SALAZAR RESOURCES LIMITED

Transcription

1 SALAZAR RESOURCES LIMITED MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2008 Background This discussion and analysis of financial position and results of operation is prepared as at May 26, 2008, and should be read in conjunction with the unaudited interim consolidated financial statements for the three months ended March 31, 2008, of Salazar Resources Limited (the Company ) where necessary. Those financial statements have been prepared in accordance with Canadian generally accepted accounting policies ( GAAP ). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis ( MD&A ) are quoted in Canadian dollars. Additional information relevant to the Company s activities, can be found on SEDAR at Company Overview The Company s principal business activity is the acquisition, exploration and development of mineral properties in Ecuador. The Company presently has no proven or probable reserves and, on the basis of information to date, it has not yet determined whether these properties contain economically recoverable ore reserves. Consequently the Company considers itself to be an exploration stage company. On March 7, 2007, the Company changed its name from Consolidated Kookaburra Resources Ltd. to Salazar Resources Limited. The Company is currently a reporting issuer in British Columbia, Alberta, Ontario and Nova Scotia. The Company s shares trade on the TSX Venture Exchange ( TSXV ) under the symbol SRL as a junior mining issuer. On March 8, 2007 (the Effective Date ), the Company, purchased all of the issued shares of Curimining in exchange for the issuance of 15,000,000 common shares of the Company to the shareholders of Curimining (the Curimining Shareholders ) and assumption of US 970,000 debt (collectively the Acquisition ). In addition up to 7,000,000 additional common shares may be issued to the Curimining Shareholders on an earn-out basis. To fully earn these additional shares, a total of 11.2 million ounces of gold in an indicated category must be identified within a period of four years. The completion of the Acquisition resulted in the Curimining Shareholders holding the majority of the Company s combined issued and outstanding common shares. Since the transaction resulted in the Curimining Shareholders acquiring control of the Company the Acquisition has been treated for accounting purposes as a recapitalization. In accounting for this transaction: (i) (ii) Curimining is deemed to be the purchaser and parent company for accounting purposes. Accordingly, its net assets are included in the consolidated balance sheets at their historical book value; control of the net assets and business of the Company was acquired on the Effective Date. The transaction has been accounted as a purchase of the assets and liabilities of the Company by Curimining. The assets and liabilities of the Company have been recorded at their fair values. Mining Announcement in Ecuador On April 18, 2008, Ecuador s constitutional assembly passed a decree which has created confusion over the status of the Company s tenure over its mining concessions in Ecuador. At this time a full and complete assessment of this new law has not been completed by the Company s Ecuadorian counsel and it is also uncertain if any amendments will be made to the law. As currently drafted, the Company s interpretation of how it will be impacted by the new law is that it will only retain tenure to three mining concessions with the balance to be cancelled. In addition no exploration can be conducted for a period of 180 days. It is not clear what happens once this 180 day period is up. To date, the Company has not received any formal order to cease or suspend any of its operations nor has it received any formal notification regarding title to its approximately 25 mineral concessions. The Company, together with other exploration companies, plans to meet with government officials to seek clarification of this law and amendments to ensure that tenure to existing concessions is assured. Pending clarification of the decree, the Company has suspended exploration activities and reduced its workforce in Ecuador

