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EXCEL - IDEA: XBRL DOCUMENT - WHITE MOUNTAIN TITANIUM CORPFinancial_Report.xls

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the fiscal year ended December 31, 2011 

  

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ________ to __________ 

 

Commission File Number: 333-129347

 

WHITE MOUNTAIN TITANIUM CORPORATION

(Exact name of Registrant as specified in its charter)

 

NEVADA   87-0577390

State or other jurisdiction of incorporation or

organization

  I.R.S. Employer Identification No.

 

Augusto Leguia 100, Oficina 812, Las Condes, Santiago Chile   None
(Address of principal executive offices)   (Zip Code)

 

Issuer’s telephone number, including area code: (56 2) 657-1800

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes x No¨

(2) Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

 

 
 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer ¨ Accelerated Filer ¨
Non-Accelerated Filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of June 30, 2011, the aggregate market value of the registrant’s common equity held by non-affiliates was approximately $70,879,558 computed by reference to the average bid and asked price of the Common Stock. For the purpose of the foregoing calculation only, all directors and executive officers of the registrant are assumed to be affiliates of the registrant. Such determination should not be deemed an admission that such officers and directors are, in fact, affiliates of the registrant.

 

At March 22, 2012, there were 59,075,441 shares of the registrant’s Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

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TABLE OF CONTENTS

 

PART I 4
   
ITEM 1.  BUSINESS 4
   
ITEM 1A.  RISK FACTORS 12
   
ITEM 1B.  UNRESOLVED STAFF COMMENTS 17
   
ITEM 2.  PROPERTIES 17
   
ITEM 3.  LEGAL PROCEEDINGS 25
   
ITEM 4.  MINE SAFETY DISCLOSURES 25
   
PART II 25
   
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 25
   
ITEM 6.  SELECTED FINANCIAL DATA 28
   
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 28
   
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
   
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 31
   
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 31
   
ITEM 9A.  CONTROLS AND PROCEDURES 31
   
ITEM 9B.  OTHER INFORMATION 32
   
PART III 32
   
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 32
   
ITEM 11.  EXECUTIVE COMPENSATION 35
   
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 39
   
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 41
   
ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES 42
   
PART IV 43
   
ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES 43

 

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Forward Looking Statements

 

The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

 

Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this report. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to, the cyclicality of the titanium dioxide industry, global economic and political conditions, global productive capacity, customer inventory levels, changes in product pricing, changes in product costing, changes in foreign currency exchange rates, competitive technology positions and operating interruptions (including, but not limited to, labor disputes, leaks, fires, explosions, unscheduled downtime, transportation interruptions, war and terrorist activities). Mining operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.

 

There may also be other risks and uncertainties that we are unable to predict at this time or that we do not now expect to have a material adverse impact on our business.

 

Throughout this report, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to White Mountain Titanium Corporation, a Nevada corporation, and its consolidated subsidiaries. All amounts in this report are in U.S. Dollars, unless otherwise indicated.

  

PART I

 

ITEM 1. BUSINESS

 

Overview

 

White Mountain Titanium Corporation is an exploration stage company. We were incorporated in the State of Nevada on April 24, 1998. The Company has not been party to any bankruptcy, receivership or similar proceedings nor has it undertaken any material reclassification, merger, consolidation, or purchase or sale of a significant amount not in the ordinary course of business over the last three years. We have six wholly owned subsidiaries: Sociedad Contractual Minera White Mountain Titanium a Chilean stock company which holds our Chilean mining concessions and conducts our principal operations; White Mountain Titanium Corporation, a Canadian stock company which provides management and administrative services on behalf of the US parent; White Mountain Minerals Ltda., White Mountain Metals Ltda., and White Mountain Energy Ltda., all of which are inactive Chilean companies, and White Mountain Titanium (Hong Kong) , a Hong Kong company which is inactive.

 

We hold mining concessions comprised of 33 registered mining exploitation concessions, and five exploration concessions, over approximately 8,225 hectares located approximately 39 kilometers west of the City of Vallenar in the Atacama, or Region III, geographic region of northern Chile (hereinafter referred to as “Cerro Blanco”). We are in the exploration stage, which means we are engaged in the search for mineral deposits or reserves which could be economically and legally extracted or recovered. Our principal business is to explore for and develop natural rutile deposits on our Cerro Blanco mining concessions. In addition, we are conducting research into the recovery of feldspar and the production of refined titanium metal from materials sourced from these mining concessions.

 

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Exploration drilling by us and the previous owner has defined rutile mineralization. Outside metallurgical test work has demonstrated that this mineralization can be concentrated to a level meeting buyer specifications and can be produced using a conventional milling and flotation process.

 

Assay data from a completed in-fill drill program at the Las Carolinas prospect consisting of 54 diamond drill holes totaling 7,047 meters has been received. Geological staff and outside technical consultants are updating a new resource model and undertaking Whittle pit design work for mine planning purposes. In addition, we have engaged an environmental consultant to complete the final phase of winter baseline field monitoring at the Las Carolinas prospect. Data from this and past monitoring studies will form the basis of an environmental impact study for the Cerro Blanco project.

 

During the third quarter of 2011, we received the final report from an outside testing facility dealing with processing Cerro Blanco rutile tailings. Utilizing rutile tailings from the previously reported pilot plant test work, the laboratory examined a number of metallurgical parameters including differential flotation of sodium and potassium feldspars through the use of a variety of flotation collectors and activation modifiers. More than twenty separate flotation tests were carried out to optimize the process flow sheet. Locked cycle tests were then performed and repeated to confirm reproducibility. Test results established that under optimum conditions a sodium feldspar concentrate assaying 9.96% Na2O and 0.19% Fe2O3 could be produced. Silica and alumina levels were 66.30% SiO2 and 21.00% Al2O3 respectively. Importantly, in all tests iron content in concentrate assayed less than 0.3% Fe2O3. The report recommends further test work which would eventually involve a full scale pilot plant similar to that used to test the Cerro Blanco rutile concentrate process flow sheet. Depending on results from any pilot plant test work and follow-on marketing, the final process design for Cerro Blanco may eventually include a sodium feldspar recovery circuit which could have a significant positive impact on overall project economics. At this point, we are advancing the project to final feasibility solely on the basis of rutile so as not to delay the onset of mine production.

 

On July 6, 2011, the Company appointed Dr. Antonio Luraschi as Project Manager, effective August 1, 2011. Reporting to the President of White Mountain, Dr. Luraschi was engaged for a six month period to recruit and oversee all disciplines necessary to take the project to the final feasibility stage. Dr. Luraschi obtained degrees in Metallurgical and Chemical Engineering from the University of Concepcion, Chile in 1970, and a Ph.D. in Metallurgy from Massachusetts Institute of Technology in 1976. A fluent speaker of Spanish and English, Dr. Luraschi also has a working knowledge of French and Italian. Prior to his engagement with White Mountain, Dr. Luraschi was employed by AMEC International Ltd. in Chile as Metallurgical Consulting Manager. Previously, he was a partner with CADE-IDEPE (a Chilean engineering firm acquired by AMEC in 2007) where he was responsible for the metallurgical process aspects of numerous mining projects, including projects for such companies as Anglo American, Codelco and Xstrata. Over his career, Dr. Luraschi has developed more than sixty applied research and development project engineering solutions. These solutions fall within the fields of copper pyrometallurgy and electrometallurgy as well as extractive metallurgy of gold and silver and specialty metals such as molybdenum, titanium, vanadium and germanium. During third quarter 2011 and on the recommendation of Dr. Luraschi, the Company added four professional engineers to its project team. These additional personnel’s responsibilities cover a broad range of activities including permitting and environmental, mine planning and design, process engineering (including electrical and mechanical disciplines), infrastructure and costing. Together with management and consultants, the project team will be responsible for taking the Cerro Blanco project to final feasibility. Upon completion of his six month engagement with the Company, Dr. Luraschi returned to his former employer, AMEX International Ltd.

 

We now have a numerically small but experienced team as well as a considerable body of engineering design and process engineering work completed, both by us and previous owners, for the development of a large open pit mine and milling operation. The extent to which this engineering work could be incorporated into a feasibility study will depend on factors such as optimal plant sizing and configuration based on product volumes and specifications set out in off-take contracts and process design, the latter to be determined by refinements coming out of the metallurgical test work and pilot scale testing completed last year. With the announcement of our first definitive off-take agreement, particulars of which are set out below, we now intend to undertake a second in-fill and set-out drilling program on Las Carolinas as well as an initial drilling program on La Cantera to provide data for mine planning and design, advance discussions with respect to access and surface rights as well as the supply of power and water, expedite an environmental impact study and permitting program, and commission an independent engineering firm to assist with the preparation of a final feasibility study. As some of these activities would be undertaken in tandem, we believe a feasibility study could be completed in the second half of 2012, subject to the availability of funds, personnel and equipment. We estimate the cost to take the project to a final engineering feasibility stage at between $4,700,000 and $7,200,000, with the principal areas of cost variability being meterage of the final drill program, mine planning, third party engineering and environmental compliance. We believe we will require additional financing to complete the full feasibility study.

 

5
 

 

Since October, 2010 we have entered into five letters of intent for off-take agreements with pigment, welding materials and titanium metals producers for the supply of standard and fine grade rutile concentrate from the Cerro Blanco project. During the third quarter of 2011, one of these letters of intent with a major international pigment producer was formalized into a definitive off-take agreement. Under the agreement, the pigment producer will purchase 25,000 tonnes per annum of the Company’s standard grade, natural rutile concentrate at US$1,200 per tonne FOB port. Deliveries must commence no later than September, 2014 and would run to December, 2016. The term of the agreement may then be extended by mutual agreement.

 

The Chinuka Process

 

On October 1, 2010 we issued 4,000,000 shares of common stock pursuant to the terms of the non-exclusive, sublicensing agreement of the titanium metal technology developed by Chinuka Limited plc (“Chinuka” or the “Chinuka Process”). We now have access to the Chinuka Process for the Cerro Blanco project. La Serena Technologies Ltd. (“La Serena”) executed the sublicensing agreement as holder of the Chinuka Process master license. As consideration for the sublicense, the terms of the agreement between the Company and La Serena are:

 

4,000,000 restricted shares of common stock were issued to Chinuka and La Serena (800,000 to Chinuka and 3,200,000 to La Serena).  These shares are to be released from escrow over 24 months with 500,000 shares released to each Chinuka and La Serena on closing and the balance released from escrow at the end of each subsequent fiscal quarter on the basis of 37,500 to Chinuka and 337,500 to La Serena.  As at December 31, 2011, 2,875,000 shares had been released from escrow and 1,125,000 shares remained in escrow.  The Company may cancel the sublicense agreement (and related escrow share releases) at any time following the initial release of shares;
   
The expenditure of $5,000,000 by the Company within five years of closing to advance development of the Chinuka Process towards commercialization.  As at December 31, 2011, the Company had expended approximately $443,562 for lab scale research related to the Chinuka Process;
   
A 2% gross royalty payment to La Serena on any revenue generated by the Cerro Blanco project, which is attributable to the Chinuka Process, and to make advance minimum royalty payments to La Serena of $200,000 per year commencing 5 years after closing; and
   
Commercial production of titanium metal using the Chinuka Process and feed stock derived from the Cerro Blanco project within nine years after closing.

 

The Chinuka Process was developed under the direction of Dr. Derek Fray, Professor and Director of Research, Materials Science and Metallurgy, University of Cambridge, UK. Unlike the industry-standard, multi-step Kroll batch process which uses titanium pigment as a feed stock to produce titanium sponge metal, the Chinuka Process is essentially a one-step process and uses titanium ores and concentrates as a feed stock. By replacing a multi-step process with a process in which refining and electro-deposition take place simultaneously and substituting ores and concentrates as a feed stock, the Chinuka Process holds forth potentially significant cost and production time saving over the Kroll process.

 

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We anticipate the sublicensing of the Chinuka Process will create an opportunity to add value to the Cerro Blanco project, particularly with respect to the planned minus 53 micron titanium concentrate product.

 

In the first quarterly progress report since licensing a new titanium metal technology in September, 2010, we were advised that lab scale test work continued at the University of Cambridge in the UK under the direction of Professor Derek Fray into the refining and electrolytic deposition of pure titanium from lower grade concentrate. Small quantities of sponge were successfully produced using Ultra-fine concentrate feedstock sourced from the Company’s Cerro Blanco project in Chile.

 

At the end of December, 2010 the quarterly progress report advised that research continued to examine the refining and electrolytic deposition of pure titanium metal from Ultra-fine rutile concentrate feedstock sourced from the Company's Cerro Blanco project in Chile, the improvement of overall process recovery and the optimization of cell voltage and current density. Preliminary results from this test work indicate that the residual oxygen content in titanium sponge metal deposited from molten salts using the Chinuka Process is approximately 1 wt%. This reported weight per cent figure represents an average for several test runs completed during the second quarter. Based on these results, an examination of the potential use of final acid leaching to lower oxygen content further to approximately 0.5 wt% (a commercial weight per cent specification for sheet rolled titanium metal) was initiated and continued into the current quarter.

 

In addition to examining acid leaching of titanium sponge metal, research undertaken during the quarter ended December 31, 2011 started to focus on the adaptability of the Chinuka Process. Subsequent test work undertaken during the quarter ended March 31, 2011 succeeded in demonstrating the possibly of producing titanium metal powder (a higher value product than titanium sponge metal) directly from concentrate. Current test work is examining the possible utilization of lower grade rutile and ilmenite concentrates as the process feedstock. Ilmenite is the most common form of titanium concentrate, however many ilmenites have impurities which preclude their use in paint and pigment applications.

 

Titanium Industry and Market Overview

 

Overview

 

Titanium is the ninth most abundant element, making up about 0.6% of the earth’s crust. Titanium occurs primarily in the minerals anatase, brookite, ilmenite, leucoxene, perovskite, rutile, and sphene. Of these minerals, only rutile, ilmenite and leucoxene, an alternation product of ilmenite, have significant economic importance. Both rutile and ilmenite are chemically processed to produce both titanium dioxide pigment and titanium metal.

 

Approximately 95% of titanium is consumed in the form of titanium dioxide concentrate, primarily as a white pigment in paints, paper, and plastics. Titanium dioxide pigment is characterized by its purity, refractive index, particle size, and surface properties. The superiority of titanium dioxide as a white pigment is due mainly to its high refractive index and resulting light-scattering ability, which impart excellent hiding power and brightness.

 

Titanium metal is well known for its corrosion resistance, high strength-to-weight ratio, and high melting point. Accordingly, titanium metal is used in sectors, such as the aerospace and chemicals industries, where such considerations are extremely important.

 

Our business is currently focused on the mining concessions which constitute the Cerro Blanco property. These concessions host a hard rock rutile deposit as opposed to ilmenite laden mineral sands deposits held by most of our competitors. Rutile has a higher percentage of titanium oxide than mineral sands.

 

Industry Background

 

The bulk of the world’s titanium is used as the metal oxide, titanium dioxide (TiO2). The chemically processed titanium ore, whether rutile or ilmenite based, is turned into pure titanium dioxide and used as a brilliant white pigment which imparts whiteness and opacity to paint, plastics, paper and other products. The use of titanium dioxide as a color carrier has grown over the last 40 years, since the use of white lead based paints was banned throughout the world for health reasons. Titanium dioxide is chemically inert, which gives it excellent color retention. It is thermally stable, with a melting point at 1,668 C, which makes it suitable for use in paints and products that are designed to withstand high temperatures. About 5% of the world’s titanium is used as the metal, due to its exceptional properties. It has the highest strength to weight ratio of any metal; is as strong as steel but 45% lighter. The most noted chemical property of titanium is its excellent resistance to corrosion; it is almost as resistant as platinum, capable of withstanding attack by acids, moist chlorine gas, and by common salt solutions.

 

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The table below gives a summary of distribution and end uses on an industry by industry basis for TiO2.

 

U.S. Distribution of TiO2 pigment shipments by industry: 2009
Industry Percent
Paint and Coatings 58.6%
Plastics and Rubber 25.5%
Paper 9.4%
All Other* 6.5%

 

* Includes agricultural, building materials, ceramics, coated fabrics and textiles, cosmetics, food, paper and printing ink.

 

Source: U.S. Geological Survey, 2009 Minerals Yearbook, “Titanium”, April 2011. This and other U.S. Geological Survey publications referenced in this Titanium Industry and Market Overview can be found online at http://minerals.usgs.gov/minerals/pubs/

 

The table below gives a broad picture of principal uses for titanium dioxide.

