Cross Lake Minerals Ltd.
TSX : CRN

Cross Lake Minerals Ltd.

August 15, 2005 20:21 ET

Cross Lake Minerals Ltd.: Second Quarter Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 15, 2005) - Cross Lake Minerals Ltd. (TSX:CRN) has released its first Quarter Report containing financial statements in Canadian Funds, prepared without audit, for the six months ended June 30, 2005 (the "Quarterly Report"). Pursuant to the requirements of National Instrument 54-102, this news release provides a summary of the information contained in the Quarterly Report filed with the regulatory authorities through SEDAR (www.sedar.com) and has mailed it to shareholders whose names appear on the Company's Supplemental List.

As of August 15, 2005 there were 103,827,001 Common Shares issued and outstanding. The Common Shares of the Corporation are listed and posted for trading on the Toronto Stock Exchange under the symbol "CRN".

For the Six Months Ended June 30, 2005

The following management discussion and analysis of the financial position of Cross Lake Minerals Ltd. ("Cross Lake" or the "Company") should be read in conjunction with the management prepared consolidated financial statements for the six months ended June 30, 2005 and the audited consolidated financial statements for the year ended December 31, 2004.

The accompanying financial statements and related notes are presented in accordance with Canadian generally accepted accounting principles.

Forward Looking Information

Certain statements contained in the following management discussion and analysis constitutes forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from actual future results and achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made. Readers are also advised to consider such forward-looking statements while considering the risks set forth below.

General

Cross Lake is a Canadian listed public company with its shares traded on the Toronto Stock Exchange under the symbol "CRN".

Cross Lake is a junior exploration stage company with no revenues from mineral producing operations. Activities include acquiring mineral resource properties and conducting exploration programs. The mineral exploration business is risky and most exploration projects will not become mines. The Company may offer an opportunity to a mining company to acquire an interest in a property in return for funding all or part of the exploration and development of the property. For the funding of property acquisitions and exploration that the Company conducts, the Company depends on the issue of shares from the treasury to investors. These stock issues depend on numerous factors including a positive mineral exploration environment, positive stock market conditions, a company's track record, and the experience of management.

Overall Performance

During the six months ended June 30, 2005, the Company has spent $773,727 largely on its properties in B.C. Exploration activities included diamond drilling, geophysical surveys and geological studies. In addition, the Company continues to conduct ongoing technical studies and operations related to the recommencement of operations at the QR Mine. In the future, the Company will continue to explore and develop its precious metal properties in B.C. with a focus on restarting the QR Mine. New precious metal projects will also be reviewed with the intent to acquire properties that complement the existing Properties and increase the current and future development potential of the Company.

Administrative expenses were $369,573 compared to $493,174 in the prior year. The 2004 expenses included stock based compensation of $205,992. No stock options were granted in the six months ended June 30, 2005. Administrative expenses net of stock based compensation were higher in the 2005 period as the Company incurred more legal and regulatory costs associated with the higher level in overall corporate activity during the period. The costs of the Plan of Arrangement are included in these costs. The net income (loss) for the six months ended June 30, 2005 is $216,524 ($0.002 per share) compared to ($490,588) (($0.006) per share) in the 2004 period. The net income is a result of the recording of a $593,073 future income tax recovery related to flow through shares (see Changes in Accounting Policies). The net loss prior to this tax recovery is $376,549.

Results of Operations

The Company incurred a net loss of $263,130 during the three months ended June 30, 2005 compared to $362,010 ($156,293 net of stock based compensation) in the 2004 period. The change in administrative expenses reflects the higher administration costs incurred in 2005 associated with completing the Plan of Arrangement to conduct a corporate reorganization.

Exploration expenditures of $321,351 (2004 $697,941) for the three months ended June 30, 2005 were incurred mostly on the properties in B.C.

The Company has exploration stage projects in two geographical areas, Ontario and B.C.

