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Form 10-Q for SHAMIKA 2 GOLD, INC.
19-Feb-2014
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Financial Statements and Notes thereto included herein beginning on page 1.
References in this Quarterly Report on Form 10-Q (the "Quarterly Report") to "we", "us," "our," "the Company," "Shamika" mean Shamika 2 Gold, Inc. and our subsidiaries, unless the context otherwise requires. Forward-looking statements discuss matters that are not historical facts and can be identified by the use of words such as "believes," "expects," "anticipates," "intends," "estimates," "projects," "can," "could," "may," "will," "would" or similar expressions.
Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption "Risk Factors." For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
General Overview of Business
Shamika 2 Gold, Inc. is engaged in the business of acquiring and exploring mining properties principally located in Quebec, Canada, with the objective of identifying gold and mineralized deposits economically worthy of continued production and/or subsequent development, mining or sale.
Results of Operations
Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months Ended September 30, 2011
The Company had no revenue during the three and nine-month periods of 2012 and 2011, and has had no revenue from operations since its inception. We have only commenced the exploration stage of our business and can provide no assurance that we will discover economic mineralization on properties, or if such minerals are discovered, that we will entire into commercial production. We do not anticipate earning revenues for the foreseeable future.
The operating loss for the three and nine months ended September 30, 2012 was $429,541 and $512,577, respectively, as compared to $366,541 and $2,961,213 for the three and nine month period ended September 30, 2011, respectively. The decrease in operating loss is primarily due to lower management fees, consulting fees and legal and professional fees. The Company was reorganized in 2012 resulting in much lower overhead. Staff has been reduced to one person and overhead expenses have been reduced to a bare minimum. Also, the Management agreement with Shamika Resources was terminated in September 2011 resulting in no management fees to Shamika Resources, Inc. for the three and nine months ended September 30, 2012. In the first quarter of 2011, the Company incurred costs of initial setup resulting in higher than usual professional fees.
Other expenses for the three and nine months ended September 30, 2012 and 2011 consist of interest expense. Interest expense for the three and nine months ended September 30, 2012 was $23,713 and $67,500, respectively, as compared to $95,363 and $288,143 for the three and nine months ended September 30, 2011, respectively. The decrease is due to the reduction in notes payable due to conversions, and the reduction of amortization of debt discount and deferred financing fees as notes have approached maturity.
There was a $350,000 loss from discontinued operations for the three and nine months ended September 30, 2012. During the fourth quarter of 2010, the Company decided to abandon its efforts on the Congo property. The Company realized a gain on disposal of $3,497 relating to this discontinued operation during the three months ended June 30, 2011. The loss from discontinued operations for the nine months ended September 30, 2011 was $22,503.
Net loss for the three and nine months ended September 30, 2012 was $366,541 and $512,577, respectively, as compared to net loss of $369,338 and $2,961,213 for the three and nine months ended September 30, 2011, respectively.
Critical Accounting Policies and Estimates
In the first nine months of 2012, there were no significant changes to our critical accounting policies and estimates from those disclosed in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the year ended December 31, 2011.
Employees
As of September 30, 2012, the Company had no full time employees as operations are provided for through a management contract with a related party. The Company anticipates that it will be conducting most of its business through agreements with consultants and third parties.
Description of S2G's Properties
Description of Montclerg
This project is situated on lands close to the town of St-Augustin de Woburn in an area known as the Eastern Townships, which is approximately 200 kilometres east of Montreal, Canada. The property consists of 23 mineral claims having an area of 17.5 square kilometres. Our business plan calls for the completion of a 43-101 report and a program of further exploration to determine if proven and probable reserves exist on the property.
This property has no known reserves and the proposed program is exploratory in nature. There are no current detailed plans to conduct exploration on the property. Operations were discontinued in the third quarter of 2012 due to lack of financing.
Mineralization:
Montclerg Property
This project is situated on lands close to the town of St-Augustin de Woburn in an area known as the Eastern Townships, which is approximately 200 kilometres east of Montreal. The property consists of 23 mineral claims having an area of 17.5 square kilometres. There are no infrastructures nor sources of power present on the property.