 

Uses of Titanium Dioxide
Industry Use
Paints & Pigments Paints, coatings, lacquer, varnishes, to whiten and opacity polymer binder systems, to provide coating and hiding power, and to protect paints from UV radiation and yellowing of the color in sunlight.
Plastics To ensure high whiteness and color intensity, and increase plastic impact strength in such items as window sections, garden furniture, household objects, plastic components for the automotive industry.
Paper Additive to whiten and increase opacity of paper.
Cosmetics Protection against UV radiation in high-factor sun creams; to give high brightness and opacity in toothpaste and soaps.
Food High brightness and opacity in foods and food packaging.
Pharmaceuticals High chemical purity titanium dioxide is used as a carrier and to ensure brightness and opacity.
Printing Inks Protection against fading and color deterioration.
Other Titanium dioxide is used in chemical catalysts, wood preservation, rubber, ceramics, glass, electroceramics, welding fluxes, and high temperature metallurgical processes.

 

The following table sets forth the estimated world reserves of titanium minerals based upon global resources of titanium minerals.

 

World Reserves of Ilmenite and Rutile (‘000 tons TiO2)
Country Ilmenite Rutile
Australia 100,000 18,000
Canada 31,000 -
China 200,000 -
India 85,000 7,400
Norway 37,000 -
South Africa 63,000 8,300
Ukraine 5,900 2,500
U.S. 2,000 -
All Other 96,100 5,800

 

Source: U.S. Geological Survey, Mineral Commodity Summaries, “Titanium and Titanium Dioxide”, January 2012

 

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Titanium Pigment Production

 

Mining of titanium minerals is usually performed using surface methods like dredging and dry mining and gravity spirals. Ilmenite is often processed to produce a synthetic rutile.

 

The most widely used processes available for the manufacture of titanium dioxide pigment are the sulphate and chloride processes. Commercially manufactured titanium dioxide pigment is available as either anatase-type or rutile-type, categorized according to its crystalline form, regardless of whether it is made from the mineral rutile. Anatase pigment is currently made by sulphate producers only, while rutile pigment is made by both the chloride and the sulphate processes. The decision to use one process instead of the other is based on numerous factors, including raw material availability, freight, and waste disposal costs.

 

Anatase and rutile pigments, while both are white, have different properties and thus have different end-uses. For example, rutile pigment is less reactive with the binders in paint when exposed to sunlight than is the anatase pigment and is preferred for use in outdoor paint. Anatase pigment has a bluer tone than rutile, is somewhat softer, and is used mainly in indoor paints and in paper manufacturing. Depending on the manner in which it is produced and subsequently finished, TiO2 pigment can exhibit a range of functional properties, including dispersion, durability, opacity, and tinting.

 

In the chloride process, rutile is converted to TiCl4 by chlorination in the presence of petroleum coke. TiCl4 is oxidized with air or oxygen at about 900ºC, and the resulting TiO2 is calcined to remove residual chlorine and any hydrochloric acid that may have formed in the reaction. Aluminum chloride is added to the TiCl4 to assure that virtually all the titanium is oxidized into the rutile crystal structure. The process is conceptually simple but poses a number of significant chemical engineering problems because of the highly corrosive nature of chlorine, chlorine oxides and titanium tetrachloride at temperatures of 900°C or higher.

 

In the sulphate process, ilmenite or titanium slag is reacted with sulfuric acid. Titanium hydroxide is then precipitated by hydrolysis, filtered and calcined. This is a process involving approximately 20 separate processing steps. Because sulphate technology is predominantly a batch process, it is possible to operate one part of a sulphate process plant while another part is shut down for maintenance. To some extent, stocks of intermediate reaction products can be allowed to build up, awaiting further processing downstream at some later time. It is also possible that a sulphate process plant can be run at 60-80% capacity utilization fairly easily if necessary, simply by switching off one or more of its calciners.

 

Synthetic rutile is formed by removing the iron content from ilmenite, thereby concentrating the titanium dioxide content to at least 90%. In this way, ilmenites can be upgraded to chloride route feedstocks and used as a substitute for rutile.

 

Demand for Titanium Pigment

 

An assessment of historical data contained in the U.S. Geological Survey publication “Titanium Minerals Handbook, 1970 – 2007” shows that world demand for titanium dioxide pigments showed practically unbroken annual growth from 1.6 million tons in 1970 to 3.9 million tons in 2000. Demand declined to 3.7 million tons in 2001, rebounded to approximately 4.0 million tons in 2002 and steadily increased to approximately 4.9 million tons in 2007. Since 2007, demand for titanium pigment has continued to grow together with installed capacity. In their Mineral Commodity Summaries, “Titanium and Titanium Dioxide, January 2012” the U.S. Geological Survey estimate 2011 world titanium dioxide pigment capacity at 6.55 million tons.

 

Titanium Dioxide Prices

 

The U.S. Geological Survery Mineral Industry Surveys, “Titanium in the Third Quarter 2011, January 2012” published prices for bagged rutile mineral concentrates were quoted at $1348 - $1600 per tonne, up from $725- 800 quoted in the same period in 2010. By comparison, published prices for ilmenite concentrates in the third quarter of 2011 ranged from $140 - $250 per tonne up from from $65 - $85 per tonne quoted in the same period in 2010.

 

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Price realizations for titanium feedstock suppliers are rising due to supply constraints, higher energy costs, and increasing demand for pigment and metal. In their Commodities Forecast Update dated January 17, 2012, Credit Suisse comments, “Rutile and synthetic rutile prices have quadrupled in just over 12 months based on average settlements reported by dominant producer Iluka. Rutile prices were capped at $550/t in 2010, but averaged $1,055/t in 2H11 and announced price settlements for 1H12 average $2,450/t in 1H12. Sierra Rutile has negotiated even better prices, averaging $2,530/t for 1Q’12. Synthetic rutile prices are lower than rutile, but have increased by similar proportions. Synthetic rutile should average $2,000/t in 1H12, from $440/t in 2010.” The report goes on to comment that major producers of rutile are moving away from long-term contracts to shorter timescales, and forecasts average rutile prices in 2012 and 2013 at $2,575 per tonne and $2,850 per tonne, respectively.

 

Competition

 

Once in production, we will compete with a number of existing titanium dioxide concentrate producers, including Iluka Resources Inc., Richards Bay Iron and Titanium Pty. Ltd., QIT-Fer et Titane Inc., and Titania A/S as well as other projects proposed for development. Each of the existing producers has an operating history as well as proven reserves and resources; however the majority of their collective production is in the form of ilmenite or synthetic rutile, not natural rutile.

 

Management believes that the location of the Cerro Blanco property may provide a significant advantage in competing with other producers of titanium. In addition to good road transport links, power and water, a port facility capable of handling 70,000 ton ships is available at Huasco, 30 kilometers northwest of the Cerro Blanco property. The property also lies close to a fully operational rail track, and if necessary, a spur line could be run into the property linking it directly to port facilities at Huasco.

 

In order to be competitive, we will be required to meet buyers’ specifications, including particle size, concentration levels, calcium and impurities. Management believes metallurgical tests to date have demonstrated that the rutile mineralization at the Cerro Blanco concessions can be concentrated to an acceptable level to buyers.

 

The Company currently has one off-take contract signed and management intends to sign up additional buyers for rutile concentrate from the Cerro Blanco project. We anticipate that the concentrate would be transported by ship which makes the location of the mining concessions near a port advantageous. Notwithstanding this, management will need to evaluate shipping rates and transit times when it obtains potential customers to determine whether existing prices for titanium would make sales to such customers economically viable.

 

Mining, particularly copper mining, is a significant industry in Chile. We will be competing with a number of existing mining companies, including the state-owned Codelco Copper Corporation, one of the world’s largest copper producers, for qualified workers, supplies, and equipment. However, management believes Cerro Blanco has an attractive location and good infrastructure in an active mining region. The property is located at a low elevation, near the coast, with two nearby towns from which it will be able to draw manpower and supplies.

 

Government Compliance

 

Our exploration activities are subject to extensive national, regional, and local regulations in Chile. These statutes regulate the mining of and exploration for mineral properties, and also the possible effects of such activities upon the environment. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Cerro Blanco property, the extent of which cannot be predicted. Also, permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. In the context of environmental permitting, including the approval of reclamation plans, we must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays, depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. We are not presently aware of any specific material environmental constraints affecting the Cerro Blanco property that would preclude its exploration, economic development, or operation. Nevertheless, as a condition to placing the property into production, we are required to submit an environmental impact study for review and approval.

 

Chile enacted provisions in its 1980 Constitution to stimulate the development of mining, while at the same time guaranteeing the property rights of both local and foreign investors. While the state owns all mineral resources, exploration and exploitation of these resources is allowed via mining concessions, which are granted by the courts. A Constitutional Organic Law, enacted in 1982, sets out that certain rights and obligations may attach to concessions, such as the right to mortgage or transfer concessions and the entitlement of the holder to explore (pedimentos) as well as to exploit (mensuras). A concession is obtained by filing a claim and includes all minerals that may occur within the area covered by the concession. The holder of a concession also has the right to defend his interest against the state and third parties.

  

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Mining claims in Chile are acquired in the following manner:

 

·         Pedimento: A pedimento is an exploration claim precisely defined by coordinates with north-south and east-west boundaries. These may range in size from a minimum of 100 hectares to a maximum of 5000 hectares, with a maximum length-to-width ratio of 5:1. A pedimento is valid for a maximum period of two years, following which the claim may be reduced in size by at least 50%, and renewed for an additional two years, provided that no overlying claim has been staked. Claim taxes are due annually in the month of March; if the taxes on a pedimento are not paid by such time, the claim can be restored to good standing by paying double the annual claim tax by or before the beginning of the following year. In Chile, new pedimentos are permitted to overlap pre-existing claims; however, the previously staked or underlying claim always takes precedence as long as the claim holder maintains his claim in good standing and converts the pedimento to a manifestacion within the initial two year period.

 

·         Manifestacion: During the two-year life of a pedimento, it may be converted at any time to a manifestacion. Once an application to this effect has been filed, the claim holder has 220 days to file a “Solicitud de Mensura”, or “Request for Survey” with a court of competent jurisdiction, and notify surrounding claim holders of the application by publishing such request in the Official Mining Bulletin. This notifies surrounding claim holders, who may contest the claim if they believe their pre-established rights are being encroached upon. The option also exists to file a manifestacion directly on open ground, without going through the pedimento filing process.

 

·         Mensura: The claim must be surveyed by a government licensed surveyor within nine months of the approval of the “Request for Survey.” During the survey any surrounding claim owners may be present, and once completed the survey documents are presented to the court and reviewed by SERNAGEOMIN, the National Mining Service. Assuming that all steps have been carried out correctly and all other necessary items are in order, the court then adjudicates the application and grants a permanent property right (a mensura), the equivalent to a “patented claim.”

 

Each of the above stages of the acquisition of a mining claim in Chile requires the completion of several steps, including application, publication, inscription payments, notarization, tax payments, legal fees, “patente” payments, and extract publication, prior to the application being declared by the court as a new mineral property. Details of the full requirements of the claim staking process are documented in Chile’s mining code. Most companies carrying on operations in Chile retain a mining claim specialist to carry out and review the claim staking process and ensure that their land position is kept secure.

 

In 1994 Chile adopted legislation establishing general environmental norms which must be followed in activities such as mining. This legislation requires us to prepare an environmental impact study which must include a description of the project and a plan for compliance with the applicable environmental legislation. It must also include base line studies containing the information relative to the current components of the existing environment in the area influenced by the project. Further, it must consider the construction, operation and closure/abandonment phases of the project. It must also include a plan to mitigate, repair, and compensate, as well as risk prevention and accident control measures, to achieve a project compatible with the environment. The study must be presented to the community for comment and to the regional arm of the National Environmental Commission for approval.

 

We have completed an environmental base line study on the property, which has not yet been submitted to the regional Chilean government authority for review and approval. The work completed to date will form the basis of the environmental impact study to commence mining operations. While the environmental monitoring and base line studies completed to date have not identified any endangered plant or animal species on the property, and while the property is located at distance from human habitation, these studies cited a risk of airborne dust being generated from rock blasting and crushing operations and from road haulage activities at open pit mining operations. Without proper blasting, crushing and road maintenance practices in place, there is a risk that airborne dust generated from the planned mining activity at Cerro Blanco could be transported by winds to the village of Nicolasa, located approximately 14 kilometers to the northeast, or onto farmland located within the Huasco River valley to the north-northeast. Nevertheless, prevailing winds at the mine site are east-west which should permit us to schedule blasting and other activities which create significant dust on days with prevailing or no winds. Our principal rock crushing plant will be fitted with dust containment units which should also mitigate dust from these activities. We also plan to use water trucks to dampen roadways and limit the amount of dust from trucks using these roads.

 

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Insurance

 

We maintain property and general liability insurance with coverage we believe is reasonably satisfactory to insure against potential covered events, subject to reasonable deductible amounts, through our exploration stage.

 

Employees

 

Aside from our President, Michael P. Kurtanjek, who works full time for our company, and our directors and executive officers that donate a portion of their time to our business, we currently have only one other full-time employee who works as our office manager in Santiago. We continue to be dependent upon the services of outside geologists, metallurgists, engineers, and other independent contractors to conduct our drilling program, develop our pilot plant, and conduct the various studies required to complete exploration of our mining concessions. In addition, we do not have, at this stage, any agreements or arrangements for the necessary managers and employees who will be necessary to operate the mine if commercial production commences. We do not have any existing contracts for these services or employees.

 

ITEM 1A. RISK FACTORS

 

Risks Related to Our Company and its Business

 

Our independent auditor has stated there is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

Our financial statements as of and for the years ended December 31, 2011 and 2010 were prepared assuming that we would continue as a going concern. Our significant cumulative losses from operations as of December 31, 2011, raised substantial doubt about our ability to continue as a going concern. If the going-concern assumption were not appropriate for our financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. Since December 31, 2011, we have continued to experience losses from operations. We have continued to fund operations through the sale of equity securities. Nevertheless, we will require additional funding to complete much of our planned mineral exploration activities and completing a feasibility study on our mining concessions. Our ability to continue as a going concern following the completion of the feasibility study on our mining concessions is subject to our ability to generate a profit and/or obtain necessary additional funding from outside sources, including obtaining additional funding from the sale of our securities. Except for potential proceeds from the sale of equity in offerings by us, we have no other source for additional funding. Our continued net operating losses and stockholders’ deficiency increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

 

Because of our reliance on a single mining project, there is a substantial risk that our business may fail.

 

The Cerro Blanco property is our only mining project. Without the completed final feasibility study there is no assurance that this property contains any reserves which could be economically and legally extracted or produced, in which event the funds that we spend on exploration would be lost and we would be forced to cease operations. Our business plan is to explore solely for titanium deposits or reserves on the Cerro Blanco mining concessions. If this exploration program is unsuccessful, we will be unable to continue operations.

 

Because of the speculative nature of exploration of mining concessions, there is a substantial risk that our business may fail.

 

Exploration for minerals is highly speculative and involves substantial risks, even when conducted on properties known to contain significant quantities of mineralization, and most exploration projects do not result in the discovery of commercially mineable deposits of ore. The likelihood of our mining concessions containing economic mineralization or reserves, or our ability to produce a rutile concentrate meeting buyers’ specifications for particle size, concentrate levels, or calcium and impurities, is not assured.

 

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Even if we substantiate commercial reserves of titanium on the Cerro Blanco property, we may not be able to successfully commence commercial production unless we receive additional funds, for which there is no present arrangements or agreements.

 

We estimate that if we are able to raise the maximum funds through various offerings, of which there is no assurance, we will have sufficient funds to complete all intended exploration of the Cerro Blanco property, but we may encounter contingencies or additional costs not presenting contemplated. We have not yet commenced principal mining operations on the property and we have no income. Substantial expenditures are required to establish proven and probable ore reserves through drilling, to determine metallurgical processes to extract the metals from the ore, and to construct mining and processing facilities. If our exploration programs are successful in establishing titanium dioxide reserves of commercial tonnage and grade, we will require additional funds in order to place the mining concessions into commercial production. At present we do not have any source of this additional funding and there is no assurance that we will be able to obtain such financing.

 

Should we determine that there are estimates of proven and probable reserves, they are subject to considerable uncertainty. Such estimates are, to a large extent, based on specific commodity prices and interpretations of geologic data obtained from drill holes and other exploration techniques. Producers use feasibility studies to derive estimates of capital and operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the predicted configuration of the ore body, expected recovery rates of metals from the ore, the costs of comparable facilities, the costs of operating and processing equipment and other factors. Actual operating costs and economic returns on projects may differ significantly from original estimates. Further, it may take many years from the initial phase of exploration before production and, during that time, the economic feasibility of exploiting a discovery may change.