The following table is a summary of properties that Cross Lake has acquired:



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Property Interest Mining Division Royalties
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British Columbia:
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QR 100% Cariboo 1% NSR, 5% NPI
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Cariboo 100% Cariboo 1% NSR
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Cantin Creek 100% Cariboo -
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Kneb (i) 100% Revelstoke -
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Ghost (i) 100% Revelstoke -
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Ingenika (i) 100% Omineca -
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Myoff Creek 100% Kamloops -
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End Lake (i) 100% Omineca -
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Wasi Creek (i) 100% Omineca -
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LJ (i) 100% Revelstoke -
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Ontario:
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Sheraton-Timmins (i) 100% Porcupine 2-3% NSR
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Currie-Bowman (i) 40% Larder Lake 1-2% NSR
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Night Hawk Lake (i) 40% Larder Lake, Porcupine 2.5-5.5 % NSR
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All of the properties above are operated by Cross Lake with the exception of the Currie-Bowman property which is operated by Kinross Gold Corporation.

The Company has option agreements to acquire the following properties:

- Ruddock Creek - B.C. (i)

The Company has an option agreement to acquire a 60% interest in 63 claims (84 claim units) located in the Kamloops and Revelstoke Mining Divisions of B.C. for which the Company must spend up to $3 million in exploration and issue up to 900,000 shares by December 31, 2007. The Company has made a $10,000 cash payment and issued 400,000 shares as per the terms of the agreement. The Company must incur an additional $1,750,000 in exploration expenditures within a further 24 month period to earn an additional 10%.

- Swannell Property - B.C. (i)

The Company has an option agreement to acquire a 100% interest (subject to a 2% NSR) in 5 claims (54 claim units) located in the Omineca Mining Division of B.C. in consideration of 180,000 shares and incurring $500,000 in exploration expenditures by May 2007.

The Company granted Bard Ventures Ltd. ("Bard") an option to acquire a 50% interest in the following properties:

- By Letter Agreement, Bard has an option to acquire a 50% interest in the Swannell and Ingenika claims for consideration of incurring $1,200,000 in exploration expenditures before December 2006. Cross Lake is the operator.

- By Letter Agreement, Bard has an option to acquire a 50% interest in the Wasi Creek claims for consideration of incurring $800,000 in exploration expenditures before December 2006. Cross Lake is the operator.

(i) The Company transferred its Base Metals Properties to Selkirk Holdings on June 16, 2005 (See Proposed Transactions).

Exploration Update

Exploration during the six months ended June 30, 2005 focussed exclusively on the Company's British Columbia Properties. Over the period, programs directly funded by the Company were completed on the QR Mine and the Ruddock Creek and through Joint Venture Partners on the Ingenika/Swannell and the Wasi Creek Properties.

Wardrop Engineering Inc, of Vancouver is currently finalizing an independent engineering study to establish the operating parameters and economic projections for restarting the QR Mine. This study will review all aspects of operations under the current conditions and the potential of restarting mining operations. This independent study is in part based on a series of studies that have been commissioned by Cross Lake over the past year. These studies indicate that it is viable to restart mining operations, which Cross Lake intends to do subject to the current engineering study. As noted above, the mill and surface facilities are in excellent shape and the operating permits remain in place. As such, the capital cost and time necessary to restart operations will be significantly less than a similar operation without these attributes. The resources outlined and predominantly developed in the Midwest, Northwest and West Zones will be mined under the proposed new mining plan for the QR Mine. Cross Lake plans to raise the capital necessary to restart mining operations through a debenture financing. Financing and any decision to proceed with operations will be subject to the finalization of the independent engineering study.

In addition to the engineering and technical studies that are underway Cross Lake has completed the dewatering the Midwest Zone and intends to conduct underground drilling to provide the detail necessary to calculate the resource contained with the extension to depth of the Midwest Zone. Exploration of the North Zone, the largest contiguous Zone of mineralization known of the QR Property, will also continue and the proposed underground development and exploration of this Zone will be subject to the success of this work and the decision to proceed with mining operations.

