of share options granted using assumptions related to interestrates, expected lives of the options, volatility of the underlying security, forfeitures and expecteddividend yields.
Deferred taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount andtiming of future taxable income. The Company establishes provisions, based on reasonableestimates, for possible consequences of audits by the tax authorities. The amount of such provisionsis based on various factors, such as experience of previous tax audits and differing interpretationsof tax regulations by the taxable entity and the responsible tax authority. Deferred tax assets arerecognized for all unused tax losses to the extent that it is probable that taxable earnings will be
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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3. Significant accounting policies (continued)
Use of estimates and judgments (continued)
available against which the losses can be utilized. Significant management judgment is required todetermine the amount of deferred tax assets that can be recognized, based upon the likely timingand the level of future taxable earnings together with future tax planning strategies.
Foreign currency translation
(i) Functional and presentation currency
The financial statements of each entity in the group are measured using the currency of the primaryeconomic environment in which the entity operates (the “functional currency”). The consolidatedfinancial statements are presented in Canadian dollars.
The functional currency of the Company and its wholly owned subsidiary is Canadian dollars.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency of an entity using theexchange rates prevailing at the dates of the transactions. Generally, foreign exchange gains andlosses resulting from the settlement of foreign currency transactions and from the translation atyear-end exchange rates of monetary assets and liabilities denominated in currencies other than anoperation’s functional currency are recognized in the statement of operation and comprehensiveincome (loss).
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to thecontractual provisions of the instrument. Financial assets are derecognized when the rights toreceive cash flows from the assets have expired or have been transferred and the Company hastransferred substantially all risks and rewards of ownership. Financial liabilities are derecognizedwhen the obligation specified in the contract is discharged, cancelled or expires.
Financial assets and liabilities are offset and the net amount reported in the statements in financialposition when there is a legally enforceable right to offset the recognized amounts and there is anintention to settle on a net basis, or realize the asset and settle the liability simultaneously.
At initial recognition, the Company classifies its consolidated financial instruments in the followingcategories:
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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3. Significant accounting policies (continued)
(i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability isclassified in this category if acquired principally for the purpose of selling or repurchasing in theshort-term. The Company has classified cash and cash equivalents and short-term investments asfair value through profit or loss.
Financial instruments in this category are recognized initially and subsequently at fair value.Transaction costs are expensed in the consolidated statement of operation and comprehensiveincome (loss). Gains and losses arising from changes in fair value are presented in the consolidatedstatement of income within other gains and losses in the period in which they arise. Financial assetsand liabilities at fair value through profit or loss are classified as current except for the portionexpected to be realized or paid beyond twelve months of the balance sheet date, which is classifiedas non-current.
Cash and cash equivalents comprise of cash at banks and on hand and guaranteed investmentcertificates with initial maturities of less than three months. Short-term investments comprise ofguaranteed investment certificates with initial maturity of greater than three months, but less thanone year.
(ii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. The Company’s loans andreceivables are comprised of other receivables.
Loans and receivables are initially recognized at the amount expected to be received less, whenmaterial, a discount to reduce the loans and receivables to fair value. Subsequently, loans andreceivables are measured at amortized cost using the effective interest method less a provision forimpairment.
(iii) Financial liabilities at amortized cost: Financial liabilities at amortized cost include accountspayable and accrued liabilities and due to related parties.
Financial liabilities are classified as current liabilities if payment is due within twelve months.Otherwise, they are presented as non-current liabilities.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financialasset is impaired.
If such evidence exists, the Company recognizes an impairment loss as follows:
Financial assets carried at amortized cost: The loss is the difference between the amortized cost ofthe loans and receivables and the present value of the estimated future cash flows, discounted usingthe instrument’s original effective interest rate. The carrying amount of the asset is reduced by thisamount either directly or indirectly through the use of an allowance account.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods ifthe amount of the loss decreases and the decrease can be related objectively to an event occurringafter the impairment was recognized.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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3. Significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulatedimpairment losses. Cost includes expenditures that are directly attributable to the acquisition of theasset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset,as appropriate, only when it is probable that future economic benefits associated with the item willflow to the Company and the cost can be measured reliably.
The carrying amount of a replaced asset is derecognized when replaced.