 

The most likely source of future funds presently available to us to commence commercial production is through the sale of equity capital. However, we do not currently have any arrangements in this regard. Any sale of equity securities will result in dilution to existing shareholders. As an alternative for the financing of commercial production we could seek to locate a joint venture partner to provide a portion or all of the required financing or through the sale of a partial interest in the Cerro Blanco property to a third party in exchange for cash or production expenditures. Although we have engaged in preliminary discussions with potential joint venture partners, we presently have no sources for this type of alternative financing.

 

We have an absence of historical revenues and no current prospects for future revenues. We also have a history of losses which we expect to continue into the future. Our current cash resources are insufficient to meet our obligations through the exploration stage, and if we are unable to secure additional financing, we will either have to suspend or cease operations.

 

We have been engaged in the exploration of minerals for several years and have not generated any historical revenues relating to our mineral exploration activities. We have incurred cumulative net losses of $34,848,633 from these activities through December 31, 2011, and anticipate a net loss until we are able to commence principal mining operations, if ever. During this exploration stage we have no source of funding to satisfy our cash needs except for our existing cash resources, which management estimates will not be sufficient to meet our cash needs to complete all of our planned mineral exploration activities and a feasibility study. The scope and cost of a feasibility study will be dependent upon factors such as plant size and process recovery design, neither of which will be known until further metallurgical testing and product marketing are completed. As such, we have no plans for revenue generation and we do not anticipate revenues from operations unless we are able to locate an economic ore body, commence principal mining operations, and are able to sell the concentrate. There is no assurance that management’s estimates of the costs of exploration and completion of the feasibility study are accurate, or that contingences will not occur which will increase the costs of exploration. Even if we locate an ore body, we may not achieve or sustain profitability in the future. If we are unable to secure additional financing and do not begin to generate revenues or find alternate sources of capital before our cash resources expire, we will either have to suspend or cease operations.

 

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We have entered into off-take agreements which are conditioned upon our ability to commence principal mining operations. Increased production costs could affect our future profitability.

 

Costs at any mining location are affected by the price of input commodities, such as fuel, electricity and labor. Chile is heavily reliant on the importation of oil, natural gas, refined petroleum products and coal to meet its fuel and electricity needs. Since we acquired the Cerro Blanco project, global energy price and transportation cost increases have caused fuel and electricity prices in Chile to rise; labor costs in Chile have risen as well. A continuation of this trend of increasing costs could have a significant negative effect on the economics and the viability of our project.

 

Currency fluctuations may negatively affect costs we incur outside of the United States.

 

Currency fluctuations may affect our costs as a significant portion of our expenses are incurred in Chilean pesos. Over the past 18 months for example, we have seen dramatic swings in the Chilean trading range of the peso to the U.S. dollar. These fluctuations have meant that our in-country operational and exploration expenses in U.S. dollar terms have been difficult to predict in any specific reporting period.

 

Current global financial conditions could adversely affect the availability of new financing and our operations.

 

Current global financial conditions have been characterized by increased market volatility. Several financial institutions have either gone into bankruptcy or have had to be re-capitalized by governmental authorities. Access to financing has been negatively impacted by both the rapid decline in value of sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper market. We are wholly dependent on outside financing to meet our future operating needs and these factors may adversely affect our ability to obtain equity or debt financing in the future on terms favorable to us. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If such increased levels of volatility and market turmoil continue, our operations, and our ability to finance the capital costs of our project could be adversely impacted.

 

If we are unable to adequately prevent dust from our mining operations or to meet dust level standards established in any operating permit obtained in the future, we may be unable to commence or continue planned mining operations on the Cerro Blanco project, or the costs associated with the remediation of dust created from our mining operations could exceed amounts currently budgeted for compliance with anticipated standards.

 

We have not obtained our mining permit to commence principal mining operations on the Cerro Blanco project, nor have we completed an environmental impact study relating to our planned mining activity on the property which will be required to obtain this permit. Based upon our past environmental monitoring and base line studies prepared for us which cited a risk of airborne dust being generated from rock blasting and crushing operations and from road haulage activities at open pit mining operations, we anticipate that the issue of airborne dust will be an issue closely reviewed and monitored by the government. Without proper blasting, crushing and road maintenance practices in place, there is a risk that airborne dust generated from the planned mining activity at Cerro Blanco could be transported by winds to the village of Nicolasa, located approximately 14 kilometers to the northeast, or onto farmland located within the Huasco River valley. Airborne dust from our mining operations could negatively affect agricultural plants or animals being raised in the area, or could negatively affect respiratory functions of persons living near the site. If we are unable to provide adequate remediation plans in our environment impact statement, we may be unable to obtain the necessary operations permit to commence principal mining operations. In the alternative, the government could require us to implement more costly remediation procedures to obviate any potential airborne dust contamination. Once we receive our operating permit, if we are unable to meet the standards for airborne particles set forth in the permit, we could be cited by the government for noncompliance and fined or we could be forced to cease mining operations until the problem is remedied, which could require more expensive remediation measures. In addition, if we exceed reasonable dust standards, neighboring communities and businesses, especially the agriculture business in the Huasco River valley, could seek monetary damages from damages caused by the dust created from our mining activities or could seek injunctive relief to terminate any mining operations causing damage to the community or business. We could incur increased operating costs from these actions and could be delayed in our planned mining activities, each of which would have a material negative impact on our ability to commence or engage in our planned mining activities.

 

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Because we have not secured water rights and access to utilities for development of our mining concessions, there is no assurance that we would be able to develop the property.

 

We are subject to factors beyond our control, such as production costs, including the availability of adequate and cost-effective supplies of electricity, water, and diesel fuel to run the heavy equipment and backup generators. We have no current arrangements to provide electricity, water, or diesel fuel. While we believe that we have various alternatives available to us with respect to negotiating these arrangements, there is no assurance that we will be able to do so, or that the terms and costs of such arrangement or agreement will be satisfactory to us or within our current operating budget. Our inability to secure these items, or to obtain them at a reasonable cost, could affect our ability to proceed with the project if commercial reserves of titanium are discovered.

 

Commodity prices, including those for industrial minerals such as titanium dioxide, are subject to fluctuation based on factors that are not within our control, and a significant reduction in the commodity price for titanium dioxide could have a material negative impact on our ability to continue our exploration of our mining concessions or to raise operating funds.

 

Titanium dioxide pigment is used in a number of products, primarily paint and coatings, paper, and plastics, while titanium metal is used largely in the commercial airline, aerospace and defense industries. Any decline in the economy of these products or industries could have a material impact on the value of titanium. In addition, there are newly developing low-cost methods for developing titanium metal which may have an impact on the price of titanium. Also, there are existing lower-cost substitutes for titanium. For example, titanium competes with aluminum, composites, intermetallics, steel, and super alloys in high-strength applications. There are also a number of lower-cost ores which can be substituted for titanium in applications that require corrosion resistance or which can be used as a white pigment. Management is unable to presently predict the effect the decline in the economy or the use of titanium substitutes may have on the price of titanium in the future.

 

If we are able to commence commercial production, we will be in competition with a number of other companies, most of which are better financed than we are.

 

The market for titanium dioxide, as with other minerals, is intensely competitive and dominated, in this case, by a small number of large, well-established and well-financed companies, including Iluka Resources Inc., a subsidiary of Iluka Resources Ltd., Richards Bay Iron and Titanium Pty. Ltd., QIT-Fer et Titane Inc., and Titania A/S, which represent the world leaders in production of titanium mineral concentrates, as well as smaller titanium producers. All of the major competitors have longer operating histories and greater financial, technical, sales and mining resources than we do. Management cannot guarantee that should we commence mining operations, we will be able to compete successfully against other current mining companies.

 

Risks Related to Our Common Stock

 

There are a large number of shares issuable upon exercise of our outstanding options and warrants that may be available for future sale, and the sale of additional shares may depress the market price of our common stock.

 

As of March 22, 2012, we had 59,075,441 shares of common stock issued and outstanding, outstanding warrants to purchase up to 4,041,328 shares of common stock, and outstanding options to purchase up to 1,080,000 shares of common stock. We also have existing contracts which call for the issuance of up to 1,675,000 additional shares upon the occurrence of certain events. All of the warrants and options are immediately exercisable. The sale of these shares may adversely affect the market price of our common stock.

 

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Because our shares are designated as “penny stock”, broker-dealers will be less likely to trade in our stock due to, among other items, the requirements for broker-dealers to disclose to investors the risks inherent in penny stocks and to make a determination that the investment is suitable for the purchaser.

 

Our shares are designated as “penny stock” as defined in Rule 3a51-1 promulgated under the Exchange Act and thus may be more illiquid than shares not designated as penny stock. The SEC has adopted rules which regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks are defined generally as: non-Nasdaq equity securities with a price of less than $5.00 per share; not traded on a “recognized” national exchange; or in issuers with net tangible assets less than $2,000,000, if the issuer has been in continuous operation for at least three years, or $10,000,000, if in continuous operation for less than three years, or with average revenues of less than $6,000,000 for the last three years. The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that is subject to the penny stock rules. Since our securities are subject to the penny stock rules, investors in the shares may find it more difficult to sell their shares. Many brokers have decided not to trade in penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. The reduction in the number of available market makers and other broker-dealers willing to trade in penny stocks may limit the ability of purchasers in this offering to sell their stock in any secondary market. These penny stock regulations, and the restrictions imposed on the resale of penny stocks by these regulations, could adversely affect our stock price.

 

Our board of directors can, without stockholder approval, cause preferred stock to be issued on terms that adversely affect common stockholders.

 

Under our articles of incorporation, our board of directors is authorized to issue up to 20,000,000 shares of preferred stock, none of which are issued and outstanding as of the date of this report. Also, our board of directors, without shareholder approval, may determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares. If the board causes any shares of preferred stock to be issued, the rights of the holders of our common stock could be adversely affected. The board’s ability to determine the terms of preferred stock and to cause its issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Preferred shares issued by the board of directors could include voting rights, or even super voting rights, which could shift the ability to control the company to the holders of the preferred stock. Preferred shares could also have conversion rights into shares of common stock at a discount to the market price of the common stock which could negatively affect the market for our common stock. In addition, preferred shares would have preference in the event of liquidation of the corporation, which means that the holders of preferred shares would be entitled to receive the net assets of the corporation distributed in liquidation before the common stock holders receive any distribution of the liquidated assets. We have no current plans to issue any additional shares of preferred stock.

 

Our board of directors has adopted a shareholder rights plan which may make it more difficult for a third party to effect a change-of-control.

 

Our board of directors has adopted a shareholder rights plan for the purpose of impeding any effort to acquire our company on terms that are inconsistent with its underlying value and which would not therefore be in the best interests of our stockholders. The existence of this or any shareholder rights plan will make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control that is not approved by our board of directors, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

 

We have not paid, and do not intend to pay, dividends and therefore, unless our common stock appreciates in value, our investors may not benefit from holding our common stock.

 

We have not paid any cash dividends since inception. We do not anticipate paying any cash dividends in the foreseeable future. As a result, our investors will not be able to benefit from owning our common stock unless the market price of our common stock becomes greater than the price paid for the stock by these investors.

 

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The public trading market for our common stock is volatile and will likely result in higher spreads in stock prices.

 

Our common stock is trading in the over-the-counter market and is quoted on the OTC Bulletin Board and on the OTC Markets. The over-the-counter market for securities has historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as our ability to implement our business plan pertaining to the Cerro Blanco mining concessions in Chile, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our common stock. In addition, the spreads on stock traded through the over-the-counter market are generally unregulated and higher than on stock exchanges, which means that the difference between the price at which shares could be purchased by investors on the over-the-counter market compared to the price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted by an insignificant number of market makers. We cannot insure that our trading volume will be sufficient to significantly reduce this spread, or that we will have sufficient market makers to affect this spread. These higher spreads could adversely affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted by the brokers. Unless the bid price for the stock increases and exceeds the price paid for the shares by the investor, plus brokerage commissions or charges, the investor could lose money on the sale. For higher spreads such as those on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance that at the time the investor wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale. We do not anticipate that there will be any public trading market for the Warrants.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

As a smaller reporting company, we are not required to provide disclosure in response to this item.

 

ITEM 2. PROPERTIES

 

Cerro Blanco Property

 

Through our Chilean subsidiary we hold mining concessions for 33 registered mining exploitation concessions, and 5 exploration concessions, over approximately 8,225 hectares in Chile. We are in the exploration stage, which means we are engaged in the search for mineral deposits or reserves which could be economically and legally extracted or produced. We are conducting a drilling campaign and pre-feasibility work in preparation for a feasibility study to determine whether the concessions contain commercially viable ore reserves. If we are successful in obtaining a feasibility study which supports commercially viable ore reserves, we intend to exploit the concessions and to produce titanium dioxide concentrate through conventional open pit mining and minerals processing. Our business plan is to explore solely for titanium deposits or reserves on the Cerro Blanco mining concessions.

 

Glossary of Terms

 

Certain terms used in this section are defined in the following glossary:

 

ALKALIC DIORITE-GABBRO-PYROXENITE INTRUSIVE: a potassium and sodium rich, coarse grained and possibly dark colored igneous rock with associated magnesium and iron that consolidated from magma beneath the earth's surface.

 

DEVELOPMENT: work carried out for the purpose of opening up a mineral deposit and making the actual extraction possible.

 

DISSEMINATED: fine particles of mineral dispensed through the enclosing rock.

 

EXPLOITATION MINING CONCESSIONS: licensed claims where the holder has the right to permit, develop, and operate a mine.

 

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EXPLORATION: work involved in searching for ore by geological mapping, geochemistry, geophysics, drilling and other methods.

 

GRADE: mineral or metal content per unit of rock or concentrate or expression of relative quality e.g. high or low grade.

 

INTRUSIVE: a volume of igneous rock that was injected, while still molten, and crystallized within the earth’s crust.

 

MINERALIZATION: the concentration of metals and their compounds in rocks, and the processes involved therein.

 

ORE: material that can be economically mined from an ore body and processed.

 

RECLAMATION: the restoration of a site after exploration activity or mining is completed.

 

RUTILE: a mineral, titanium dioxide (TiO2), trimorpheus with anatase and brookite.

 

TiO2: Titanium dioxide. The form of titanium found in the mineral rutile.

 

TITANIUM: a widely distributed dark grey metallic element, (Ti), found in small quantities in many minerals. The mineral ilmenite, (FeTiO3), is currently the principal feedstock for the production of titanium dioxide (TiO2) powder and titanium metal.

 

Location and Access

 

The Cerro Blanco property is located approximately 39 kilometers, or approximately 24 miles, west of the city of Vallenar in the Atacama geographic region (Region III) of northern Chile and southwest of the Cerro Rodeo Mining District. Access to the property is as follows: The main Ruta 5, the PanAmerican Highway, runs north from Santiago for approximately 625 kilometers to Vallenar; from there a paved road runs west toward the Port of Huasco for a distance of 22 kilometers to the village of Nicolasa; at Nicolasa a municipally maintained dirt road runs approximately 14 kilometers southwest to the property. Management believes access to the property is adequate to accommodate the type of vehicles and traffic during the exploration stage on the property. Improvements to the dirt road will be required for the development and production stages. These improvements will include widening of the road and topping it with gravel. Management believes adequate supplies of bedrock and gravel are available for this purpose, although it currently has no arrangements or agreements to provide either the improvement services or supplies. The area is served by a regional airport at Vallenar.

 

Cerro Blanco lies within an established mining district where management believes experienced mineworkers and support personnel are available. Labor rates in the region are considerably less costly when compared with standard North American rates. Mining is one of the main sectors of the Chilean economy and Region III has a broad base of mining contractors and suppliers of both new and used mining and processing equipment.

 

The local climate is generally arid with little rainfall in normal years. Vegetation is minimal, supporting only desert scrub and sparse cactus. Topography consists of low hills with a mean elevation of 100 meters, which are incised periodically by active creeks. The Huasco River, 15 kilometers, approximately 9 miles, to the north, is a source of water. Additionally, high-tension power lines pass 15 kilometers, approximately 9 miles, to the north of the property along the Vallenar-Huasco highway.

 

In addition to road transport links, power and water access, a port facility with a capacity to handle 70,000 ton ships is accessible at Huasco, which is 30 kilometers, approximately 19 miles, northwest of the property. The property also lies close to a fully operational rail track. If necessary, a spur line could be run into the property linking it directly to the port.