Following the completion of the 2004 drilling program on the Ruddock Creek Property, geological and data compilation studies have been underway to provide the interpretation and information necessary for the planning the 2005 diamond drilling program. In June Aeroquest Surveys completed a helicopter based Electromagnetic and magnetic airborne survey over the "Ruddock Creek Suphide Horizon". The survey clearly delineated most of the known zones of massive suphide mineralization and indicated several new targets. The Company is planning to continue diamond drilling to extend the known zone of mineralization to the west and will conduct surface exploration to evaluate the other targets along the Ruddock Creek Sulphide Horizon and test the most favourable zone with diamond drilling.

On the LJ Property, the Company conducted a UTEM geophysical survey in the Spring of 2004 and further geological studies during the summer. As a result of these studies additional claims were added to the property to cover an indicated extension of the target mineralization. In 2005, the Company plans to conduct a diamond drilling program to test drill targets defined by the UTEM survey, surface sampling of boulders, outcrop and geological surveys.

Exploration on the Kneb Property in 2004 included further geological studies and geophysical interpretation of earlier surveys in preparation for a planned diamond drilling program. The diamond drilling program was delayed due to operational difficulties and will now be conducted during the 2005 summer exploration program.

On the Ingenika/Swannell Property, two 3D Induced Polarization surveys were completed late in 2004. The first survey was over the Ingenika Deposit to confirm that this type of geophysical survey would detect the target zinc-lead-silver mineralization. This survey was successful in detecting the Ingenika deposit and subsequently a second larger survey was conducted over a target area that was defined by previous geological mapping and surface surveys. Diamond drilling of five targets will be completed during the 2005 summer field season.

In 2004 geological mapping and geochemical surveys were completed on the Wasi Creek Property to further expand known areas of mineralization and evaluate areas of potential defined by previous exploration. In May 2005 the Company completed an airborne geophysical survey that was flown by Aeroquest Surveys to identify the source of massive sulphide zinc-lead-silver boulders previously discovered on the Property. The survey identified a number of EM conductors that will be tested by a diamond drilling program that will be completed during the 2005 summer program. The 2005 program is being funded through an option agreement with Bard Ventures Ltd.

No significant exploration work was conducted in 2004 on the Companies other properties in British Columbia and Ontario.

In 2005, the Company will undertake surface exploration including geological mapping and rock sampling on the Ghost Property, and will continue to evaluate the Cantin Creek and Cariboo Properties which are located in the immediate vicinity of the QR Mine. In Ontario, while the Company is not working directly on these Properties, the Currie Bowman Property is being operated by Kinross Gold Corporation who will propose any work programs. The Company will continue to maintain and seek partners for the other remaining Properties, with an emphasis on the Sheraton Township Property.

Summary of Quarterly Results

The following table is a summary of selected unaudited financial information for the eight most recent fiscal quarters:



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Income (Loss)
Revenue Income (Loss) per share
$ $ $
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June 30, 2005 (19,031) (263,130) (0.003)
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March 31, 2005 2,226 479,654 0.005
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December 31, 2004 38,920 (4,851,010) (0.053)
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September 30, 2004 1,258 (74,685) (0.001)
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June 30, 2004 275 (362,010) (0.004)
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March 31, 2004 2,311 (128,578) (0.002)
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December 31, 2003 25,184 (211,425) (0.006)
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September 30, 2003 10,902 (33,702) (0.001)
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Fluctuations in the Company's expenditures reflect the seasonal variations of exploration and the ability of the Company to raise capital for its projects. It is important to note that the net income in the quarter ending March 31, 2005 is a result of a new accounting policy that requires the Company to record a reduction in share capital for the tax effect of expenditures renounced and if available, record a recovery in recognition of previously unrecorded future income tax assets. The Company does not have income from operations.