The major categories of property, plant and equipment are depreciated on a straight-line basis asfollows:
Leasehold Improvements remaining lease term of 1.6 year
Impairment losses are included in as part of other gains and losses on the consolidated statementsof operations and comprehensive income (loss).
Share-based payments
The Company grants stock options to directors, officers, employees and consultants. Each tranchein an award is considered a separate award with its own vesting period. The Company applies thefair-value method of accounting for share-based payments and the fair value is calculated using theBlack-Scholes option pricing model.
Share-based compensation for directors, officers and employees is determined based on the grantdate fair value. Share-based compensation for non-employees is determined based on the fair valueof the goods/services received or option granted measured at the date on which the Companyobtains such goods/services.
Compensation expense is recognized over each tranche’s vesting period based on the number ofawards expected to vest. If stock options are ultimately exercised, the applicable amounts ofcontributed surplus are transferred to share capital.
Provisions
Provisions represent liabilities of the Company for which the amount or timing isuncertain. Provisions are recognized when the Company has a present legal or constructiveobligation as a result of past events, it is probable that an outflow of resources will be required tosettle the obligation, and the amount can be reliably estimated. Provisions are measured at thecurrent best estimate required to settle the obligation and when necessary the use of estimationtechniques are utilized.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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3. Significant accounting policies (continued)
Income tax
Any income tax on the statement of operation for the year presented comprises current and deferredtax. Income tax is recognized in the statement of operation except to the extent that it relates toitems recognized directly in equity or other comprehensive income, in which case the income tax isrecognized in equity or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted,or substantively enacted, at the end of the reporting year, and any adjustment to tax payable inrespect of previous years. Current tax assets and current tax liabilities are only offset if a legallyenforceable right exists to set off the amounts, and the Company intends to settle on a net basis, orto realize the asset and settle the liability simultaneously. Deferred tax is recognized in respect oftemporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. Deferred tax is not recognized for the initialrecognition of assets or liabilities that affects neither accounting nor taxable profit nor loss.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differenceswhen they reverse, based on the laws that have been enacted or substantively enacted by thereporting date.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporarydifferences to the extent that it is probable that future taxable profits will be available against whichthey can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to theextent that it is no longer probable that the related tax benefit will be realized.
Earnings per share
Basic earnings per share is computed using the weighted average number of common sharesoutstanding during the period. Diluted earnings per share amounts are calculated giving effect tothe potential dilution that would occur if securities or other contracts to issue common shares wereexercised or converted to common shares using the treasury stock method. If the Company incursnet losses in the period, basic and diluted loss per share is the same.
Accounting standards and amendments issued but not yet adopted
Unless otherwise noted, the following revised standards and amendments are effective for annualperiods beginning on or after January 1, 2013. The Company has not yet assessed the impact ofthese standards and amendments.
i. IFRS 9, Financial Instruments, was issued in November 2009 and addressesclassification and measurement of financial assets. It replaces the multiple category andmeasurement models in IAS 39, Financial Instruments – Recognition and Measurement,for debt instruments with a new mixed measurement model having only two categories:amortized cost and fair value through profit or loss. IFRS 9 also replaces the models formeasuring equity instruments. Such instruments are either recognized at fair valuethrough profit or loss or at fair value through other comprehensive income. Where equityinstruments are measured at fair value through other comprehensive income, dividendsare recognized in profit or loss to the extent that they do not clearly represent a return ofinvestment; however, other gains and losses (including impairments) associated with suchinstruments remain in accumulated comprehensive income indefinitely.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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3. Significant accounting policies (continued)
Requirements for financial liabilities were added to IFRS 9 in October 2010 and theylargely carried forward existing requirements in IAS 39, except that fair value changesdue to credit risk for liabilities designated at fair value through profit and loss aregenerally recorded in other comprehensive income. The effective date of this newstandard has recently been deferred by the IASB. The Company has not yet assessed theimpact of this standard or determined whether it will adopt earlier.
ii. IFRS 10, Consolidated Financial Statements, establishes principles for the presentationand preparation of consolidated financial statements when an entity controls one or moreother entities. This standard (i) requires a parent entity to present consolidated financialstatements; (ii) defines the principle of control and establishes control as the basis forconsolidation; (iii) sets out how to apply the principle of control to identify whether aninvestor controls an investee and therefore has to consolidate the investee; and (iv) setsout the accounting requirements for the preparation of consolidated financial statements.IFRS 10 supersedes IAS 27, Consolidated Financial Statements and SIC-12,Consolidation – Special Purpose Entities.