 

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Title Status and Exploration Rights

 

Under the Chilean mining code, surveyed mineral concessions can be held in perpetuity subject only to an annual tax based on the land held. We have converted our existing exploration licenses into 33 exploitation licenses. The tax payment for March 2008 was approximately $55,000 based upon the status of the mining concessions and the currency exchange rate at that time. The payments for March 2009, 2010, and 2011 were $55,000, $78,400, and $84,900, respectively, at the prevailing exchange rate. We estimate that the amount for 2012 will be $95,000.

 

The Chilean mining code does not convey surface rights to owners of the mining concessions. However, the owners of mining concessions are entitled to the establishment of the necessary easements for mining exploration and exploitation. The surface lands are subject to the burden of being occupied, to the extent required by mining operations, by ore yards and dumps, slag and tailings, ore extraction and benefaction plants, electric substations and communications lines, canals, reservoirs, piping, housing, construction and supplementary works, and to the encumbrance of transit and of being occupied by roads, railways, piping, tunnels, inclined planes, cableways, conveyor belts and all other means used to connect the operations of the concession with public roads, benefaction facilities, railroad stations, shipping ports, and consumer centers. The establishment of these easements, the exercise thereof, and the compensation therefore, are to be agreed upon either between the concession owner and the surface owner, or are established by court decision under a special brief procedure contemplated by the law.

 

The surface rights are owned by Agrosuper, a large Chilean agricultural concern. Upon completion of the final feasibility study, we intend to either negotiate surface rights with Agrospuper or to apply to local courts for these surface rights. This is an ongoing progress. Nevertheless, should this alternative fail, we will proceed to seek the easement through the court, which under Chilean mining law we have the right to obtain. We do not anticipate any material difficulty with surface rights on the Cerro Blanco property.

 

Exploration History

 

In 1990-1991, the western half of the property, then referred to as Barranca Negra, was held under option by Adonos Resources of Toronto, Canada, who conducted extensive rock sampling, geological mapping and 450 meters of trenching. In 1992 the property was optioned by Phelps Dodge, to which they applied the name Freirina. In late 1992 and early 1993, 1,200 meters of diamond and 6,000 meters of reverse circulation drilling were completed, principally in the most westerly Cerro Blanco anomaly. In 1993 two 15 ton bulk samples were taken for metallurgical testing. A gravity concentrate was produced from a 15 ton sample of this material by Lakefield Research in Santiago. Fifty kilos of this concentrate were shipped to Carpco Inc. in Florida for further gravity circuit up-grading followed by dry-milling using magnetic and electrostatic separation techniques.

 

In 1999, Dorado Mineral Resources N.L. purchased the property and re-named the property Celtic. In February 2000, a preliminary processing test carried out by RMG Services Pty. Ltd., Adelaide, Australia, on behalf of Dorado, used combined microwave leaching and flotation in the up-grading of Celtic (Freirina) gravity concentrate. In June 2000 a review and summary of prior exploration programs and results was conducted by an independent geological consultant on behalf of Dorado Mineral Resources N.L. A cross-sectional estimation of the resource potential of the Cerro Blanco deposit based on the prior drilling and surface sampling was completed as part of this study. Later the same month a scoping study based on level plans produced for the area of highest density drilling was undertaken on behalf of Dorado Recursos Minerales Chile S.A. by Tecniterrae Limitada, a Santiago based group of consulting mining engineers.

 

In November and December 2000, a further study was commissioned by Dorado Recursos Minerales Chile S.A. to supervise the collection of a second bulk sample of 25 tons for metallurgical testing. Also during this program the Cerro Blanco area was geologically re-mapped. In August 2001, ownership of the property was transferred to Kinrade Resources Limited. Subsequent to these events, Kinrade defaulted on its obligations and was unable to meet the payment schedules as required under contract. In the fall of 2003 ownership of the property passed to Sociedad Contractual Minera White Mountain Titanium, formerly known as Compañía Minera Rutile Resources Limitada, the wholly owned subsidiary of White Mountain Titanium Corporation. The purchase was completed in September 2005.

 

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Geology and Mineralization

 

Management believes the Cerro Blanco property contains a large and possibly unique type of titanium mineralization. Nevertheless, we are still in the exploration stage of development and there are no known reserves on the property. The titaniferous mineral located on the property is clean red-brown and black rutile which occurs disseminated with the tonalitic suite of an alkalic diorite-gabbro-pyroxenite intrusive. Its uniformly disseminated nature and associated alteration endow it with strong similarities to porphyry copper deposits. Natural rutile concentrates such as found on this property would be the preferred feed stock for both titanium metal and pigment grade titanium dioxide production.

 

Exploration Results and Plans

 

During 2006, we undertook two separate drilling campaigns. The first was designed to test ore variability, and provided 15 different composites which were subjected to metallurgical testing. The second campaign, which commenced in October 2006, centered on an exploration program consisting mainly of infill and step out drilling, grade variability studies and regional reconnaissance in search of possible extensions to the mineralization and geologic modeling. On January 24, 2007, we announced that we had completed a 16-hole diamond drilling campaign, totaling over 2,900 meters at Cerro Blanco. The principal objectives of this campaign were to increase resources in the central portion of the main zone as well as to test new target areas to the south and south-west. Core recoveries in excess of 95% were achieved in the majority of holes drilled. Split core samples were sent in for on-going metallurgical testing, and whole-core geotechnical testing has been carried out in respect of rock mechanics for mine planning purposes.

 

Planning and execution of the drilling campaign was closely linked to previous metallurgical test work. The principal focus was to target titanium resources which would yield a high grade TiO2 concentrate from conventional flotation. After an extensive evaluation of historic data, our contract geologists devised and are now utilizing an ore ranking system, MR1 (“Mine Rank 1”) through to MR4, with ranks MR1 and MR2 producing the best, and most commercially acceptable chemical product specifications. Data from the latest drilling campaign was input into a geological model and this model, together with ongoing technical work, will be integrated into a resource model.

 

Titanium mineralization starts at surface and extends over long intercepts with both attributes offering the potential for low mining costs. We believe we have good results in the central portion of the main zone of Cerro Blanco, as well as significant potential for further resource development to the south and south-west areas of the property.

 

During 2007, the Company’s geological team undertook and extensive geochemical sampling program at the Eli prospect. Working on a 25 by 25 meter grid, the team took nearly 700 samples of outcrop material over an area of 1100 meters by 900 meters. These were sent for chemical assay. Samples showed mineralization with TiO2 grades in the range 1.0% to 3.0%; two samples from high grade vein material reported results in excess of 21% TiO2 and 25% TiO2, respectively.

 

In early 2008, the Company built a 12 kilometer, 5 meter wide access road to and around Eli. Drill pads were constructed on 50 meter centers adjacent to the road grid covering the prospect. An initial drill program, which involved two diamond drill rigs, commenced in late April and ran through June. Approximately 4,000 meters of drilling was completed. The Company is awaiting final analyses and a compilation report on the program.

 

In January 2008, the Company retained a consultant as a qualified person under Canadian National Instrument 43-101 to prepare a NI 43-101 compliant technical report on the Cerro Blanco property (the “Technical Report”). The Technical Report, which was dated February 25, 2008, was based on extensive geological mapping, surface sampling, 14,078 meters of drilling and a geological model developed by the Company.

 

Following completion of the Technical Report, the Company retained the consultant to compile a NI 43-101 compliant preliminary assessment of the Cerro Blanco project (the “Assessment”). The Assessment, which was dated May 30, 2008, incorporated by reference the Technical Report as well as reports prepared for the Company by other independent experts in their fields. The latter reports include preliminary process engineering and costing report prepared by AMEC-Cade dated March, 2008, a preliminary pit design report prepared by NCL Ingenieria y Construccion dated May 2008, various metallurgical reports prepared by SGS Lakefield, an environmental base line study prepared by Arcadis Geotecnica dated December 2004 and titanium marketing information provided by the Company’s marketing consultant.

 

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For engineering design purposes, the Assessment adopted a base case set of assumptions, the major assumptions being the construction of an open pit mine, processing plant and ancillary facilities capable of producing 100,000 tonnes per year of high grade rutile concentrate grading plus 94.5% TiO2 at start up, scaling to 130,000 tonnes per year in production Year 4 at an assumed undiluted head grade to the plant of 2.3% TiO2. Mining would commence on the Las Carolinas prospect and feed would be conveyed downhill to a processing plant located less than two kilometers to the northeast. Within the plant, the process flow sheet consisted of a semi-autogenous grinding mill, gravity pre-concentration and column flotation circuits and high intensity magnetic separation with process water sourced from a desalination plant constructed at the port of Huasco. AMEC-Cade assumed that mining would be done under contract at a cost of US$1.20 per tonne mined and that the price of high grade rutile concentrates would be US$500 per tonne FOB port.

 

Based on these assumptions AMEC-Cade, our internationally recognized engineering contractor, designed a processing plant with an initial operating capacity of approximately 5.1 million tonnes per year, increasing to approximately 6.1 million tonnes per year by Year 4. They estimated a cost to construct the plant and ancillary facilities of US$117 million in direct costs and US$42 million in indirect costs, for a total of US$159 million. To this figure, and as this was a preliminary study, AMEC-Cade added a 20% contingency to arrive at a total estimated cost of US$190 million. With respect to processing plant operating costs, AMEC-Cade estimated site and transportation costs to port of US$3.60 per tonne processed (US$184 per tonne of rutile concentrate) in Year 1, dropping to US$3.50 per tonne processed (US$180 per tonne of rutile concentrate) in Year 4. The anticipated reduction in operating costs is attributed to increased volumes as well as increased efficiencies from the gravity pre-concentration circuit. Electric power consumption was the highest single cost item, comprising approximately 31% of the total estimated unit operating costs. AMEC-Cade recommended that the Company proceed to the pilot stage and investigate two possibilities for reducing capital costs: the use of sea water rather than desalinated water in the processing plant and sitting the plant elsewhere on the property to lower the installed cost of the conveyor. Two alternate sites were identified.

 

In December 2009, we announced completion of a detailed Stage 2 pilot plant test work program culminating in one 60 hour continuous test run. The primary objective of the Stage 2 pilot plant test work was to produce a natural rutile, titanium dioxide concentrate meeting the chemical and particulate specifications of titanium pigment and sponge metal producers. The test work was conducted on a 275 tonne bulk sample representative of currently identified, at and near surface natural rutile mineralization sourced from the Las Carolinas prospect at our Cerro Blanco project. The bulk sample, which was taken from an area of the Las Carolinas prospect which could be chosen to provide initial mine feed to a full scale process plant, assayed 2.9% TiO2.

 

Following crushing to minus ½ inch, mill underflow was fed to a gravity pre-concentration circuit which consisted of a fine fraction recovery cyclone as well as middlings and coarse fraction mechanical vibrating tables. The mechanical vibrating tables concentrated the higher specific gravity, natural rutile while rejecting some 50% by volume of the lower specific gravity feed material. The result of gravity pre-concentration was to upgrade the natural rutile being processed from an initial grade of 2.9% TiO2 to a grade of approximately 5.0% TiO2. Upgraded material from the gravity pre-concentration circuit was fed to a conditioning tank for pH adjustment and from there to a conventional flotation circuit for further recovery, concentration and cleaning. Flotation feed from the conditioning tank was passed to rougher, scavenger and 5 cleaning flotation stages, where the majority of the natural rutile was recovered and concentrated. An acid pH in the flotation circuit between 3.5 and 4.75 was maintained in the flotation circuit. Tailings from the flotation circuit could form the feed source for a feldspar recovery circuit.

 

Following the final flotation cleaning stage, the natural rutile, titanium dioxide concentrate was fed to a high intensity magnetic separator to remove magnetic and para-magnetic minerals. Magnetic separation resulted in two concentrate products: a high grade natural rutile, titanium dioxide concentrate and a magnetic and para-magnetic minerals by-product concentrate.

 

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The following table provides a chemical analysis of the final product from the 60 hour test run for both + and -75 micron fractions after magnetic separation:

 

Magnetic Separation Results from the Concentrate

produced during Continuous Operation – Non-magnetics

 

Element Assays
+75 Micron Fraction -75 Micron Fraction
Titanium TiO2 % 96.8 97.3
Iron Fe2O3 % 0.70 0.86
Silica SiO2 % 0.95 0.80
Alumina Al2O3 % 0.11 0.08
Magnesia MgO % <0.01 <0.01
Calcium CaO % 0.06 0.17
Sodium Na2O % 0.07 0.03
Potassium K2O % 0.02 0.02
Phosphorus P2O5 % <0.01 <0.01
Manganese MnO % <0.01 0.01
Chromium Cr2O3 % 0.39 0.42
Vanadium V2O5 % 0.23 0.26
LOI   % 0.17 0.18

 

Following completion of the Stage 2 pilot plant test work, we conducted further optimization test work on the rutile process flow sheet, specifically the use of spirals and Knelson concentrators in the gravity pre-concentration circuit and the use of sea water as the aqueous medium in the flotation circuit. In January 2010 we released results from this optimization test work which stated that spirals were a viable alternative to mechanical vibrating tables in the pre-concentration circuit and that comparable concentrate grades and recoveries were obtained using sea water versus fresh water as the aqueous medium in the flotation circuit.

 

Also in January 2010, we reported that we had successfully completed a locked cycle, flotation test work program to recover feldspar from natural rutile (titanium dioxide) flotation tailings.

 

All test work was carried out in an acidic environment (pH 3.5 to 5.5)—very similar to pH conditions previously used in the flotation of rutile. Management believes this is an important achievement as it obviates the need to undertake major pH adjustment from the rutile to the feldspar flotation circuit. A sodium feldspar concentrate assaying 9.07% Na2O and 0.37% Fe2O3 was produced using fresh water as the aqueous medium and minimal addition of flotation reagents. As with the natural rutile, titanium dioxide concentrate results achieved in the optimization test work, comparable sodium feldspar concentrate grades were obtained using sea water versus fresh water as the aqueous medium.

 

With respect to mining, mining costs would be in addition to the processing plant operating costs estimates set out above. A preliminary mine plan will be prepared once further drilling has been completed. At present, NCL have modeled preliminary optimized pits for only the Central Zone of the Las Carolinas prospect on the assumption that this could be the initial pit area. The pits were modeled using 10 x 10 x 10 meter blocks and base case pit wall angles of 45 degrees, with sensitivities run at 50 degrees. Whilst the objective of our mapping, surface sampling and drilling programs is to both increase the quantity and classification of TiO2 resources on the Cerro Blanco property, the project is at an exploration stage and there is no guarantee of future exploration success or of economic viability. For these reasons, project cash flow estimates are not included in the Assessment.

 

Arcadis Geotecnica conducted an environmental base line study in 2005-2006 over the Las Carolinas and La Cantera prospects. Based on field information gathered, vegetation in the area was comprised mostly of bushes, cactus and plants characteristically found in desert regions and areas of sandy and stony soils. Whilst no native animals were observed, animals potentially living in the area would include foxes, rodents, pumas, guanacos, rabbits and reptiles. The study stated that a mining operation as contemplated would have no significant impact on land vertebrates but care would need to be exercised on the northern slopes favored by reptiles. Six underground springs were identified, several with only seasonal flow. As well six houses were observed extending from the project north towards Vallenar, three of which are occupied on a permanent basis. Conversations with the inhabitants suggested that they would have a positive view of the project due to the economic and social benefits it would bring. Arcadis Geotecnica recommended an intensive follow up survey of one ravine for possible archaeological relics and indentified two areas for the possible stockpiling of waste rock. We retained Arcadis Geotechnica to complete the recommended follow up survey and no archaeological relics were found.

 

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The Assessment concluded that results from the considerable body of work completed on the project to date support our recommended, phased work programs and that the estimated costs for the work programs were reasonable and adequate to the present stage of the project. The overall objective of our work programs is to complete an independent final feasibility study which supports the construction of a natural rutile, TiO2 mining operation on the property.

 

On July 7, 2010 we reported that road building and drill pad construction had been completed at the Las Carolinas prospect in readiness for a 7,500 meter diamond drilling program. The objective of the drilling program was to upgrade sufficient of the current resource to a measured and indicated classification to support a 5-6 million tonne per year mining operation for 20 years.

 

On September 27, 2010 we announced that preparations had commenced for the start of the final engineering feasibility study (“Final Feasibility”) at the Cerro Blanco titanium project, previous project milestones relating to geology, geologic resources, metallurgy, pilot plant test work resulting in production of commercial grade titanium dioxide concentrates and a preliminary economic assessment have been achieved.

 

The remaining milestones to be achieved to take the project to Final Feasibility include in-fill and step out drilling at the Las Carolinas prospect; processing test work to enhance the product specifications for a planned sodium feldspar concentrate; an environmental impact study; a definitive engineering and economic assessment of the proposed mine and associated titanium / feldspar processing plant; operating permits, process water and surface access rights.