The higher losses in the quarters ending June and December 2004 reflect the expensing of stock-based compensation in the amount of $205,992 and the write-down of properties in the amount of $4,684,049 respectively. The net loss in the quarter ending December 2003 reflects the higher administration costs associated with completing the Plan of Arrangement to acquire Gold Giant.

Revenues include management fees and interest income. Management fees vary with the size of the projects the Company operates for joint venture projects and interest income varies with the amount the Company has placed into temporary investments. The Company had a larger amount in temporary investments in 2004 and 2005 as a result of completing multiple financings. Management fees were higher in 2003 as the Company was operating projects in B.C. for Gold Giant. Cross Lake has acquired Gold Giant's interests in the B.C. properties as a result of the Plan of Arrangement.

Higher administration costs related to the level of corporate activity during the year are reflected in the four quarters in 2004 in comparison to 2003 and 2005.

Liquidity

Financing of operations is achieved by a combination of issuing share capital and promissory notes. Cross Lake ended the six months with cash in the amount of $108,050 compared to $442,794 at June 30, 2004. In addition, the Company had temporary investments in the amount of $1,100,000 compared to $nil in 2004.

During the six months ended June 30, 2005 expenditures for operating activities were $334,186 compared to $461,021 in 2004. The change in expenditures reflects the higher volume of corporate activities and associated costs and the payments on accounts payable in the 2005 period and higher accounts payable payments in the 2004 period.

Cross Lake's investing activities revolve around developing its mineral properties. The Company expended $773,727 in deferred exploration during the six months compared to $777,731 in 2004. The expenditures were incurred mostly on the Company's properties in B.C.

Financing activities generated a cash flow of $nil compared to $608,308 in 2004.

As at June 30, 2005, the Company has a working capital of $1,068,263.

Cross Lake has sufficient working capital to continue its planned exploration for the year. The Company will look to arrange further financing later in the year to cover ongoing exploration and corporate costs.

Capital Resources

The Company's primary capital assets are mineral property assets. The Company capitalizes all costs related to the mineral properties until the properties are put into commercial production and amortized or written-off when abandoned or when delays in the development process require a revaluation.

All of the Company's mineral property agreements are non-binding. To earn its interest in the properties the Company must incur certain expenditures as per the agreements. The Company must spend $3,000,000 on the Ruddock Creek property by December 2007 of which $470,250 has been spent. The Company also must spend $500,000 on the Swannell property by May 2007 of which $157,000 has been spent. A further $113,000 in exploration expenditure has been incurred by Bard.

Transactions with Related Parties

Pursuant to a Management Agreement with the Company, management fees, bookkeeping and administrative services totalling $60,000 are paid annually to a corporation owned by Donald R. Sheldon, a director and officer of the Company. During the quarter, the Company paid $15,000.

During the six months ended June 30, 2005, the Company paid an aggregate of $73,025 for consulting fees to Copper Star Management Ltd., Sikanni Mine Development Ltd. (companies owned or controlled by Gordon Keevil and Jim Miller-Tait, respectively), Emmet McGrath and Debra Watkins. Mr. Keevil is the President and a director of the Company. Mr. Miller-Tait is Vice President - Exploration, Mr. McGrath is a director, and Mrs. Watkins is Corporate Secretary of the Company.

The Company paid rent in the amount of $16,500 to Cabmerl Industries Ltd, a company owned 25% by a Director of the Company.

Proposed Transactions

Cross Lake intends to conduct a corporate reorganization, involving two wholly-owned subsidiaries, by way of statutory plan of arrangement (the "Arrangement") under the Business Corporations Act (British Columbia). Through a series of transactions, Cross Lake's base metals properties will be spun out in exchange for units (the "Selkirk Units") of Selkirk Metals Corp. ("Selkirk"), one of its wholly owned subsidiaries. The Selkirk Units that are received by Cross Lake will then be distributed to Cross Lake shareholders as a return of capital. The Arrangement is subject to approval of the TSX and any stock exchange on which Selkirk seeks a listing.