iii. IFRS 11, Joint Arrangements, requires a venturer to classify its interest in a jointarrangement as a joint venture or joint operation. Joint ventures will be accounted forusing the equity method of accounting whereas for a joint operation the venturer willrecognize its share of the assets, liabilities, revenue and expenses of the joint operation.Under existing IFRS, entities have the choice to proportionately consolidate or equityaccount for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in JointVentures, and SIC-13, Jointly Controlled Entities—Non-monetary Contributions byVenturers.
iv. IFRS 12, Disclosure of Interests in Other Entities, establishes disclosure requirements forinterests in other entities, such as subsidiaries, joint arrangements, associates, andunconsolidated structured entities. The standard carries forward existing disclosures andalso introduces significant additional disclosure that address the nature of, and risksassociated with, an entity’s interests in other entities.
v. IFRS 13, Fair Value Measurement, is a comprehensive standard for fair valuemeasurement and disclosure for use across all IFRS standards. The new standard clarifiesthat fair value is the price that would be received to sell an asset, or paid to transfer aliability in an orderly transaction between market participants, at the measurement date.Under existing IFRS, guidance on measuring and disclosing fair value is dispersedamong the specific standards requiring fair value measurements and does not alwaysreflect a clear measurement basis or consistent disclosures.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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4. Cash and cash equivalents
As at September 30, 2013, cash and cash equivalents consisted of $259,531(2012-$269,025) cashand $3,850,791(2012-$3,539,658) 7-day term deposit, the yields on these term deposit were1.485%.
Amount inOriginal
Currency
CanadianDollar
Equivalent ($)
September 30, 2013
Cash denominated in Canadian dollars 258,681 258,681Cash denominated in Chinese RMB 23,005,081 3,851,641
4,110,322
September 30, 2012
Cash denominated in Canadian dollars 49,935 49,935Cash denominated in Chinese RMB 24,211,222 3,758,748
3,808,683
All of the cash denominated in RMB were maintained in the People’s Republic of China (“PRC”),where the remittance of funds to jurisdiction outside the PRC may be subject to government rulesand regulations on foreign currency controls. Such remittance may require approvals by therelevant government authorities or designated banks in the PRC.
The Company is a foreign entity in China and does not have a registered Chinese subsidiary.Therefore it is not allowed to open a bank account in China. In order to hold the funds from thedisposition of the Company’s interest in Keyin and the White Silver Mountain property, theCompany entered a trust agreement dated on December 21, 2009 (the “Trust Agreement”),subsequently renewed on November 30, 2011 with Beijing Zhongjia Kailong TechnologyDevelopment Co. Ltd. (“Zhongjia”), a Chinese registered entity controlled by a brother of the ChiefExecutive Officer of the Company.
Pursuant to the Trust Agreement, Zhongjia held the cash denominated in Chinese RMB in trust forthe benefit of the Company at a nominal compensation amount of $4,878 (2012 - $2,800).
5. Short-term investments
Pursuant to the Trust Agreement, Zhongjia held the short-term investments in trust for the benefitof the Company for the years ended September 30, 2013 and 2012.
As at September 30, 2013 short-term investments consisted of 180-day and 365- day term depositsof $18,133,539 (RMB 108,308,000) (2012- $16,818,034 (RMB 108,330,000)) remained in a majorPRC bank. The yields on these investments were between 3.08% to 3.30% (2012-3.35% to 3.50%).
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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6. Other receivables
September 30, 2013 September 30, 2012
$ $
Interest receivable 416,293 404,731
GST/HST receivable 1,269 132,258
Other receivable 4,000 -
421,562 536,989
The interest incomes were earned from cash and cash equivalent and short-term investments.
For the year ended September 30, 2013, the interest income earned was $656,262 (RMB 4,036,244)(2012-620,527 (RMB 3,905,146)), out of which $416,293 (RMB 2,486,431) (2012- $404,731(RMB 2,606,997)) was receivable from the PRC bank in Beijing. Amount of $298,352 (RMB1,782,000) interest receivable was received subsequent to the year-end.