 

Work on the first of these, the drilling milestone, is underway. At the Las Carolinas prospect the Company’s geological staff has completed access roads to 50 new drill pads. The drilling at Las Carolinas will total approximately 7,500 meters, comprised of 50 diamond drill holes. This drilling, typically to an average depth of 150 metres, is designed to reclassify more of the established geologic resources to the measured and indicated categories with the objective of having sufficient ore to sustain a mining operation for 20 years. Drill work was completed in 2011 and the results have been incorporated into final pit design(s) and mine scheduling. We are now planning an additional drill program of approximately 5,300 meters which forms part fo the budget to take the project to final feasibility.

 

Arcadis Geotecnica, White Mountain’s environmental consultant, has been contracted to complete a baseline monitoring update over approximately half of the project’s land area in preparation for the commissioning of a full Environmental Impact Study (EIS). Arcadis’ field personnel will be updating work that was carried out in 2006. They will consider the environmental impact of the proposed mining operation on indigenous flora and fauna and local communities. In addition and as part of their mandate, Arcadis will work with Company personnel to plan and implement the necessary project permitting process, including legal requirements for final site remediation.

 

The Company has commenced discussions with the surface rights holder to the Cerro Blanco project to establish a mutually acceptable access corridor to the mine site. In addition to road traffic, it is envisaged that this corridor would also be used to bring line power and process water to site.

 

On December 21, 2010, we announced that we had signed a contract with SGS Lakefield (“SGS”) to conduct a further process development program for the recovery of high purity sodium feldspar concentrate from the Cerro Blanco Project. The objective of this program is to refine and optimize the sodium feldspar process flow sheet and to enhance overall concentrate specifications. Working on a feedstock derived from the tailings stream of earlier rutile pilot plant test work, SGS will examine the selective use of flotation activators and collectors and the effect of varying process conditions on the recovery of a high purity, sodium feldspar concentrate to a specification suitable for use in glass and ceramics applications. From a metallurgical perspective, findings from this process development program will add to the considerable body of Project information that already exists concerning the recovery of co-product feldspar. From a commercial point of view, samples of the resultant concentrate will be made available to several international industrial mineral companies who have expressed a possible interest in purchasing sodium feldspar concentrate produced from the Project.

 

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We now have a considerable body of engineering design and process engineering work completed, both by us and previous owners, for the development of a large open pit mine and milling operation. We believe a feasibility study could be completed in the second half of 2012. We estimate the cost to take the project to the point of completing a final engineering feasibility study at between $4,700,000 and $7,200,000, including general and administrative and marketing expenses.

 

Also, as an exploration stage company, our work is highly speculative and involves unique and greater risks than are generally associated with other businesses. We cannot know if our mining concessions contain commercially viable ore bodies or reserves until additional exploration work is done and an evaluation based on such work concludes that development of and production from the ore body is technically, economically, and legally feasible.

 

If we proceed to development of a mining operation, our mining activities could be subject to substantial operating risks and hazards, including environmental hazards, industrial accidents, labor disputes, encountering unusual or unexpected geologic formations or other geological or grade problems, encountering unanticipated ground or water conditions, pit-wall failures, flooding, rock falls, periodic interruptions due to inclement weather conditions or other unfavorable operating conditions and other acts of God. Some of these risks and hazards are not insurable or may be subject to exclusion or limitation in any coverage which we obtain or may not be insured due to economic considerations.

 

Metric Conversion Table

 

For ease of reference, the following conversion factors are provided:

 

Metric Share U.S. Measure U.S. Measure Metric Share
1 hectare 2.471 acres 1 acre 0.4047 hectares
1 meter 3.2881 feet 1 foot 0.3048 meters
1 kilometer 0.621 miles 1 mile 1.609 kilometers
1 tonne 1.102 short tons 1 short ton 0.907 tonnes

 

ITEM 3. LEGAL PROCEEDINGS

 

We are currently not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

There are no reportable events required pursuant to this item.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTC Bulletin Board and OTC Markets under the symbol “WMTM.” The table below sets forth for the periods indicated the range of the high and low bid information as reported by a brokerage firm, as reported on the Internet, and/or as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

 

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  Quarter High Low
FISCAL YEAR ENDED DECEMBER 31, 2010 First $1.34 $0.94
Second $1.00 $0.35
Third $0.94 $0.75
Fourth $0.97 $0.90
FISCAL YEAR ENDED DECEMBER 31, 2011 First $1.12 $0.97
Second $1.69 $1.10
Third $2.16 $1.50
Fourth $2.49 $1.90

 

Holders

 

At March 22, 2012, we had approximately 133 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. We have appointed Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117, to act as the transfer agent of our common stock.

 

Dividends

 

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.

 

Purchases of Equity Securities

 

We have no equity securities registered pursuant to Section 12 of the Exchange Act.

 

Unregistered Sales of Equity Securities

 

There were no equity securities sold by us during the year ended December 31, 2011, without registration under the Securities Act that have not been previously reported.

 

Shareholder’s Rights Plan

 

On January 18, 2011, we entered into a Rights Agreement (the “Rights Agreement”), dated January 18, 2011, between us, our transfer agent, Interwest Transfer Company, Inc., as Rights Agent (the “Rights Agent”). In connection with the adoption of the Rights Agreement, effective January 18, 2011, the Board of Directors declared a dividend distribution of one right (“Right”) for each outstanding share of our common stock, payable to stockholders of record on January 28, 2011. Each Right, when exercisable, entitles the registered holder to purchase from us one one-thousandth of one share of Series B Junior Participating Preferred Stock (“Preferred Stock”) at a price of $4.00 per one one-thousandth share (the “Purchase Price”), subject to adjustment.

 

Initially, the Rights were attached to all certificates representing shares of our common stock then outstanding, and no separate certificates evidencing the Rights would be distributed. The Rights will separate from our common stock and a distribution of Rights Certificates (as defined below) will occur upon the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial ownership of 15% or more of the outstanding shares of our common stock (the “Stock Acquisition Date”) or (ii) 10 business days (or such later date as the Board of Directors may determine) following the commencement of, or the first public announcement of the intention to commence, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person of 15% or more of the outstanding shares of our common stock (the earlier of such dates being called the “Distribution Date”).

 

Until the Distribution Date, (i) the Rights will be evidenced by our common stock certificates, and will be transferred with and only with the common stock certificates, (ii) new stock certificates issued after January 28, 2011, upon transfer or new issuance of our common stock contained a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificates for shares of our common stock outstanding will also constitute the transfer of the Rights associated with the common stock represented by such certificate.

 

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The Rights are not exercisable until the Distribution Date and will expire at the close of business on January 18, 2021, unless such date is extended, the Rights Agreement is terminated, or the Rights are earlier redeemed or exchanged by us as described below. The Rights will not be exercisable by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights has not been obtained or is not obtainable.

 

As soon as practicable following the Distribution Date, separate certificates evidencing the Rights (“Rights Certificates”) will be mailed to holders of record of our common stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will evidence the Rights. Except as otherwise determined by the Board of Directors, only shares of our common stock issued prior to the Distribution Date will be issued with Rights.

 

In the event that a person becomes the beneficial owner of 15% or more of the then outstanding shares of our common stock, except pursuant to an offer for all outstanding shares of our common stock which the Board of Directors determines to be fair to and otherwise in the best interests of our company and its stockholders (a “Qualifying Offer”), each holder of a Right will, after the end of a redemption period referred to below, have the right to exercise the Right by purchasing, for an amount equal to the purchase price, common stock (or, in certain circumstances, cash, property or other securities of our company) having a value equal to two times such amount, provided that the per share value of the common shares shall not be less than the applicable exercise price of warrants issued pursuant to the Securities Purchase Agreement dated July 7, 2005, as amended, with Rubicon Master Fund, which exercise price is currently $0.50 per share. Notwithstanding any of the foregoing, following the occurrence of the events set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of the events set forth above until such time as the Rights are no longer redeemable by us as described below.

 

For example, at a Purchase Price of $4.00 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $8.00 worth of our common stock (or other consideration, as noted above) for $4.00. Assuming that our common stock had a per share value of $2.00 at such time, the holder of each valid Right would be entitled to purchase four shares of our common stock for $4.00.

 

In the event that at any time following the Stock Acquisition Date, (i) we are acquired in a merger or other business combination transaction (other than a merger that follows a Qualifying Offer), or (ii) 50% or more of our assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided as described above) shall, after the expiration of the redemption period referred to below, have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the Purchase Price of the Right (e.g., common stock of the acquiring company having a value of $8.00 for the $4.00 Purchase Price).

 

At any time after a person or group of affiliated or associated persons becomes an Acquiring Person and prior to the acquisition by such person of 50% or more of the outstanding shares of our common stock, the Board of Directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of our common stock (or, in certain circumstances, other equity securities of our company that are deemed by the Board of Directors to have the same value as shares of our common stock) per Right (subject to adjustment).

 

The Purchase Price payable, and the number of one one-thousandths of a share of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution under certain circumstances.

 

With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares will be issued (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) and in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise.

 

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In general, the Board of Directors may redeem the Rights in whole, but not in part, at any time during the period commencing on January 18, 2011, and ending on the tenth business day following the Stock Acquisition Date (the “Redemption Period”) at a price of $0.001 per Right (payable in cash, common stock or other consideration deemed appropriate by the Board of Directors). Under certain circumstances set forth in the Rights Agreement, the decision to redeem the Rights will require the concurrence of a two-thirds majority of the Board of Directors. After the Redemption Period has expired, our right of redemption may be reinstated if an Acquiring Person reduces his beneficial ownership to 10% or less of the outstanding shares of our common stock in a transaction or series of transactions not involving us and there are no other Acquiring Persons. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price.

 

Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of our company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be subject to federal taxation to stockholders or to us, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for common stock (or other consideration) of our company or for common stock of the acquiring company as set forth above.

 

Except with respect to the Redemption Price of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board of Directors in order to cure any ambiguity, defect or inconsistency or to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided however, no amendment to adjust the time period governing redemption may be made at such time as the Rights are not redeemable.

 

A total of 500,000 shares of Preferred Stock are reserved for issuance upon exercise of the Rights.

 

The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire our company without conditioning the offer on a substantial number of Rights being acquired, or in a manner or on terms not approved by the Board of Directors. The Rights, however, should not deter any prospective offeror willing to negotiate in good faith with the Board of Directors, nor should the Rights interfere with any merger or other business combination approved by the Board of Directors.

 

At least once every three years the Audit Committee of the Board of Directors or a committee of directors comprised of directors who are independent of management and free from any relationship that, in the opinion of the Board of Directors would interfere with their exercise of independent judgment, shall review and evaluate the Rights Agreement in order to consider whether the maintenance of the Rights Agreement continues to be in our interests and our stockholders. Following each such review, the committee will communicate its conclusions to the full Board of Directors, including any recommendation in light thereof as to whether the Rights Agreement should be modified or the Rights should be redeemed.

 

ITEM 6. SELECTED FINANCIAL DATA

 

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto as filed with this report.

 

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Overview

 

We are a mineral exploration company. We hold mining concessions comprised of 33 registered mining exploitation concessions, and five exploration concessions, over approximately 8,225 hectares located approximately 39 kilometers west of the City of Vallenar in the Atacama, or Region III, geographic region of northern Chile (hereinafter referred to as “Cerro Blanco”). We are in the exploration stage, which means we are engaged in the search for mineral deposits or reserves which could be economically and legally extracted or recovered. Our primary expenditures at this stage consist of acquisition and exploration costs and general and administration expenses. We have produced no revenues, have achieved losses since inception, have no operations, and currently rely upon the sale of our securities to fund our operations.

 

Results of Operations

 

We recorded a loss for the year ended December 31, 2011 of $8,854,854 ($0.16 per weighted average common share outstanding) compared to a loss of $2,246,280 ($0.06 per weighted average common share outstanding) for 2010.

 

The loss in the both 2011 and 2010 increased as a direct result of the adoption of Emerging Issues Task Force (“EITF”) 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, which was primarily codified into ASC Topic 815, Derivatives and Hedging. ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

 

ASC Topic 815 was effective January 1, 2009 resulted in a cumulative adjustment of $1,084,375 to accumulated deficit as of January 1, 2009. For the year ended December 31, 2011 we recorded a fair value change (loss) of $543,150 on warrants and $nil on preferred shares. The comparable effects in 2010 were a gain of $949,875 on warrants and $380,000 on preferred shares.

 

Excluding the above, and other items such as interest and foreign exchange, our loss from our operations was $8,009,190 for the year ended December 31, 2011. The result for the same period of 2010 was a loss of $3,565,136.

 

A significant difference in 2011 compared to 2010 was the level of exploration expenditures as the activities of the Company were moved back to the field from the pilot plant program. Exploration expense was $2,250,725 (2010 - $811,649), while engineering consulting expense was a recovery of $26,551 on a previously paid invoice (2010 - $42,799).

 

Advertising and Promotion was $71,399 (2010 - $91,583) as we actively worked to promote the Company in adverse markets.

 

Consulting fees were $456,653 (2010 - $206,505) as we expanded the use of consultants reflecting the expansion of activities in Chile, and a general increase in the use of consultants as we move towards final feasibility.

 

Consulting fees for directors and officers was $2,366,123 (2010 - $856,020). The increase was primarily due to stock based compensation of $1,971,000 (2010: $510,300). Underlying cash compensation did not increase materially.

 

Management fees of $1,292,898 (2010 – $620,689) also reflects stock based compensation expense increases from $460,609 in 2010 to $1,044,911 in 2011.

 

Investor relations expense of $82,340 (2010 - $335) reflects the re-entry of the Company into investor relations activities through the use of consultants and attendance at trade shows to increase the awareness of the Company by high net worth investors. Travel expenses similarly increased to $246,126 from $137,926 for this reason.

 

Research and development expenses of $276,760 (2010 - $166,802) reflects our ongoing commitment to furthering the potential of the Chinuka process. We anticipate that this area will continue to increase based on favorable results to date.

 

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Amortization increased to $342,409 (2010 - $106,894) due to the $388,890 (2010 - $77,778) of amortization expense related to the technology rights.

 

Generally most other expenses were comparable or lower this year due to changes in operations and cost constraints applied earlier in the year. Office and rent related expenses rose as a result recognizing a full year of expenses in our new offices in Santiago.

 

Liquidity and Cash Flow

 

As of December 31, 2011 we had working capital of $1,802,594 (2010 - $3,384,696) including $1,983,725 (2010 - $3,766,959) of cash and cash equivalents.

 

During the year ended December 31, 2010, the Company completed an offering of 5,384,624 shares at a price of $0.65 per unit for total gross proceeds of $3,500,000. Share issuance costs for the private placement consisted of cash payments of $313,053 and issuance of 429,170 warrants at an exercise price of $0.65, to give net proceeds of $3,186,947.

 

We have prepared a 2012 combined operating budget which incorporates general corporate and administrative expenses as well as a base case of Chilean operations plus engineering studies. We anticipate that expenditures, net of interest income will be such that we will need to raise additional funds in 2012. We anticipate the need to raise approximately $6,000,000.

 

We anticipate 2012 expenditures on the engineering and marketing plans to be as follows:

 

    Minimum    Maximum 
Geology & Further Drilling  $1,350,000   $2,050,000 
Mine Planning & Design   700,000    1,250,000 
Additional Process Test Work   150,000    300,000 
Final Engineering Design   1,700,000    2,400,000 
Environmental   700,000    700,000 
G & A   100,000    100,000 
Total  $4,700,000   $7,200,000 

 

We continue to actively source additional funds to meet or exceed the anticipated expenditures above. We believe that the prospects are such that we will be able to raise sufficient funds; however, there are a number of risk factors which will influence our ability to do so, including the state of the capital markets generally, and the market price of our common stock. With the exception of funds on deposit, we have no other sources of committed funds, except for outstanding warrants for which there are no commitment to exercise. The most likely source of new funds would be an equity placement of common shares. We believe that a failure to raise funds in a timely manner would likely delay the achievement of some of the milestones in the engineering and marketing plans, and would delay any decision regarding the viability of operations while likely increasing future costs.

 

Off-Balance Sheet Arrangements

 

During the year ended December 31, 2011, the Company did not have any off-balance sheet arrangements.