Cross Lake held its annual general and special meeting (the "Meeting") on June 15, 2005 to, among other things, approve the Arrangement. The Arrangement was approved by 96% of the shareholders that voted at the meeting and as such the Arrangement is expected to be completed subject to the completion of the necessary financing of Selkirk on or before August 31, 2005.

Plan of Arrangement and Associated Financings

The Arrangement will involve certain exchanges of securities and property resulting in Cross Lake spinning out its base metals properties indirectly to Selkirk. The base metals properties include the Ruddock Creek, Ingenika/Swannell, Wasi Creek and LJ properties in British Columbia and the Sheraton-Timmins property in Ontario. Cross Lake will continue to own its gold properties including the QR project described below.

Shareholders of Cross Lake at the effective date will be entitled to receive one (1) Selkirk Unit for each ten (10) Cross Lake shares held as at the effective date of the Arrangement. Each Selkirk Unit will consist of one (1) Selkirk share and one-quarter (1/4) of one share purchase warrant.

Cross Lake shareholders will continue to hold their shares in Cross Lake and will hold shares and warrants in Selkirk provided that Cross Lake shareholders who hold 1,000 or fewer Cross Lake shares will be required to elect whether to receive Selkirk Units or cash in lieu of the Selkirk Units.

Financing arrangements will be conducted to raise up to $2.75 million for Selkirk prior to the effective date with the investors receiving securities of Selkirk. Cross Lake will participate in financing $500,000 of the exploration program on the Ruddock Creek property in exchange for Selkirk shares at a price of $0.25 per Selkirk Share. The balance of the financing will be through special warrants which will be convertible into Selkirk securities if Selkirk obtains a listing on a stock exchange prior to August 31, 2005. If listing does not occur, some of the special warrants, where the funds are advanced to Selkirk, may be convertible into Cross Lake securities and other special warrants, where the funds are held in trust, will be cancelled.

All issuances of securities pursuant to these financings are subject to approval of the TSX and any stock exchange on which Selkirk seeks a listing. The terms of the financings, including price, warrants and flow-through terms may be revised by the Selkirk directors in their sole discretion. While completion of the financings to raise up to $2,750,000 is not a condition of the Arrangement, the directors of Cross Lake and Selkirk may, in their sole discretion, determine not to proceed with the Arrangement if sufficient funds to meet applicable stock exchange listing requirements are not raised or otherwise.

Post-Arrangement

It is expected that the issued capital of Selkirk will be approximately 18,380,000 Selkirk shares, post-Arrangement and financing (based on the current issued capital of Cross Lake and assuming no Cross Lake options or Cross Lake warrants are exercised prior to the effective date). Cross Lake shareholders will hold approximately 10,380,000 Selkirk Shares representing approximately 56.5% of Selkirk, post-Arrangement and approximately $3,800,000 in net assets. Cross Lake will be entitled to receive 2,000,000 shares of Selkirk in connection with its $500,000 financing of the exploration program on the Ruddock Creek property and it is expected that Cross Lake will own approximately 10.9% of Selkirk, post-Arrangement and financing.

Cross Lake will hold all of the gold properties and Selkirk, through its wholly-owned subsidiary, Selkirk Metals Holdings Corp., will hold all the base metals properties.

Selkirk will be a reporting issuer in British Columbia and Alberta and it is the intention of Selkirk to apply for listing of the Selkirk Shares on the TSXV. Selkirk will also seek TSXV acceptance of the listing of the Selkirk Arrangement Warrants on the TSXV. There is no assurance that listing will be obtained.

The board of directors of Selkirk consists of six members who are current directors and officers of Cross Lake. In addition, Selkirk is pleased to welcome to the Board of Directors, Mr. Theodore Muraro, an independent geological consultant who has extensive experience in the area of zinc-lead-silver deposits and specific experience with Cross Lake's property portfolio. The officers of Selkirk will be Gordon Keevil, President, Jim Miller-Tait Vice-President, Exploration, Carmon Currie, Chief Financial Officer and Debra Watkins, Corporate Secretary.