7. Property, plant and equipment
LeaseholdImprovements
$
Year ended September 30, 2013 and 2012
At October 1, 2011 and 2012 -
Additions 6,224
Depreciation (1,297)
At September 30, 2013 4,927
At September 30, 2013
Cost 6,224
Accumulated depreciation (1,297)
Net book value 4,927
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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8. Related party transactions
Shared expenses
(a) Amount due to Minco Gold as at September 30, 2013 of $56,527 (2012 - $4,924)representing shared office expenses and administrative expenses paid by Minco Gold onthe Company’s behalf.
(b) Amount due to Minco Mining (China) Corporation (“Minco China”), a subsidiary ofMinco Gold, as at September 30, 2013 of $183 (RMB 1,092) (2012 - $nil) representingmiscellaneous expenses paid by Minco China on the Company’s behalf.
(c) During the year ended September 30, 2013, the Company paid or accrued $30,961 (2012 -$11,675) in respect of rent, and $232,003 (2012 - $29,356) in respect of other shared officeexpenses and administrative expenses to Minco Gold.
The amounts due are unsecured, non-interest bearing and payable on demand.
Key management compensation
During the years ended September 30, 2013 and 2012, the following compensation was paid to keymanagement. Key management includes the Company’s directors and senior management. Thiscompensation are included in administrative expenses.
Years ended September 30,
2013 2012
$ $
Cash remuneration 206,924 111,811
Share-based compensation 106,508 100,316
Total 313,432 212,127
The Company has a consulting agreement with president and Chief Executive Officer of theCompany for corporate administration and consulting services for $3,000 per month.
The above transactions are conducted in the normal course of business.
Included in cash and cash equivalents and short-term investments are funds being held in trust byZhongjia, a Chinese registered entity controlled by a brother of the Company’s Chief ExecutiveOfficer.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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9. Share capital
(a) Common shares
Authorized: unlimited number of common shares without par value.
During the year ended September 30, 2012, the Company issued 50,000 common shares upon theexercise of options, for cash proceeds in the amount of $5,000.
(b) Stock options
On November 14, 2007, the Company adopted a stock option plan (the “Incentive Stock OptionPlan”). According to the terms of the Arrangement, the Company is obligated to issue one share toa holder of Minco Gold’s options upon the exercise of five options by such option holder. Uponissuance of each Company share the Company will receive 3.33% of the proceeds from theexercise of the Minco Gold options. This obligation relates only to those Minco Gold optionsoutstanding as at the effective date of the Arrangement, November 15, 2007. Further, pursuant tothe Arrangement, the holders of Minco Gold options who are not qualified to hold stock options ofthe Company under the Company’s Incentive Stock Option Plan will not be entitled to receive theCompany’s common shares upon exercise of Minco Gold options if exercised after 90 daysfollowing the date that such a holder ceased to be qualified to hold options under the Company’sIncentive Stock Option Plan. The management of the Company has defined and identified theoption holders who are not qualified to hold the Incentive Stock Option Plan of the Company inconnection with the obligation assumed under the Arrangement.
On February 18, 2013, the Company granted stock options, exercisable to purchase up to anaggregate of 125,000 shares of the Company, to directors or employee of the Company. Theoptions are all exercisable at the price of $1.55 per share until February 18, 2018, with 41,666shares vesting each year.
During the year ended September 30, 2013, the Company recorded total of $106,508 (2012 -$101,248) of share-based compensation expenses for obligations under the Plan of Arrangementand options granted in 2009 to date.