Preliminary surveys have found traces of gold on the property and it is recommended that we undertake additional investigation to localise and determine the extent of the source. Property brooks Arnold Morin is located about 200 km east of Montreal and 35 km south of Lake Township Megantic in Woburn, about 15 km south of the village of St-Augustin de Woburn (maps 1: 50 000 sheets 21 th / 21 th and 2 / 7). Canada border - the U.S. is located near the eastern boundaries of the property. The property covers a total area of approximately 1750 hectares divided into a block of 41 contiguous lots. Property is situated in the southern Quebec Appalachians, either in the region of the Megantic. Property sector includes, among other things, the massive Lake Chains and granite Devinien Lake to spiders. The formation of the Arnold River, part of the Chain Lakes massif, is regarded as a scale of Grenville. The rock formation is stuck in a thrust fault against the mixing unit Cambro-Ordovician. It consists of a mixture of meta-crystalline gray sandstone, more or less dark grained ranging from fine to medium. We also find granitic gneisses and quartzo-feldspathic granulites (Cheve, 1978). The thickness of this formation may reach several kilometres in the southern part of Quebec.1
1 Prospect Report, Projet Ruisseau-Morin, par Bertrand Brassard, G?ologue, M. Sc., January 1994
An inspection of the Morin placer occurred on November 3 and 4, 2010. Two pannings were done in favourable places for gold deposition. Two gold nuggets were found in the second panning. The SM analysis suggests that the gold is coming from a regolith. This hypothesis is possible since the river valley is perpendicular to the main glacial flow in a similar way as Gilbert River and Mining brook, where gold-bearing placers are known. The valley is of SW-NE orientation. It is this orientation (perpendicular to the main glacial flow) that preserved the pre-Johnville sediments at Mining brook and at Gilbert River.
Description of the Net Smelter Royalty Agreement in the Montclerg property:
"Net Smelter Returns" shall mean gross revenues received from the sale by the Owner of all ore mined from the Property and from the sale by the Owner of concentrate, ore, metal and products derived from ore mined from the Properties, after deduction of the following:
? all smelting and refining costs, sampling, assaying and treatment charges and penalties including but not limited to metal losses, penalties for impurities and charges for refining, selling and handling by the smelter, refinery or other purchaser (including price participation charges by smelters and/or refiners); and
? costs of handling, transporting, securing and insuring such material from the Properties or from a concentrator, whether situated on or off the Properties, to a smelter, refinery or other place of treatment, and in the case of gold or silver concentrates or dor?, security costs; and
? sales and other taxes based upon sales or production, but not income taxes pursuant to federal, provincial or territorial tax legislation; and
? marketing costs, including sales commissions, incurred in selling ore mined from the Properties and from concentrate, dolt, metal and products derived from ore mined from the Properties.
Exploration program:
The Montclerg property is a "grass roots". We plan to spend $500,000 on test drilling and in preparing a 43-101 report.
Liquidity and Capital Resources
At September 30, 2012, our cash was $149 and we had current liabilities of $387,475. Since our inception on January 13, 2010, to the end of the period ended September 30, 2012, we have incurred losses of $3,712,606. We attribute our net loss to having no revenues to offset our operating expenses.
We have no cash flow from operations and have insufficient cash to meet our current liabilities nor our operational requirements for the next 12 months. In addition we will also be required to raise additional working capital to fund the exploration and development plans as discussed above.
We have no assurance that future financings will be available to us on acceptable terms. If financing is not available to us on acceptable terms, we may be unable to continue our operations. Should our costs and expenses prove to be greater than we currently anticipate, or should we change our current Plan of Mining Operations in a manner that will increase or accelerate our anticipated costs and expenses, such as through the acquisition of new properties, the depletion of our working capital would be accelerated. To the extent that it becomes necessary to raise additional cash in the future as our current cash and working capital resources are depleted, we will seek to raise it through the public or private sale of debt or equity securities, the procurement of advances on contracts or funding from joint-venture or strategic partners, debt financing or term loans, or a combination of the foregoing. We also may seek to satisfy indebtedness without any cash outlay through the private issuance of debt or equity securities.
We have no assurance that future financings will be available to us on acceptable terms. If financing is not available to us on acceptable terms, we may be unable to continue our operations.
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