 

Critical Accounting Estimates

 

We account for financial instruments or embedded features in accordance with Accounting Standards Codification Topic 815 - Derivatives and Hedging (ASC 815), which applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. ASC 815 requires the warrants to purchase 6,875,000 shares of the Company’s common stock to be given the derivative treatment. The warrants had an exercise price of $0.50 per warrant and expire in July and September 2009, of which 4,250,000 warrants were extended to April 2011. As of December 31, 2009, the 4,250,000 warrants were fair valued using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 1.08%, expected life of 1.25 years, an expected volatility factor of 84.10% and a dividend yield of 0.0%. The fair value of these warrants to purchase common stock was estimated to be $2,006,850 as of December 31, 2010 and as of December 31, 2011 the fair value was estimated to be $ nil, with a loss of $543,150 being recognized for the year ended December 31, 2011.

 

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The Company accounts for stock-based compensation expenses associated with stock options and other forms of equity compensation in accordance with ASC 718-10, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. ASC 718-10 requires the Company to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s statement of operations. The Company uses the straight-line single-option method to recognize the value of stock-based compensation expense for all share-based payment awards. Stock-based compensation expense recognized in the statement of operations is reduced for estimated forfeitures, as it is based on awards ultimately expected to vest. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements and supplementary data required by this item are included following the signature page of this report.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

No events are reportable pursuant to this item.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our principal executive officer, Michael P. Kurtanjek, and our principal financial officer, Charles E. Jenkins, have concluded, based on their evaluation, as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) are (1) effective to ensure that material information required to be disclosed by us in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (2) designed to ensure that material information required to be disclosed by us in such reports is accumulated, organized and communicated to our management, including our principal executive officer and principal financial officer, as appropriated, to allow timely decisions regarding required disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed our internal control over financial reporting as of December 31, 2011, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

 

Based on our assessment, management has concluded that our internal control over financial reporting was effective, as of the end of the fiscal year, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

No events are reportable pursuant to this item.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth as of March 22, 2011, the name and ages of, and position or positions held by, our executive officers and directors, the employment background of these persons, and any directorships held by the current directors during the last five years. The Board believes that all the directors named below are highly qualified and have the skills and experience required for effective service on the Board. The directors’ individual biographies below contain information about their experience, qualifications and skills that led the Board to nominate them.

 

Name   Age   Positions  

Director

Since

  Employment Background
Michael P. Kurtanjek   60   Director & President   2004   Mr. Kurtanjek has served as our President since February 2004.  Mr. Kurtanjek holds a Ph.D. in Metallurgy from the University of Birmingham, U. K.  In 1978 he joined British Steel, and worked on a variety of metallurgical projects in Europe, the Middle East and Asia.  From 1988 to 1995, he worked in investment banking with James Capel & Co. and Credit Lyonnais Securities.  From 1995 to 2004, he was a director of Grosvenor Corporate Capital Ltd., a private business consulting firm.
                 
Howard M. Crosby   59   Director   2004   Since 1989, Mr. Crosby has been president of Crosby Enterprises, Inc., a family-owned business advisory and public relations firm.  From 1994 to June 2006 he was president and a director of Cadence Resources Corporation (now Aurora Oil and Gas, Inc.), a publicly traded oil and gas company.  From 2006 until 2008 he was the President and a director of Gold Crest Mines, Inc., a reporting company engaged in mining activities.  He is also an officer and/or director of Plasmet Corp., Independence Resources, PLC, Southern Legacy Minerals, Inc., Seafield Resources, and Abot Mining Corp., none of which is a reporting company, except for Independence Resources, PLC.

 

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Brian Flower   62   Director & Chairman   2005   Mr. Flower has served as our Chairman since September 8, 2006.  He served as our Chief Financial Officer from February 1, 2005 through September 8, 2006.  From 1986 to 1993 he was a mining equity research analyst and investment banker with James Capel & Co. and from 1993 to 2000, CFO and SVP, Corporate Development with Viceroy Resource Corp. as well as being President and director, Oro Belle Resources Corp. and Pacific Wildcat Resources Corp. and VP, Channel Resources Ltd. - all reporting companies.  Since 2000, he has provided management consulting, advisory, officer and director services to private and public companies.  In addition to White Mountain Titanium Corp., his reporting company clients have included Adamus Resources Ltd., Aurcana Corp., Apoquindo Minerals Inc., Colorado Resources Ltd., Orsa Ventures Corp., Pacific Wildcat Resources Corp. and Viceroy Resource Corp.

 

Charles E. Jenkins   56   Director & CFO   2007   Mr. Jenkins has served as our CFO since September 8, 2006.  From November 2005 through August 2006 Mr. Jenkins served as the Vice-President of Finance for Conor Pacific Canada, Inc., a private merchant bank.  From January 2005 until September 2005, he served as Controller and Acting CFO for Metamedia Capital Corp., a magazine publishing company.  From May 2003 until December 2004 Mr. Jenkins was self-employed as a consultant providing controller or CFO duties for a number of private companies.  Previously he had worked for 15 years at various brokerage houses in a corporate finance capacity.  In addition to White Mountain Titanium Corp., Mr. Jenkins is CFO of Evolving Gold Corp. and Rock Tech Lithium Corporation.
                 
Wei Lu   45   Director   2008   Wei Lu has been a partner of Cybernaut Capital Management Ltd, a private equity firm with a Greater China regional focus since 2008, and has over fifteen years of diverse experience in investment research and management as well as business operations.  From 2005 until 2007 he was previously a vice president of The Blackstone Group, assisting in managing an Asia Pacific investment fund.  Prior to Blackstone, from 2004 to 2005, he was a vice president and senior analyst at Oppenheimer Asset Management and a vice-president and senior analyst at Bank of New York Capital Markets from 1998 to 2001.  From 2001 until 2004 he was also a co-founder and CFO of the San Francisco headquartered internet technology and consulting firm SRS2 Inc.  Mr. Lu received an MBA degree from Northeastern University in 1993, an MS in Economics from the University of Connecticut in 1992, and a Bachelor of Science degree in International Business from Shanghai Jiaotong University in 1988.  Mr. Lu is a Chartered Financial Analyst Charter holder.

 

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John J. May   63   Director   2008   Mr. May has been a managing partner of City of Westminster Corporate Finance LLP, a financial consulting firm, since April 2008.  He has also been a senior partner of John J. May Chartered Accountants since July 1994.  Mr. May is  a director of ; Petroleum Energy PLC;  Red Leopard Holdings PLC and Specialist Engineering  Group Plc which are listed on the AIM in theUK.  In the USA he is a director of London Pacific Partners, Inc. an OTC Pink Sheets company.

 

Leadership Structure 

 

Mr. Kurtanjek serves as our Chief Executive Officer and Mr. Flower serves as Chairman of our Board of Directors. The Board attempts to ensure that thorough, open and honest discussions take place at all Board and committee meetings, and that all of the directors are sufficiently informed about each matter that arises so that appropriate action may be taken.

 

Management is responsible for the day-to-day management of risks confronting our businesses, but our Board has broad oversight responsibility for our risk management programs, including enterprise strategic risk oversight. Our Board as a whole oversees risks related to our corporate and business strategies, operations and enterprise risk management. In performing its oversight role, our Board is responsible for satisfying itself that the risk management processes designed and implemented by our management are functioning, and that necessary steps are taken to foster a culture of risk-adjusted decision-making within our organization.

 

Involvement in Certain Legal Proceedings

 

During the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of our executive officers or directors has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, and any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization

 

Audit and Compensation Committees

 

We have a standing audit committee composed of the following directors: Brian Flower, Wei Lu, and John J. May. The Board of Directors has determined that Mr. Flower is an audit committee financial expert by virtue of his past experience which includes acting as the chief financial officer, an accounting supervisor and an internal auditor. Mr. Flower, because of his company’s consulting agreement with us under which he received approximately $213,360 during the year ended December 31 2011, would not be considered an independent member of the audit committee.

 

We also have a standing compensation committee composed of the following directors: Howard M. Crosby, John J. May and Wei Lu.

 

The board has adopted a policy to compensate non-executive directors who are members of committees of the board. These persons will receive $1,000 plus expenses for attendance in person at each committee meeting. They will receive $500 for attendance at committee meetings by conference telephone. In addition, each chairman of the committee will receive $1,000 per meeting they chair.

 

Nominating Procedures

 

We do not have a standing nominating committee; recommendations for candidates to stand for election as directors are made by the Board of Directors. We have not adopted a policy which permits security holders to recommend candidates for election as directors or a process for stockholders to send communications to the Board of Directors.

 

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Shareholder Communications

 

The Company encourages stockholder communications to our board of directors and/or individual directors. Stockholders who wish to communicate with our board of directors or an individual director should send their communications to the care of Brian Flower, Chairman, Suite 2100-1177 West Hastings Street, Vancouver, British Columbia, Canada V6E 2K3.

 

Code of Ethics

 

On August 30, 2005, we adopted a Code of Ethics which applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as to other employees or contractors and anyone associated with our company.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Executive Compensation Summary

 

The following table sets forth information concerning the annual compensation awarded to, earned by, or paid to the named executive officers for all services rendered in all capacities to our company and its subsidiaries for the years ended December 31, 2011 and 2010.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position Year

Salary(1)

($)

Bonus(2)

($)

Stock Awards(3)

($)

All Other Compensation(4)

($)

Total

($)

Michael P. Kurtanjek 2011 221,640 nil 897,000 25,723 1,144,363
President and CEO 2010 184,920 60,205 340,200 22,173 607,498
             
Brian Flower 2011 213,360 nil 897,000 nil 1,110,360
Chairman 2010 160,080 60,205 340,200 nil 560,485
             
Charles E. Jenkins 2011 82,800 nil 182,000 nil 264,800
CFO 2010 82,800 nil 97,200 nil 180,000

 

(1)Amounts shown represent base salary earned or paid during the fiscal year pursuant to management service agreements described below.

(2)The fiscal 2010 bonus amounts for Messrs. Kurtanjek and Flower represent bonuses paid for the extension of the terms of their management services agreements. The Company granted to each of the parties five-year warrants to purchase up to 1,000,000 shares of common stock at $1.50 per share.

(3)The grant date fair value of all stock awards has been calculated in accordance with applicable financial accounting standards. For fiscal 2010, we granted 480,000 shares each to Messrs. Kurtanjek and Flower in accordance with our 2010 Management Compensation Plan and for fiscal 2011, we granted to each of them 150,000 shares under the plan. Also during fiscal 2011, we granted to Messrs. Kurtanjek Flower 200,000 shares each for reaching an operational milestone and 100,000 shares for director services.

(4)The additional compensation for Mr. Kurtanjek represents the cost to us to maintain an apartment for him in Chile.

 

Executive Employment Agreements

 

On February 6, 2006, we entered into a one-year renewable Management Services Agreement effective February 1, 2006, with Mr. Kurtanjek for service as President and chief executive officer of our company and for providing management of the planning, implementation, and reporting on exploration, feasibility, and project development activities carried out on the Cerro Blanco property. This agreement was amended on August 31, 2007, December 21, 2007, and January 1, 2010. On June 2, 2011, the Compensation Committee recommended and the Board approved an increase in Mr. Kurtanjek’s monthly salary to $20,000 effective May 1, 2011; for 2010 and the first four months of fiscal 2011, his monthly salary was $15,410. The term of the amended agreement expires on December 31, 2015, and will be automatically extended for additional one-year terms unless it is terminated by us six months prior to December 31, 2015, or six months prior to any extended period. The agreement may also be terminated by either party without cause upon six months’ written notice. Mr. Kurtanjek will also be entitled to participate in our annual management share compensation pool and will receive not less than 25% per year from such pool. The amended agreement also provides for severance payments in the event of termination upon a change of control by which he would receive a severance payment equal to three times the highest annual base salary, immediate vesting of any unvested options, warrants or other convertible instruments, the pro rata amount of any bonuses or share compensation pool, and the extension of the exercise period of any options, warrants or other convertible instruments for at least six months following termination. Mr. Kurtanjek devotes essentially all of his time to the business of our company. Mr. Kurtanjek is also eligible to receive stock bonuses upon achieving the following milestones: 300,000 shares upon the signing of the first definitive strategic alliance agreement and/or arrangement of project capital; 200,000 shares upon listing of the common stock on a senior exchange; and 200,000 shares upon completion of a final feasibility study.

 

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On August 1, 2009, we entered into a Management Services Agreement with Chapelle Capital Corp., a company partly owned by Brian Flower. Under this agreement Mr. Flower will act as our Executive Chairman and will provide management services. This agreement was amended effective January 1, 2010. On June 2, 2011, the Compensation Committee recommended and the Board approved an increase in Mr. Flower’s monthly salary to $20,000 effective May 1, 2011; for 2010 and the first four months of fiscal 2011, his monthly salary was $13,340. The term of the amended agreement expires on December 31, 2015, and will be automatically extended for additional one-year terms unless it is terminated by us six months prior to December 31, 2015, or six months prior to any extended period. The agreement may also be terminated by either party without cause upon six months’ written notice. Mr. Flower will also be entitled to participate in our annual management share compensation pool and will receive not less than 25% per year from such pool. The amended agreement also provides for severance payments in the event of termination upon a change of control by which he would receive a severance payment equal to three times the highest annual base salary, immediate vesting of any unvested options, warrants or other convertible instruments, the pro rata amount of any bonuses or share compensation pool, and the extension of the exercise period of any options, warrants or other convertible instruments for at least six months following termination. Mr. Flower devotes essentially all of his time to the business of our company. Mr. Flower is also eligible to receive stock bonuses upon achieving the following milestones: 300,000 shares upon the signing of the first definitive strategic alliance agreement and/or arrangement of project capital; 200,000 shares upon listing of the common stock on a senior exchange; and 200,000 shares upon completion of a final feasibility study.

 

Effective January 1, 2010, we entered into a Management Services Agreement with 0834406 BC Ltd., a corporation created under the laws of British Columbia, Canada, pursuant to which Charles E. Jenkins, one of our directors, has agreed to provide services as our Chief Financial Officer. The term of the agreement is for a period of five years through December 31, 2015, and may be extended for additional one-year terms unless it is terminated during the extended periods by either party. Under the new agreement we have agreed to pay a monthly fee of $6,900, plus reimbursable out-of-pocket expenses. Either party may terminate the agreement without cause upon three months’ written notice and at any time for cause. The new agreement also provides for severance payments in the event of termination upon a change of control and maintaining the confidentiality of any proprietary information. Mr. Jenkins devotes approximately half of his time to the fulfillment of the obligations under this agreement and services as our Chief Financial Officer.

 

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Equity Awards

 

The following table provides information on stock and option awards held by the named executive officers as of December 31, 2011:

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

  Option Awards
Name

Number of
Securities Underlying
Unexercised
Options

(#)

Exercisable

Option Exercise Price

($)

Option Expiration Date
Michael P. Kurtanjek 150,000 0.50 8/31/2012
       
Brian Flower 50,000 0.50 8/31/2012
       
Charles E. Jenkins 240,000 0.50 8/31/12

 

Stock Option Plan

 

The options held by the named executive officers at year-end were granted pursuant to our Stock Option Plan adopted on August 30, 2005. Our shareholders approved the plan on November 10, 2006. The purpose of the plan is to provide eligible persons an opportunity to acquire a proprietary interest in our company and to participate in the profitability of the company.

 

There are 3,140,000 shares of common stock authorized for stock options under the plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. In addition, aggregate grants to a single person are limited to 5% of the total number of issued and outstanding shares and the aggregate number authorized for grants to insiders is limited to 20% of the issued and outstanding shares. Grants to consultants are limited to 2% of the issued and outstanding shares.

 

The plan is administered by our Board of Directors. Participants in the plan are to be selected by our Board of Directors. The persons eligible to participate in the plan are as follows: (a) directors of our company and its subsidiaries; (b) officers of our company and its subsidiaries; (c) employees of our company and any of its subsidiaries; and (d) those engaged by us to provide ongoing management or consulting services, or investor relations activities for us or any entity controlled by us.

 

The purchase price under each option is established by the Board of Directors at the time of the grant and may not be discounted below the maximum discount permitted under the policy of the Toronto Exchange.

 

The Board of Directors will fix the terms of each option, but no option can be granted for a term in excess of five years. The Board of Directors will not impose a vesting schedule upon any options granted which provides for exercise of an option for less than 25% of the shares subject to the option upon approval of listing of our stock on the Toronto Exchange and 12.5% every quarter thereafter.

 

During the lifetime of the person to whom an option has been granted, only that person has the right to exercise the option and that person cannot assign or transfer any right to the option.

 

In the event of the death of the option holder, the options will immediately vest and may be exercised for up to one year from the date of death. If the option holder’s relationship with us is terminated for cause, the unexercised options will immediately terminate. If the option holder retires, voluntarily resigns, or is terminated for other than cause, the options will be exercisable for 90 days thereafter or for 30 days if the person was engaged in investor relations.