The following table sets out the Company’s share issuance obligation related to the Minco Goldoptions in connection with the Arrangement and options granted by the Company:
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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9. Share capital (continued)
Numberoutstanding
Weighted averageexercise price
$Balance, October 1, 2011 1,424,334 0.27Exercised (50,000) 0.10Cancelled/Forfeited (193,334) 0.86Expired (118,000) 0.13
Balance, September 30, 2012 1,063,000 0.19Granted 125,000 1.55Expired (80,000) 0.16
Balance, September 30, 2013 1,108,000 0.34
Options outstanding Options exercisable
Range ofexercise
pricesNumber
outstanding
Weightedaverage
remainingcontractual
life (year)
Weightedaverageexercise
priceNumber
exercisable
Weightedaverageexercise
price
$ $ $
0.10 923,000 0.91 0.10 923,000 0.10
1.53 – 1.55 185,000 3.86 1.54 101,666 1.54
1,108,000 1.40 0.34 1,024,666 0.24
The Company used the Black-Scholes option pricing model to determine the fair value of theoptions granted with the following assumptions:
2013
Risk-free interest rate 1.46%
Annual pre-vest forfeiture rate 0%Volatility 112.69%Expected annual dividend yield 0%Estimated expected lives 5 years
Option pricing models require the use of highly subjective estimates and assumptions including theexpected stock price volatility. Changes in the underlying assumptions can materially affect the fairvalue estimates and therefore, in management’s opinion, existing models do not necessarily providea reliable measure of the fair value of the Company’s stock options.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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10. Income taxes
On March 16, 2007, the National People’s Congress (NPC) of China approved the newCorporate Income Tax Law, which became effective on January 1, 2008. The new lawestablishes a unified 25% tax rate for both domestic enterprises and foreign investedenterprises (FIEs). This change of the Chinese tax law will have impact to the extent of theCompany’s business operation in China when the Company becomes profitable in China. Thenew law also establishes a Withholding Income Tax on overseas companies obtaining incomein China. Withholding income tax was determined by the Chinese taxation authority at 10%on the net gain from the sale of the Company’s ownership in Keyin, and has been paid by theCompany. Interest income earned in China is subject to a 7% withholding tax.Income tax expense differs from the amount that would result from applying the Canadianfederal and provincial income tax rates to earnings before income taxes. These differencesresult from the following items:
2013 2012
25.50% 25.38%
$ $
Income taxes at statutory rates 432,294 (191,447)
Non-taxable income (loss) (420,949) 208,248
Non-deductible items 29,506 25,725
Other permanent differences (22,828) (256,662)
China withholding tax 49,536 43,437
Deferred tax asset not recognized 61,416 389,306
Change in enacted tax rate (19,464) (43,053)
109,511 175,554
Deferred taxes arise from temporary differences in the recognition of income and expenses forfinancial reporting and tax purposes. The significant components of deferred tax assets andliabilities as at September 30, 2013 and 2012 are as follows:
2013 2012
$ $
Deferred tax assets not recognized:
626,343 564,927
No deferred tax asset has been recognized as realization is not considered probable due to theuncertainty of future taxable income.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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10. Income taxes (continued)
As at September 30, 2013, the Company still carryforwards the liabilities of $919,114 (2012 -$919,114) to account for uncertain tax positions.
The Company also has $1,949,000 of non-capital losses carry-forward for Canadian income taxpurposes which start expiring in 2027.
The losses expire as follows:
$2027 61,0002028 174,0002029 997,0002030 84,0002031 395,0002032 238,000
Total 1,949,000
The Company operates in various jurisdictions where tax rules and requirements might be unclearor fully understood / implemented, resulting in tax deductions and return filing positions beingchallenged. The risk remains that the relevant authorities could take different positions with regardto interpretive issues and the effect could be significant.
11. Financial instrument
As explained in Note 3, financial assets and liabilities have been classified into categories thatdetermine their basis of measurement and, for items measured at fair value, whether changes in fairvalue are recognized in the statement of operations or comprehensive loss. Those categories are:fair value through profit or loss; loans and receivables; and, for liabilities, amortized cost. Thefollowing table shows the carrying values of assets and liabilities for each of these categories atSeptember 30, 2013 and 2012.
September 30, September 30,
2013 2012
$ $
Fair value through profit or loss
Cash and cash equivalents 4,110,322 3,808,683
Short-term investments 18,133,539 16,818,034
Loans and receivables
Other receivables 420,293 404,731
22,664,154 21,031,448
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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11. Financial instrument (continued)
September 30, September 30,
2013 2012
$ $
Other financial liabilities
Accounts payable and accrued liabilities 46,042 50,183
Due to related parties 56,710 4,924
102,752 55,107
Fair value measurement
Financial assets and liabilities that are recognized on the balance sheet at fair value can beclassified in a hierarchy that is based on significance of the inputs used in making themeasurements. The levels in the hierarchy are:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities,
Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset orliability, either directly (that is, as prices) or indirectly (that is derived from prices), and
Level 3 - inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs).
The fair value of the Company’s cash and cash equivalents and short-term investments is theircarrying value. The fair value of the Company’s other receivables, accounts payables and accruedliabilities and amounts due to related parties approximate their carrying value given their shortduration. The cash and cash equivalents and short-term investments are measured at fair valuebased on quoted market price (Level 1).