2 Properties Update On April 18, 2008, Ecuador s constitutional assembly approved a decree creating confusion over the status of the Company s tenure over its mining concessions in Ecuador. See Mining Announcement in Ecuador. The following describes the work completed this past quarter and the Company s planned work programs, pending clarification of the new mining laws in Ecuador. The Company is well financed and has assembled a strong exploration team. While operations and expenditures in Ecuador will be curtailed and placed on a maintenance basis, the Company will focus its efforts to review other opportunities to acquire resource properties outside of Ecuador. Curipamba Project, Ecuador The Curipamba Project, a 100% owned property (71, hectares), is a gold, silver and copper exploration district located in central-west Ecuador in the Western Mountain range about a 2.5-hour drive from Guayaquil Geology and Field Work Continuing with the work program scheduled for this quarter; a total of 222 soil samples were collected with auger, 92 rock chip samples including outcrops and floats and 25 manual pits. The samples have been taken in channel and chip composite with lengths varying from 1 to 5 metres. Soil samples were collected exclusively within the Naves concession. Results show that there are several geochemical soil anomalies; some are coincident with the rock anomalies and with the areas where the Company is currently drilling. Gold values vary from 0.02 to 0.397g/t, for silver values range from 0.1 to 22 g/t, for copper between 54 to 259 g/t, and for zinc from 100 to 754 g/t. Anomalies are open to the north and south, and the Company will continue sampling towards these directions. At the Naves Central area a total of 11 linear kilometres of grids have been completed every 100 metres at spacings of 50 metres. The geological map 1:2500 for the Naves Central area has been completed; it includes the anomalies El Gallo, Domo, Roble, Roble 1, Caracol and Cade. At the Naves Central, Sesmo Sur and La Vaquera areas a total of 63 km of induced polarization ( IP ) survey and 76km of magnetometry were completed. The Company implemented rehabilitation and replanted vegetation at all of the drill platforms and areas where there were manual pits or trenches. Consulting geologist, Mr.Warren Pratt, PhD., is performing a lithologic-stratigrafic study of the Curipamba Project; his report should be ready by the end of May. Results of Regional Rock Sampling In this period the team explored along different creeks and found several floats of volcanic massive sulphides (VMS); one outcrop is of two metres wide at the El Domo Creek; this outcrop helped to confirm the geophysical anomaly. Significant values from the regional exploration vary from 0.21 to 5.2 g/t gold; from 0.2 to 1,350 g/t silver, from 0.003% to 4.19 % copper; from 0.01% to 9.94% lead; and from 0.004% to 34% zinc. Geophysics The geophysics program has been completed. The team of Geofísica Consultores de Perú carried out the data collection and geophysicist, Mr. John Buckle, was in charge of the interpretations, conclusions and recommendations. At Sesmo Sur and La Vaquera 55 kilometres of magnetometry and 42 kilometres of IP surveys were completed and results indicate a significant magnetometer low corresponding with an identified zone of hydrothermal breccias; the flanking magnetometer highs imply unaltered surrounding mafic rocks. The results also show two important induced polarization anomalies with high values of chargeability and relatively low values of resistivity which are characteristic of semi-massive to massive sulphide bodies; (1) At Sesmo Sur 500 metres to the southwest of the main geochemical anomaly of 300 metres long between lines 9200N and 9400N; and (2) at La - 2 -

3 Vaquera ( me) of 400 metres in length in lines 8400N, 8500N, 8600N y 8700N. There are many other small anomalies but with high values of chargeability that the Company will follow-up on. At the Las Naves Central area 21 kilometres of induced polarization and magnetometry were carried out. Results from the geophysical survey on the Las Naves grid, suggest that the massive sulphides encountered in the recent drilling are part of a much larger system. The chargeability and resistivity anomalies from the IP survey are indicative of the massive sulphides that were intersected in the drill holes. The anomalies form a north-west trending series of bodies at depths of approximately one hundred metres. There are three large bodies and numerous smaller ones in this kilometre long trend. There is a parallel trend to the southwest with similar anomalies. These trends are open to the northwest and southeast. The magnetic data supports the interpretation of a lithologic control to the favourable massive sulphide horizons. Drilling The drill program for the Curipamba Sur Project has, to date, drilled a total of 9,945 metres in 51 holes. During this quarter 5,873.6 metres have been drilled and a total of 2,081 samples were collected. Coordinates, azimuth, dip and depth of the drill holes are presented below. DRILL HOLE EAST NORTH AZIMUTH DIP DEPTH SESMO SUR CURI CURI CURI CURI CURI ROBLE 1 AND CARACOL CURI CURI CURI ROBLE AND ROBLE ESTE CURI CURI CURI CADE CURI CURI CURI CURI CURI EL DOMO CURI CURI CURI CURI CURI CURI CURI CURI CURI CURI CURI CURI CURI TOTAL 5,