Critical Accounting Estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of impairment of assets and useful lives for depreciation and amortization. Financial results as determined by actual events could differ from those estimates.

Changes in Accounting Policies including Initial Adoption

Flow through shares

Canadian tax legislation permits an enterprise to issue flow-through shares whereby the deduction for tax purposes relating to qualified resource expenditures is claimed by the investor rather than the Company. When the Company renounces flow through expenditures to the shareholders, the Company will reduce share capital and record a temporary future income tax liability for the amount of the tax deduction renounced to shareholders. In instances where the Company has sufficient available tax loss carry forwards or other deductible temporary differences available to offset the renounced tax deductions, the realisation of the deductible temporary differences will be credited to income in the period of renunciation.

This is a change in accounting policy that has been applied prospectively, effective March 19, 2004 in accordance with the CICA Handbook and EIC-146.

During the year ended December 31, 2004, the Company issued 3,000,000 flow-through shares at $0.15 and 6,750,000 flow-through shares at $0.18 for total proceeds of $1,665,000. The renunciation was made in February 2005 resulting in a tax effect of $593,073 that has been used to record a reduction in share capital for the tax effect of expenditures renounced and if available, record a recovery in recognition of previously unrecorded future income tax assets.

Risks and Uncertainties

The Company's principal activity is mineral exploration and development. Companies in this industry are subject to many and varied kinds of risks, including but not limited to, environmental, metal prices, political and economical.

The Company has no significant source of operating cash flow and no revenues from operations. The Company has either not yet determined whether its mineral properties contain mineral reserves that are economically recoverable or where reserves have been determined, mining operations have not yet commenced. The Company has limited financial resources. Substantial expenditures are required to be made by the Company to establish reserves.

The property interests the Company has an option to earn an interest are in the exploration stages only, are without known bodies of commercial mineralization and have no ongoing mining operations. Mineral exploration involves a high degree of risk and few properties, which are explored, are ultimately developed into producing mines. Exploration of the Company's mineral properties may not result in any discoveries of commercial bodies of mineralization. If the Company's efforts do not result in any discovery of commercial mineralization, the Company will be forced to look for other exploration projects or cease operations.

The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters.

Share Data

The authorized capital of the Company consists of an unlimited number of common shares of which 103,827,001 were issued and outstanding as of the date of this discussion.

Pursuant to the Company's Stock Option Plan, up to 16,300,000 options to purchase Cross Lake Shares may be issued. 333,000 options were cancelled in February 2005. Currently, 3,973,000 options remain exercisable. An additional 850,000 stock options were issued prior to the implementation of the Plan in June 1998 of which 400,000 remain exercisable.

The following table sets out all the outstanding share purchase warrants (total of 5,068,748) in Cross Lake:



--------------------------------------------------------------
Number of Cross
Lake Warrants to
Purchase Common Shares Exercise Price Expiry Date
--------------------------------------------------------------
850,000 $0.22 October 26, 2005
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2,826,561 $0.25 December 13, 2005
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1,392,187 $0.25 December 17, 2005
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Cross Lake has no performance shares or escrow shares.

OTHER

Additional information relating to the Company's operations and activities can be found by visiting the Company's website as www.crosslakeminerals.com and by accessing the Company's Annual Information Form filed on SEDAR at www.sedar.com on April 14, 2005.

A copy of the full Quarterly Report will be provided to any shareholder who requests it.

12(g) No. 82-2636

Contact Information

  • Cross Lake Minerals Ltd.
    Gordon A. Keevil
    President
    (604) 687-2038
    (604) 687-3141 (FAX)
    www.crosslakeminerals.com
    or
    Tangent Management Corp.
    Investor Relations
    (604) 642-0115