 

In the event of the corporate take-over, reorganization or change of control, the options will vest and the holder may exercise the options or, in the event of a corporate reorganization, receive the kind and amount of shares or other securities or property that he would have been entitled to receive if he had been a holder of shares of our company at the time of the reorganization, or, if appropriate, as otherwise determined by the Board of Directors.

 

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2010 Stock Option/Stock Issuance Plan

 

On June 29, 2010, the Board of Directors adopted the 2010 Stock Option/Stock Issuance Plan. The purpose of the plan is to provide eligible persons, including our officers and directors, an opportunity to acquire a proprietary interest in our company and as an incentive to remain in our service.

 

There are 5,049,054 shares of our common stock authorized for nonstatutory and incentive stock options and stock grants under the plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations. The number of shares of our common stock available for issuance under the plan will automatically increase by an amount such that on the first trading day of January each calendar year during the term of the plan, beginning with calendar year 2011, the number of shares of our common stock reserved and available for issuance under the plan will represent 10% of the total number of shares of our common stock outstanding on the last trading day in December of the immediately preceding calendar year.

 

The plan is administered initially by the Board of Directors. The persons eligible to participate in the plan include: (a) our employees and employees of our subsidiaries; (b) non-employee members of our Board or non-employee members of the board of directors of any of our subsidiaries; (c) our officers or officers of any subsidiary; and (d) consultants and other independent advisors who provide services to us or any of our subsidiaries.

 

The plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after the adoption of the plan by the Board of Directors, whichever is earlier. The plan may also be terminated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all of our assets.

 

Management Compensation Pool

 

The Board of Directors has approved an employee benefit plan for officers, directors, and employees to increase stockholder value and the success of the company by motivating members of management to provide services to the company and perform to the best of their abilities, to achieve the company’s objectives, and to allow us to minimize the cash component of compensation while at the same time providing a sufficiently attractive overall compensation plan with which to attract and retain management. The plan will be open to directors, officers or employees of or consultants to our company or an affiliate of the company. The pool will consist of up to 1% of the outstanding shares at the end of each year. Participants in the pool will be determined by our Chairman subject to approval by the Compensation Committee, and grants will be made under our 2010 Stock Option/Stock Issuance Plan.

 

Director Compensation

 

The following table sets forth certain information concerning the compensation of our directors, excluding the named executive officers whose total compensation is set forth in the Summary Compensation Table above, for the last fiscal year ended December 31, 2011:

 

DIRECTOR COMPENSATION

 

Name

Fees Earned or
Paid in Cash(1)

($)

Stock Awards(2)

($)

All Other
Compensation(3)

($)

Total

($)

Howard M. Crosby 0 182,000 78,000 260,000
Wei Lu 4,500 355,000 0 359,500
John J. May 4,500 355,000 0 359,500

 

(1)Directors receive $1,000 plus expenses for attendance in person at each meeting of the Board of Directors and receive $500 for attendance at such meetings by conference telephone. Also non-executive directors who are members of committees of the board receive $1,000 plus expenses for attendance in person at each committee meeting and they receive $500 for attendance at committee meetings by conference telephone. In addition, each chairman of a committee receives $1,000 per meeting they chair.

(2)For 2011 we granted stock awards of 30,000 shares to each director under our Management Compensation Plan. We also granted 100,000 shares each to non-executive directors for services as a committee member and 100,000 shares each to Messrs. Jenkins and Crosby for past services over the prior forty-eight months. Certain stock awards were issued under the respective management agreements to companies controlled in whole or in part by the director. The value of the shares was computed in accordance with FASB ASC Topic 718.

(3)The additional compensation represents amounts paid under an existing agreement with this party as described below.

38
 

 

Management and Business Agreements

 

On August 1, 2005, we entered into a five-month renewable Business Consultant Agreement with Crosby Enterprises, an entity controlled by Howard M. Crosby, one of our directors. On February 6, 2006, we renewed this agreement from January 1, 2006 through May 31, 2006, and have since extended it on a month-to-month basis. Crosby Enterprises has agreed to perform financial consulting and public relations services for us. Mr. Crosby devotes approximately 40% of his time to the fulfillment of the obligations under this agreement. In the event of termination upon a change of control, Crosby Enterprises will be compensated as follows: immediate payment of a severance amount equal to three times the highest annual base cash compensation paid to it; the immediate vesting of any outstanding unvested options, warrants, or other convertible instruments; the pro rata amount of any bonuses for which it is eligible; the extension of the exercise period for at least six months following such termination.

 

Also on January 26, 2012, the Board of Directors accepted the recommendation of the Compensation Committee and approved the granting of options to purchase 50,000 shares each to directors of the Company for services performed during 2011. The options will be issued on the date of our 2012 annual meeting of shareholders and are being awarded under our 2010 Stock Option/Stock Issuance Plan. The exercise price for each option will be $2.15 per share. The options will expire after five years and will be fully vested when granted.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information furnished by current management and others, concerning the ownership of our common stock as of March 22, 2012, of (i) each person who is known to us to be the beneficial owner of more than 5 percent of our common stock, without regard to any limitations on conversion or exercise of convertible securities or warrants; (ii) all directors and executive officers; and (iii) our directors and executive officers as a group:

 

Name and Address of

Beneficial Owner

Amount and Nature of

Beneficial Ownership1

Percent of Class2
     

Michael P. Kurtanjek

9 Church Lane

Copthorne

West Sussex, England

RH10 3PT

4,315,7953 7.2%
     

Howard M. Crosby

6 East Rose Street

Walla Walla, WA 99362

1,071,5004 1.8%

 

39
 

 

Brian Flower

Suite 2100-1177 West Hastings Street

Vancouver, British Columbia

Canada V6E 2K3

2,602,8335 4.3%
     

Charles E. Jenkins

Suite 2100-1177 West Hastings Street

Vancouver, British Columbia

Canada V6E 2K3

407,5006 *
     

Wei Lu

61 Wayne Rd

Needham, MA 02494

780,0007 1.3%
     

John J. May

2 Belmont Mews

Camberley

Surrey GU15 2PH

700,0008 1.2%
     

Executive Officers and Directors as

a Group (6 persons)

9,877,628 15.9%
     

Rubicon Master Funds9

c/o Rubicon Master Fund Management LLP

103 Mount St.

London W1K 2TJ

United Kingdom

6,594,000 11.2%
     

La Serena Technologies Limited10

22/F, World-Wide House

19 Des Voeux Road Central,

Hong Kong

3,200,000 5.4%
     

Knox, LLC11

1060 Vegas Valley Drive

Las Vegas, NV 89109

5,769,23112 9.6%
     

Marathon Capital Management, LLC13

4 North Park Drive

Suite 106

Hunt Valley, MD 21030

4,790,950 8.1%

 

*Less than 1%

 

1 Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, or other conversion privileges currently exercisable or convertible, or exercisable or convertible within 60 days of March 22, 2012, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

2 Percentage based on 59,075,441 shares of common stock outstanding as of March 22, 2012.

3 Includes 150,000 shares issuable pursuant to vested options and 1,000,000 stock purchase warrants.

4 Includes 300,000 shares issuable pursuant to vested options.

5 Includes 50,000 shares issuable pursuant to vested options beneficially held by Mr. Flower and 1,000,000 stock purchase warrants.

6 Includes 240,000 shares issuable pursuant to vested options.

7 Includes 82,500 shares issuable pursuant to vested options and 117,500 stock purchase warrants.

8 Includes 82,500 shares issuable pursuant to vested options and 117,500 stock purchase warrants.

9 Pursuant to Investment Agreements, each of Rubicon Fund Management Ltd. and Rubicon Fund Management LLP share all investment and voting power with respect to the securities held by Rubicon Master Fund. Paul Anthony Brewer and Horace Joseph Leitch III share all investment and voting power with respect to Rubicon Fund Management Ltd. and Rubicon Fund Management LLP. Each of Rubicon Fund Management Ltd., Rubicon Fund Management LLP, Paul Anthony Brewer, and Horace Joseph Leitch III may be deemed to be beneficial owners of the securities held by Rubicon Master Fund. Each of Rubicon Fund Management Ltd., Rubicon Fund Management LLP, Paul Anthony Brewer, and Horace Joseph Leitch III disclaim beneficial ownership of the securities held by Rubicon Master Fund.

10 The board of directors retains voting and dispositive rights of these shares. Brian Flower and Michael P. Kurtanjek serve as two of the four members on the board of directors of La Serena.

11 Fredrick J. Mancheski has sole voting rights to these shares.

12 Includes 1,153,846 shares issuable upon exercise of warrants.

13 James Kennedy has sole voting rights to these shares.

 

40
 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth as of the most recent fiscal year ended December 31, 2011, certain information with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance:

 

EQUITY COMPENSATION PLAN INFORMATION

 

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

(a)

Weighted-average exercise price of outstanding options, warrants and rights

(b)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (b))

(c)

Equity compensation plans approved by security holders 1,080,000(1) $0.74 350,001(1)
Equity compensation plans not approved by security holders 2,565,000 $1.28 2,336,094(3)
     Total 3,645,000   3,399,596

 

(1)       Represents outstanding options and shares available for future issuance under the 2005 Stock Option Plan.

(2)       Represents shares available for future issuance under the 2010 Stock Option/Stock Issuance Plan.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Certain Relationships and Related Transactions

 

In March 2011 Rubicon Master Fund, a party beneficially owning in excess of 5% of our outstanding common stock at the time, exercised outstanding warrants and purchased 4,250,000 shares from us for gross proceeds of $2,125,000.

 

On September 15, 2010, we entered into a non-exclusive, non-transferable, non-assignable sublicense agreement with La Serena Technologies Limited, a Hong Kong company, for the sublicensing to our Chilean subsidiary, Sociedad Contractual Minera White Mountain Titanium, of titanium metal technology developed by Chinuka Limited plc and licensed to La Serena. We issued 4,000,000 shares of our common stock valued at $2,800,000 as an initial royalty under the agreement, of which 3,200,000 shares were issued to La Serena and 800,000 to Chinuka. As of December 31, 2011, 2,187,500 shares were delivered to Chinuka, 687,500 were delivered to La Serena, and the balance are held in escrow deliverable as follows: 37,500 to Chinuka and 337,500 to La Serena at the end of each of the following calendar quarters until all of the shares have been released from escrow. We are also obligated during the first four years of the agreement to make cumulative expenditure of $5,000,000 towards the development of the technology. During the years ended December 31, 2011 and 2010, we spent $276,760 and $166,802, respectively, toward the development of the technology. Michael P. Kurtanjek, our President and a director, and Brian Flower, our Chairman, serve as two of the four directors and officers of Chinuka and La Serena and own in excess of 10% of the equity interest in each entity. Howard M. Crosby, one of our directors, owns less than 10% of the equity interest in each entity and does not serve as a director or officer of either entity.

 

41
 

 

On January 31, 2011, Trio International Capital Corp, a company in which Mr. Flower owns one-third interest through his company, Chapelle Capital Corp., exercised options to purchase 400,000 shares of common stock at $0.50 per share. The options were granted on February 8, 2005, under our 2005 Stock Option Plan. Mr. Flower owns 133,333 of these shares through Chapelle.

 

On May 31, 2011, Mr. Kurtanjek exercised options to purchase 600,000 shares of common stock at $0.50 per share. The options were granted on May 31, 2004, under our 2005 Stock Option Plan.

 

On July 15, 2011, Crosby Enterprises, an entity owned and controlled by Mr. Crosby, one of our directors, exercised options to purchase 200,000 shares of common stock at $0.50 per share. The options were granted on August 18, 2005, under our 2005 Stock Option Plan.

 

On August 31, 2007, we granted options to the following parties: Mr. Crosby for 100,000 shares; Charles E. Jenkins, our CFO and a director, for 300,000 shares; Mr. Kurtanjek for 150,000 shares; and Trio International Capital Corp. for 150,000 shares. The options are exercisable at $0.50 per share and expire on August 31, 2012. On January 21, 2011, Mr. Jenkins exercised 60,000 of his options and purchased 60,000 shares. The options were granted on August 18, 2005, under our 2005 Stock Option Plan. In August, 2010, Trio International Capital Corp. distributed the options to its owners and Mr. Flower received 50,000 of the original 150,000 granted to the entity.

 

On June 30, 2008, we granted options to purchase 82,500 shares each to two of our directors, John J. May and Wei Lu. The options are exercisable at $1.00 per share and expire on June 28, 2013. The options were granted on August 18, 2005, under our 2005 Stock Option Plan.

 

Director Independence

 

Our securities are not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that directors be independent. Therefore, we have adopted the independence standards of the American Stock Exchange, now known as the NYSE Amex Equities, to determine the independence of our directors and those directors serving on our committees. These standards provide that a person will be considered an independent director if he or she is not an officer of the company and is, in the view of the company’s board of directors, free of any relationship that would interfere with the exercise of independent judgment. Our board of directors has determined that Wei Lu and John J. May meet this standard, and therefore, would be considered to be independent.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Fees Paid

 

Smythe Ratcliffe LLP, Chartered Accountants, served as our accounting firm for the two years ended December 31, 2011 and 2010. The following fees were paid to our independent registered public accounting firm for services rendered during our last two fiscal years:

 

Audit Fees

The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ended December 31, 2011 were $64,400 (2010 - $56,500), (invoiced as C$65,700; 2010: C$57,300). This total includes $13,300 (C$13,600) for fees incurred for a review of the financial statements included in our forms 10-Q for the year ended December 31, 2011.

 

42
 

 

Audit-Related Fees

There were no fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of the financial statements, other than those previously reported above, for the fiscal years ended December 31, 2011 and 2010.

 

Tax Fees

We paid $14,500 to our auditors for tax related work in 2011; (2010: - $10,100).

 

All Other Fees

There were no other fees billed for products or services provided by the principal accountant, other than those previously reported above, for the fiscal years ended December 31, 2011 and 2010.

 

Audit Committee

 

Our Audit Committee has considered whether the non-audit services provided by our auditors to us are compatible with maintaining the independence of our auditors and concluded that the independence of our auditors is not compromised by the provision of such services. Our Audit Committee pre-approves all auditing services and permitted non-audit services, including the fees and terms of those services, to be performed for us by our independent auditor prior to engagement.