4 To ensure quality control and following the recommendations of Mr. Howard Lahti, PhD., who is the Qualified Person for the Company, the geological team has included in the samples shipments a total of 332 control samples, which includes 189 standards, 124 duplicates and 19 blanks. The Company considers that the use of three different types of standard samples will maintain the quality control of the laboratories. During this quarter the Company used two laboratories for assaying purposes - ALS Chemex and BSI Inspectorate. Both completed the sample preparation in Quito, Ecuador, using standard industry practices. Analytical work was carried out at both the ALS Chemex and BSI Inspectorate laboratories in Lima, Peru, using fire assay methods. El Gallo Anomaly Along this anomaly 598 metres were drilled in 5 holes. Significant results are: 6.95 metres with 4.51 g/t gold and 157 g/t silver at drill hole 15; 8.25 metres with 5.80 g/t gold and 66 g/t silver in drill hole 16; 4.6 metres with 9.45 g/t gold and 338 g/t silver in drill hole 17; and 4.98 metres with 3.33 g/t gold and 17.8 g/t silver in drill hole 18. Drill holes 15, 16, 17 and 18 successfully intersected superficially a breccia zone with clasts of polysulphides plus barite in an argillic matrix and in deepness cuts a Diatreme that is strongly chloritized-argilitized. There were no significant values in drill hole 14. El Domo Anomaly The El Domo anomaly was identified by the recent ground geophysics program at Las Naves. An IP anomaly was identified between lines 5100N to 5500N with amplitudes consistent with very high chargeability and low resistivity values. Drill results presented below have confirmed the intersection of a newly discovered massive sulphide body. El Domo is located 800 metres north from El Gallo and 400 metres south from Roble 1. Along this anomaly 2,634 metres were drilled in 13 holes. Drill holes 39, 42, 45, 46, 47, 48, 49 and 50 intercepted massive sulphides rich in chalcopyrite-sphalerite-pyrite-galena with 50-90% sulphides and hydrothermal breccia with disseminated pyrite plus stockwork of sphalerite and chalcopyrite, the widths vary from 5.8 to 19 metres. In the lower part there is an intense stockwork of gypsum. The mineralized zone has been extended for 450 metres direction north-south and 150 metres direction east-west and remains open in all directions. Significant results are: metres with 3.62 g/t gold; g/t silver; 1.19 % copper and 4.54 zinc at drill hole 39; 8.58 metres with 1.78 g/t gold; g/t silver; 0.9 % copper and 7.53 % zinc in drill hole 42; metres with 3.59 g/t gold; g/t silver; 3.42 % copper and 5.52 % zinc in drill hole 46, and metres with 3,41 g/t gold; g/t silver; 2.83 % copper and 3.18 % zinc in drill hole 48. Roble Drill hole 41 reported no significant values. Cade Anomaly Significant results from the Cade anomaly drill holes are presented in the following table: Drill Hole From To Intercept Gold (g/t) Silver (g/t) Copper CURI includes CURI CURI No significant values CURI No significant values CURI No significant values Lead Zinc - 4 -

5 Roble 1 and Caracol 1 Caracol 1 is located at Las Naves mining concession, approximately 1.4 kilometres N from El Gallo Anomaly. Significant results from the Roble 1 and Caracol 1 drill holes are presented in the following table: Drill Hole From To Intercept Gold (g/t) Silver (g/t) Copper CURI Lead Zinc includes CURI Work Program includes Activities on the Curipamba Project have been suspended due to the introduction of the Mining Mandate by the Constitutional Assembly of Ecuador on April 18, Prior to the suspension of activities, the Company s proposed work programs were to include: Regional geophysics program; 10 km by 4 km of geophysics at the Las Naves concession, Sesmo Sur and La Vaquera. Continue with the drilling program at geochemistry and geophysics anomalies at Sesmo Sur and at the other geochemistry anomalies found along the area (Naves Central). 5,000 metres of drilling in 30 holes along El Domo Anomaly with the purpose to further define the mineralized area. 10,000 metres of drilling in 40 holes along the different geochemical and geophysics anomalies that lie within the La Vaquera, Sesmo Sur and Naves Central Areas. Detailed mapping at scale 1:2,000 at Sesmo Sur and the anomalies area of the Las Naves concession. The proposed work program may resume or change in reaction to what new mining laws are introduced. Rumiñahui Project, Ecuador The Rumiñahui Project, a 100% Salazar Resources property (32,676 hectares) and is located approximately 100 kilometres northwest from Quito, the capital city of Ecuador. Geology and Field Work The geology consists of intrusive quartzdiorite, medium grain and chloritized, in contact with volcanic rocks of the Mulaute and Pilaton formations, to the west one can observe a zone of slates with strike approximately of N 20 W. A semi-regional geological mapping and geochemistry is being done in this property at scale 1:10,000, mainly along creeks and some roads. During the first quarter of 2008 a total of 370 rock samples were collected (312 outcrops and 58 floats). The Rumiñahui geological team has inserted standards, blanks and duplicates of types PB 118, PM 1111 and PM 1110 into the sample batch to ensure quality control. Results With the results from the sampling program carried out since last quarter, the Company identified three new anomalies in the south portion of the project. The San Francisco Anomaly has been reconfirmed. Río Macas Anomaly This anomaly is located at coordinates E, N, 14 rock samples were taken; gold range from to g/t gold and reports anomalous values in copper. Geologically it is inside of intrusive - 5 -