Financial risk factors
The company’s activities expose it to a variety of financial risks: market risk (including currencyrisk and interest rate risk), credit risk and liquidity risk. Risk management is carried out bymanagement under policies approved by the board of directors. Management identifies andevaluates the financial risks. The board provides written principles for overall risk management.
Credit risk factors
Counterparty credit risk is the risk that the financial benefits of contracts with a specificcounterparty will be lost if the counterparty defaults on its obligation under the contract. Thisincludes any cash amounts owed to the Company by these counterparties, less any amounts owedto the counterparty by the Company where a legal right of set-off exists and also includes the fairvalue contracts with individual counterparties which are recorded in the financial statements. TheCompany considers the following financial assets to be exposed to credit risk:
(a) Cash and cash equivalents – to minimize the risk, cash has been deposited in majorfinancial institutions in the PRC (not subject to deposit insurance) and one major bank inCanada (subject to deposit insurance up to $100,000 in general)
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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11. Financial instrument (continued)
(b) Short-term investments – are term deposits with maturities of greater than 90 days whenacquired. At September 30, 2013, short-term investments totalled at $18,133,539 (2012 -$16,818,034) and were placed with one major PRC bank earning interest at an annual rateranging from 3.08% to 3.30% for 180-day and 360-day terms (2012 - interest rate at anannual rate ranging from 3.35% to 3.50% for 180-day and 360-day terms).
The Company does not have any derivative financial instruments nor has it invested in asset backedpaper instruments. While the Company is exposed to credit losses to the non-performance of itscounterparties, the Company does not consider this to be a material risk.
Foreign exchange risk
The functional currency of the Company and its wholly owned subsidiary is the Canadian dollar.Most of the foreign currency risk is related to Chinese RMB held in trust by Zhongjia TheCompany’s net earnings are impacted by fluctuations in the valuation of the RMB in relation to theCanadian dollar.
The following exchange rates are applied for the Company’s financial statements as at September30, 2013 and 2012 and average rate for the years ended September 30, 2013 and 2012.
2013 2012$1 to RMB
Average rate 6.15035 6.29327
Closing rate 5.97280 6.44130
The Company does not hedge its exposure to currency fluctuations. The Company has completed asensitivity analysis to estimate the impact that a change in foreign exchange rates would have onthe net income of the Company, based on the Company’s net monetary assets of $22.4 milliondenominated in RMB at the year-end. This sensitivity analysis shows that a change of +/- 10% inRMB foreign exchange rate against the Canadian dollar would have a +/- $2.24 million impact onnet income.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are the cash and cashequivalents and short-term investments owned by the Company.
The Company has completed a sensitivity analysis to estimate the impact that a change in interestrates would have on the net income of the Company. This sensitivity analysis shows that a changeof +/- 100 basis points in interest rate would have a +/- $220,000 impact on net income (beforetax), assuming foreign exchange rate remains constant. This impact is primarily as a result of theCompany having cash invested in interest bearing accounts. The financial position of the Companymay vary at the time that a change in interest rates occurs causing the impact on the Company’sresults to differ from that noted above.
Minco Base Metals Corporation(An exploration stage enterprise)Notes to the Consolidated Financial StatementsFor the years ended September 30, 2013 and 2012(Expressed in Canadian dollars, unless otherwise stated)
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11. Financial instrument (continued)
Liquidity risk
Liquidity risk includes the risk that the Company cannot meet its financial obligations as they falldue. As at September 30, 2013, the Company has positive working capital of approximately $21.6million and therefore has sufficient funds to meet its short-term business requirements.
12. Capital management
The Company’s objective in the managing of the liquidity and capital are to safeguard theCompany’s ability to continue as a going concern and provide financial capacity, to assess and seekto acquire an interest in new properties.
The capital structure of the Company consists of equity attributable to common shareholders,comprising issued share capital, contributed surplus, and retained earnings.
The Board of Directors does not establish quantitative return on capital criteria for management,but rather relies on the expertise of the Company’s management to sustain future development ofthe business. Management reviews its capital management approach on an ongoing basis andbelieves that this approach, given the relative size of the Company, is reasonable.
As at September 30, 2013, the Company does not have any long- term debt and is not exposed toany externally imposed capital requirements
13. Subsequent event
See note 6.