6 quartz-diorite saprolitized with weak stockwork of auriferous quartz-pyrite veinlets. In sample within the quartz veinlets there is visible gold (53.33 g/t gold). Nuevo Mundo Anomaly Placed at coordinates E, N, where 5 rock samples were taken, values range from to 5.57 g/t gold and weak anomalous values of silver, copper and zinc. Geologically is situated inside intrusive dioritic quartz saprolitized with weak stockwork of quartz-pyrite veinlets. Charapo Anomaly Located at coordinates E, N, where 26 rock samples were taken, values vary from to 2.83 g/t gold, from 19 to g/t copper and weakly anomalous values of silver. Geologically it lies within an intrusive of quartzdioritic saprolitized with a weak stockwork of quartz-pyrite veinlets. San Francisco Anomaly Initially some work took place in the past by informal miners and an initial reconnaissance program was performed by Newmont in This anomaly is located at coordinates E, N, it was previously reported in the third quarter (12 samples with significant gold values). The follow up sampling program was carried out at both sides of the San Francisco River. Significant results include: Work Program 55 metres at an average of 2.72 g/t gold 8 metres at an average of 3.36 g/t gold 9 metres at an average of 1.32 g/t gold Activities on this project have been suspended due to the introduction of the Mining Mandate by the Constitutional Assembly of Ecuador on April 18, La Aventura Project La Aventura Project is located 100km south west from Guayaquil, at an elevation of 100 to 1000 metres. It is comprised of 5 concessions of which 4 are still in process at the corresponding ministry (1,500 hectares). Until there is a complete understanding of what will happen with the mining concessions that are in the process of being granted there will be no work done on these properties

7 Selected Financial Data The following selected financial information is derived from the unaudited consolidated interim financial statements of the Company prepared in accordance with Canadian GAAP. Operations: Fiscal 2008 Fiscal 2007 Fiscal 2006 Mar. 31/08 Dec. 31/07 Sep. 30/07 Jun. 30/07 Mar. 31/07 Dec. 31,/06 Period From Aug. 8/06 to Sep. 30/06 Revenues Nil Nil Nil Nil Nil Nil Nil Expenses (360,592) (724,899) (933,498) (672,078) (1,036,241) (30,189) Nil Other items 138,408 89,036 (91,198) (109,510) (28,185) Nil Nil Net loss (222,184) (635,863) (1,024,696) (781,588) (1,064,426) (30,189) Nil Basic and diluted loss per share (0.01) (0.03) (0.04) (0.03) (0.13) (94.93) (0.00) Dividends per share Nil Nil Nil Nil Nil Nil Nil Balance Sheet: Working capital (deficiency) 8,727,485 10,297,426 11,390,883 11,490,214 2,647,914 (252,957) 933 Total assets 15,379,268 15,492,918 15,476,964 14,416,400 5,290, , Total long-term liabilities Nil Nil Nil Nil Nil Nil Nil Results of Operations During the three months ended March 31, 2008 (the 2008 period ) the Company reported a net loss of 222,184, compared to a net loss of 1,064,426 for the three months ended March 31, 2007 (the 2007 period ), a decrease in loss of 842,242. The decrease in loss during the 2008 period is mainly attributed to the stock-based compensation of 674,200 in the 2007 period versus 33,202 in the 2008 period and the corporate sponsorship fee of 123,000 in the 2007 period. General and administrative expenses decreased by 675,649 from 1,036,241 during the 2007 period to 360,592 during the 2008 period. Specific expenses of note are as follows: incurred 14,256 (2007-5,505) for accounting, administrative and management services and 1,002 (2007-1,002) for office rent provided by Chase Management Ltd. ( Chase ) a private corporation owned by Mr. Nick DeMare, a director of the Company; incurred corporate development costs of 22,957 ( ,666) for attendance at investment conferences in North America and Europe and for a marketing campaign; legal fees of 6,072 ( ,361) were paid. During the 2007 period, the fees were mainly for services with respect to the recapitalization of the Company; incurred 75,046 ( ,361) for salaries and benefits for the administrative staff in Ecuador; effective March 1, 2007, the Company entered into an investor relations agreement with Empire Communications Inc. ( Empire ) to provide market awareness and investor relations activities on a monthly basis. During the 2008 period, the Company paid 27,000 (2007-8,500) for investor relations to Empire; the Company recorded 33,202 ( ,200) non-cash stock-based compensation expense attributed to the granting and vesting of stock options; incurred audit fees of 28,377 ( nil) for the audit of the Company s 2007 year-end financial statements; during the 2007 period the Company incurred 123,000 for corporate sponsorship by Canaccord Capital Corporation, comprising of a cash payment of 25,000 and issuance of 140,000 common shares, at an ascribed value of 98,000; and incurred office expenses of 56,596 ( ,919) for maintaining an office in Canada and Ecuador. During the 2008 period, the Company reported interest and other income of 82,062 (2007-7,134) due to higher levels of cash held during the 2008 period. During the 2008 period, the Company incurred a total of 1,459,714 (2007-1,614,043) for mineral property interests and related exploration activities

8 Financial Condition / Capital Resources As at March 31, 2008, the Company had working capital of 8,727,485. The Company believes that it currently has sufficient financial resources to conduct the exploration programs on its existing mineral properties, make property payments and patent fees, and meet anticipated corporate administration costs for the upcoming 12 month period. However, exploration activities may change due to ongoing results and recommendations, or the Company may acquire additional properties, which may entail significant funding or exploration commitments. In the event that the occasion arises, the Company may be required to obtain additional financing. The Company has relied solely on equity financing to raise the requisite financial resources. There can be no assurance that the Company will be successful in raising future financing should the need arise. On April 18, 2008, Ecuador s constitutional assembly passed a decree revoking most of the mining concessions in the country. The Company will be reassessing its level of exploration activities, pending clarification of how this law impacts on the Company s mineral property interests. See also Mining Announcement in Ecuador. Contractual Commitments The Company has no contractual commitments. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Proposed Transactions The Company has no proposed transactions. Critical Accounting Estimates A detailed summary of all the Company=s significant accounting policies is included in Note 2 to the audited consolidated financial statements for the year ended December 31, Changes in Accounting Policies The Company has no changes in accounting policies. Transactions With Related Parties The Company was billed by certain directors and private corporations owned by directors of the Company, as follows: March 31, 2008 March 31, 2007 Accounting, administration and management 14,256 2,000 Management fees - 3,505 Professional fees 9,014 3,168 Rent 1, ,272 9,007 Mineral resource expenditures 278,600 - The above transactions have been recorded at the exchange amounts agreed to by the related parties and the Company. As at March 31, 2008, accounts payable and accrued liabilities include 100,625 ( ,944) due to the related parties

9 Risks and Uncertainties The Company competes with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral concessions, claims and other interests, as well as for the recruitment and retention of qualified employees. The Company is in compliance in all material regulations applicable to its exploration activities. Existing and possible future environmental legislation, regulations and actions could cause additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted. Before production can commence on any properties, the Company must obtain regulatory and environmental approvals. There is no assurance that such approvals can be obtained on a timely basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations. The Company s material mineral properties are located in Ecuador and consequently the Company is subject to certain risks, including currency fluctuations and possible political or economic instability which may result in the impairment or loss of mining title or other mineral rights, and mineral exploration and mining activities may be affected in varying degrees by political stability and governmental regulations relating to the mining industry. See also Mining Announcement in Ecuador. Investor Relations Activities Effective March 1, 2007, the Company entered into an investor relations agreement with Empire Communications Inc. ( Empire ) to provide market awareness and investor relations activities on a monthly basis. The agreement may be terminated with written 30 days notice. During the 2008 period, the Company paid 27,000 (2007-8,500) for investor relations to Empire. Outstanding Share Data The Company s authorized share capital is unlimited common shares with no par value. As at May 26, 2008, there were 28,891,445 issued and outstanding common shares, 6,766,527 warrants outstanding at exercise prices ranging from 1.40 to 4.00 per share, 110,000 agent s options at an exercise price of 0.70 per share and 2,471,100 stock options outstanding at exercises prices ranging from 1.00 to 3.00 per share