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Financial Statements

 

The following financial statements are filed with this report:

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets at December 31, 2011 and 2010

 

Consolidated Statements of Operations for the years ended December 31, 2011, 2010, 2009, and for the cumulative period from inception (November 13, 2001) through December 31, 2011

 

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010, 2009, and for the cumulative period from inception (November 13, 2001) through December 31, 2011

 

Consolidated Statements of Stockholders’ Equity from inception (November 13, 2001) through December 31, 2011

 

Notes to Consolidated Financial Statements

 

43
 

 

Exhibits

 

The following exhibits are included with this report:

 

Exhibit Number Exhibit Description Incorporated by Reference Filed Here-with
Form File No. Exhibit Filing Date
3.1 Articles of Incorporation SB-2 333-129347 3.1 10/31/05  
3.2 Current Bylaws 8-K 333-129347 3.1 9/12/06  
4.1 Specimen certificate for Registrant’s common stock SB-2 333-129347 4.1 10/31/05  
4.2 Rights Agreement, dated as of January 18, 2011, between the Company and Interwest Transfer Company, Inc., as Rights Agent 8-K 333-129347 4.1 1/18/11  
10.1 2005 Stock Option Plan* SB-2 333-129347 4.9 10/31/05  
10.2 2010 Management Compensation Plan* S-1 333-164963 4.11 2/12/10  
10.3 2010 Stock Option/Stock Issuance Plan* 8-K 333-129347 99.1 7/13/10  
10.4 Stock Option Grant Form for 2010 Stock Option/Stock Issuance Plan 8-K 333-129347 99.2 7/13/10  
10.5 Stock Issuance Form for 1010 Stock Option/Stock Issuance Plan 8-K 333-129347 99.3 7/13/10  
10.6 Management Services Agreement dated February 6, 2006, with Michael P. Kurtanjek* SB-2/A 333-129347 10.9 5/30/06  
10.7 Amendment No 1 dated August 31, 2007, to Management Services Agreement dated February 6, 2006, with Michael P. Kurtanjek* SB-2 333-148644 10.10 1/14/08  
10.8 Amendment No. 2 dated December 21, 2007, to Management Services Agreement dated February 6, 2006, with Michael P. Kurtanjek* SB-2 333-148644 10.11 1/14/08  
10.9 Amendment No. 3 effective January 1, 2010, to Management Services Agreement dated February 6, 2006, with Michael P. Kurtanjek* S-1 333-164963 10.32 2/12/10  
10.10 Warrant agreement dated February 7, 2010, with Michael P. Kurtanjek* S-1 33-164963 10.33 2/12/10  
10.11 Option Agreement dated August 31, 2007, with Michael Kurtanjek*          
10.12 Management Services Agreement dated August 1, 2009, with Chapelle Capital Corp.* S-1/A 333-148644 10.29 12/31/09  
10.13 Amendment No. 1 effective January 1, 2010, to Management Services Agreement dated August 1, 2009, with Chapelle Capital Corp.* S-1 333-164963 10.32 2/12/10  
10.14 Warrant agreement dated February 7, 2010, with Chapell Capital Corp. * S-1 33-164963 10.31 2/12/10  

 

44
 

  

Exhibit Number Exhibit Description Incorporated by Reference Filed Here-with
Form File No. Exhibit Filing Date
10.15 Option Agreement dated August 31, 2007, with Trio International Capital Corp.*         X
10.16 Brokerage Representation Agreement dated November 26, 2007, with Beacon Hill Shipping Ltd.* SB-2 333-148644 10.24 1/14/08  
10.17 Management Services Agreement effective January 1, 2010, with 0834406 BC Ltd.* S-1 333-164963 10.34 2/12/10  
10.18 Option Agreement dated August 31, 2007, with Charles E. Jenkins*         X
10,19 Business Consulting Agreement dated August 1, 2005, with Crosby Enterprises, Inc.* SB-2 333-129347 10.7 10/31/05  
10.20 Renewal dated February 6, 2006, of Business Consulting Agreement with Crosby Enterprises, Inc.* SB-2/A 333-129347 10.7(a) 5/30/06  
10.21 Amendment dated December 21, 2007, to Business Consulting Agreement dated August 1, 2005, with Crosby Enterprises, Inc.* SB-2 333-148644 10.15 1/14/08  
10.22 Option Agreement dated August 18, 2005, with Crosby Enterprises, Inc.* SB-2 333-129347 10.6 10/31/05  
10.23 Option Agreement dated August 31, 2007, with Howard M. Crosby*         X
10.24 Option Agreement dated June 30, 2008, with John J. May*         X
10.25 Warrant Agreement dated June 30, 2009, with John J. May* 10-Q 333-129347 10.1 8/10/09  
10.26 Option Agreement dated June 30, 2009, with Wei Lu*         X
10.27 Warrant Agreement dated June 30, 2009, with Wei Lu* 10-Q 333-129347 10.2 8/10/09  
10.27 Sublicense Agreement dated September 15, 2010, between Sociedad Contractual Minera White Mountain Titanium and La Serena Technologies Limited (confidential information has been redacted) 10-Q 333-129347 10.1 11/15/10  
14.1 Code of Ethics 10-KSB 333-129347 14.1 3/29/07  
21.1 List of Subsidiaries X
23.1 Consent of Smyth Ratcliffe, LLP, independent registered public accounting firm         X

 

45
 

 

Exhibit Number Exhibit Description Incorporated by Reference Filed Here-with
Form File No. Exhibit Filing Date
31.1 Rule 15d-14a Certification by Principal Executive Officer         X
31.2 Rule 15d-14(a) Certification by Principal Financial Officer         X
32.1 Section 1350 Certification of Principal Executive Officer         X
32.2 Section 1350 Certification of Principal Financial Officer         X
101.INS XBRL Instance Document         X
101.SCH XBRL Taxonomy Extension Schema Document         X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         X
101.LAB XBRL Taxonomy Extension Label Linkbase Document         X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         X

 

*Management contract, or compensatory plan or arrangement, required to be filed as an exhibit.

 

46
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  WHITE MOUNTAIN TITANIUM CORPORATION
     
Date: March 26, 2012 By: /s/ M.P. Kurtanjek
    Michael P. Kurtanjek, President (Principal Executive Officer)
     
  By: /s/ C. E. Jenkins
    Charles E. Jenkins, Chief Financial Officer (Principal Financial and Accounting Officer)

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

NAME   TITLE   DATE
         
/s/ M. P. Kurtanjek Director & President (Principal   March 26, 2012
Michael P. Kurtanjek   Executive Officer)    
         
         
/s/ C. E. Jenkins   Director & Chief Financial Officer   March 26, 2012
Charles E. Jenkins   (Principal Financial and Accounting    
    Officer)    
         
/s/ Brian Flower   Director and Chairman   March 26, 2012
Brian Flower        
         
/s/ Howard Crosby   Director   March 26, 2012
Howard M. Crosby        
         
/s/ Wei Lu   Director   March 26, 2012
Wei Lu        
         
/s/ John May   Director   March 26, 2012
John J. May        

 

47
 

 

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have not Registered Securities Pursuant to Section 12 of the Act

 

No annual report or proxy statement, form of proxy or other proxy soliciting material was sent or provided to shareholders during the year ended December 31, 2011.

 

48
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

 

Consolidated Financial Statements

December 31, 2011, 2010 and 2009

(Expressed in US dollars)

 

 

Index Page
   
Report of Independent Registered Public Accounting Firm 50
   
Consolidated Financial Statements  
   
Consolidated Balance Sheets 51
   
Consolidated Statements of Operations 52
   
Consolidated Statements of Cash Flows 53
   
Consolidated Statements of Stockholders’ Equity (Deficit) 54
   
Notes to Consolidated Financial Statements 58

 

49
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

TO THE DIRECTORS AND STOCKHOLDERS OF WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

 

We have audited the accompanying consolidated balance sheets of White Mountain Titanium Corporation (an Exploration Stage Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, cash flows and stockholders’ equity (deficit) for each of the three years in the period ended December 31, 2011, and the cumulative period from inception (November 13, 2001) through December 31, 2011.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the White Mountain Titanium Corporation as at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, and the cumulative period from inception (November 13, 2001) through December 31, 2011 in conformity with accounting principles generally accepted in the United States.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has no revenues and limited capital, which together raise substantial doubt about its ability to continue as a going concern. Management plans in regard to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

“/s/ Smythe Ratcliffe LLP”

 

Chartered Accountants

 

Vancouver, Canada

March 26, 2012

 

50
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Balance Sheets

(Expressed in US dollars)

 

As at  December 31, 2011   December 31, 2010 
           
Assets          
Current          
Cash and cash equivalents  $1,983,725   $3,766,959 
Prepaid expenses   80,970    64,209 
Receivables (Note 11)   62,479    47,342 
Total Current Assets   2,127,174    3,878,510 
Property and Equipment (Note 5)   151,115    56,383 
Mineral Properties (Note 6)   651,950    651,950 
Technology Rights (Note 7)   2,411,110    2,722,222 
           
Total Assets  $5,341,349   $7,309,065 
           
Liabilities          
Current          
Accounts payable and accrued liabilities  $324,580   $493,814 
Other liabilities – warrants (Note 8(e))   -    2,006,850 
           
Total Liabilities   324,580    2,500,664 
           
Stockholders’ Equity          
Preferred Stock and Paid-in Capital in Excess          
of $0.001 Par Value (Note 8(a))          
20,000,000  shares authorized          
Nil (2010 – Nil) shares issued and outstanding   -    - 
Common Stock and Paid-in Capital in Excess          
of $0.001 Par Value (Note 8(b))          
100,000,000  shares authorized          
58,490,941 (2010 – 49,766,636) shares issued and outstanding   39,865,402    30,834,680 
Subscriptions Receivable (Note 8(b))   -    (32,500)
Deficit Accumulated During the Exploration Stage   (34,848,633)   (25,993,779)
           
Total Stockholders’ Equity   5,016,769    4,808,401 
           
Total Liabilities and Stockholders’ Equity  $5,341,349   $7,309,065 

 

 

See notes to consolidated financial statements.

 

51
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Operations

(Expressed in US dollars)

 

           Cumulative Period 
           from Inception on 
           November 13, 
           2001 through 
   Years Ended December 31,   December 31, 
   2011   2010   2009   2011 
Expenses                    
Advertising and promotion (Note 8(d))  $71,399   $91,583   $45,702   $389,646 
Amortization   342,409    106,894    45,525    590,408 
Bank charges and interest   27,060    10,808    4,765    65,436 
Consulting fees (Note 8(d))   456,653    206,505    106,814    2,644,943 
Consulting fees – directors and officers (Notes 8(d) and 11)   2,366,123    856,020    1,182,776    7,281,962 
Engineering consulting (recovery)   (26,551)   42,799    639,185    711,084 
Exploration (Note 6)   2,250,725    811,649    377,891    7,582,898 
Filing fees   4,808    22,445    5,010    80,130 
Insurance   40,170    51,940    53,757    338,332 
Investor relations, net (Note 8(d))   82,340    335    696,191    852,664 
Licenses, taxes and filing fees   -    -    18,595    379,947 
Management fees (Notes 8(d) and 11)   1,292,898    620,689    139,200    3,449,177 
Office (Note 8(d))   156,087    121,176    37,047    463,798 
Professional fees   273,269    216,830    173,685    2,035,013 
Rent (Note 11)   111,099    76,666    73,091    578,862 
Research and development (Note 7)   276,760    166,802    -    443,562 
Telephone   30,156    18,021    15,707    137,983 
Transfer agent fees   7,659    6,048    3,295    28,225 
Travel and vehicle   246,126    137,926    138,596    1,387,681 
                     
Loss Before Other Items   (8,009,190)   (3,565,136)   (3,756,832)   (29,441,751)
Gain on Sale of Marketable Securities   -    -    -    87,217 
Loss on Sale of Assets   -    -    (7,465)   (19,176)
Adjustment to Market for Marketable                    
Securities   -    -    -    (67,922)
Foreign Exchange   (316,569)   (12,267)   (26,126)   (551,936)
Interest Income   14,055    1,248    1,768    362,446 
Dividend Income   -    -    -    4,597 
Change in Fair Value of Warrants (Note 8(e))   (543,150)   949,875    (2,071,350)   (2,748,999)
Change in Fair Value of Preferred Stock (Note 8(a))   -    380,000    (620,000)   (240,000)
Financing Agreement Penalty   -    -    -    (330,000)
                     
Net Loss and Comprehensive Loss for Period   (8,854,854)   (2,246,280)   (6,480,005)   (32,945,524)
Preferred stock dividends   -    -    -    (1,537,500)
                     
Net Loss Available for Distribution  $(8,854,854)  $(2,246,280)  $(6,480,005)  $(34,483,024)
                     
Basic and Diluted Loss Per Common Share (Note 9)  $(0.16)  $(0.06)  $(0.19)     
Weighted Average Number of Shares of Common Stock Outstanding   55,935,400    39,078,846    34,065,064      

 

 

 

See notes to consolidated financial statements.

 

52
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(Expressed in US dollars)

 

                      Cumulative Period  
                      from Inception  
                      (November 13,  
                      2001) to  
    Years Ended December 31,     December 31,  
    2011     2010     2009     2011  
                         
Operating Activities                                
Net loss for period   $ (8,854,854 )   $ (2,246,280 )   $ (6,480,005 )   $ (32,945,524 )
Items not involving cash                                
Amortization     342,409       106,894       45,525       590,408  
Stock-based compensation     188,097       120,409       1,024,122       3,496,717  
Loss on sale of assets     -       -       7,465       19,176  
Common stock issued for services     3,137,250       986,400       560,000       6,641,280  
Change in fair value of warrants     543,150       (949,875 )     2,071,350       2,748,999  
Change in fair value of preferred stock     -       (380,000 )     620,000       240,000  
Financing agreement penalty     -       -       -       330,000  
Adjustment to market on marketable securities     -       -       -       67,922  
Gain on sale of marketable securities     -       -       -       (87,217 )
Non-cash exploration expenditures     -       -       -       600,000  
Changes in non-cash working capital                                
Prepaid expenses     (16,761 )     (5,581 )     (1,688 )     (90,271 )
Receivables     (15,137 )     5,492       (29,906 )     (55,197 )
Marketable securities     -       -       -       19,295  
Accounts payable and accrued liabilities     (169,234 )     224,668       167,523       258,734  
                                 
Cash Used in Operating Activities     (4,845,080 )     (2,137,873 )     (2,015,614 )     (18,165,678 )
                                 
Investing Activities                                
Additions to property and equipment     (126,029 )     (9,503 )     (40,898 )     (358,029 )
Additions to mineral properties     -       -       -       (651,950 )
                                 
Cash Used in Investing Activities     (126,029 )     (9,503 )     (40,898 )     (1,009,979 )
                                 
Financing Activities                                
Repayment of long-term debt     -       -       -       (100,000 )
Issuance of preferred stock for cash     -       -       -       5,000,000  
Issuance of common stock for cash     3,155,375       4,559,191       1,946,031       16,005,546  
Stock subscriptions received     32,500       -       -       263,500  
Working capital acquired on acquisition     -       -       -       171  
                                 
Cash Provided by Financing Activities     3,187,875       4,559,191       1,946,031       21,169,217  
                                 
Foreign Exchange Effect on Cash     -       11,150       (20,985 )     (9,835 )
                                 
Inflow (Outflow) of Cash and Cash Equivalents     (1,783,234 )     2,422,965       (131,466 )     1,983,725  
Cash and Cash Equivalents, Beginning of Period     3,766,959       1,343,994       1,475,460       -  
                                 
Cash and Cash Equivalents, End of Period   $ 1,983,725     $ 3,766,959     $ 1,343,994     $ 1,983,725  
                                 
Supplemental Cash Flow Information                                
Common shares issued for settlement of debt   $ -     $ -     $ -     $ 830,000  
Share issue costs included in accounts payable   $ -     $ 63,920     $ -     $ 63,920  
Common shares issued to acquire technology   $ -     $ 2,800,000     $ -     $ 2,800,000  
Common shares issued for preferred stock   $ -     $ 740,000     $ -     $ 740,000  
Income tax paid   $ -     $ -     $ -     $ -  
Interest paid   $ -     $ -     $ -     $ -  

 

 

See notes to consolidated financial statements. 

 

53
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars) 

 

   Shares of
Common Stock
   Common Stock
and Paid-In
Capital in
Excess of
Par Value
   Shares of
Preferred Stock
   Preferred Stock
and Paid-in
Capital in
Excess of
Par Value
   Subscriptions
Receivable
   Subscriptions
Received
   Accumulated
Deficit
   Total
Stockholders’ Equity
(Deficit)
 
                                         
Balance, December  31, 2002 and                                        
inception (November 13, 2001)   -   $-    -   $-   $-   $-   $-   $- 
Shares issued for cash                                        
Private placements   4,040,000    404,000    -    -    (111,000)   -    -    293,000 
Shares issued for services   7,211,000    72,110    -    -    -    -    -    72,110 
                                         
Balance, prior to acquisition   11,251,000    476,110    -    -    (111,000)   -    -    365,110 
Shares of accounting subsidiary                                        
acquired on reverse takeover   1,550,000    28,368    -    -    -    -    -    28,368 
Adjustment to eliminate capital of                                        
accounting subsidiary on revere takeover   -    (28,368)   -    -    -    -    -    (28,368)
Adjustment to increase capital of                                        
accounting parent on reverse takeover   -    365,779    -    -    -    -    -    365,779 
Excess of purchase price over                                        
net assets acquired on recapitalization   -    -    -    -    -    -    (365,607)   (365,607)
Net loss for year   -    -    -    -    -    -    (830,981)   (830,981)
                                         
Balance, December 31, 2003   12,801,000    841,889    -    -    (111,000)   -    (1,196,588)   (465,699)
Shares issued for cash                                        
Private placement   2,358,633    1,405,180    -    -    -    -    -    1,405,180 
Share subscriptions received   -    -    -    -    111,000    120,000    -    231,000 
Shares issued for services   128,500    205,320    -    -    -    -    -    205,320 
Stock-based compensation   -    651,750    -    -    -    -    -    651,750 
Net loss for year   -    -    -    -    -    -    (1,523,509)   (1,523,509)
                                         
Balance, December 31, 2004   15,288,133   $3,104,139    -   $-   $-   $120,000   $(2,720,097)  $504,042 

 

 

See notes to consolidated financial statements.

 

54
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

 

   Shares of
Common Stock
   Common Stock
and Paid-In
Capital in
Excess of
Par Value
   Shares of
Preferred Stock
   Preferred Stock
and Paid-in
Capital in
Excess of
Par Value
   Subscriptions
Receivable
   Subscriptions
Received
   Accumulated
Deficit
   Total
Stockholders’ Equity
(Deficit)
 
                                         
Balance, December 31, 2004   15,288,133   $3,104,139    -   $-   $-   $120,000   $(2,720,097)  $504,042 
Shares issued for cash                                        
Private placement   459,000    459,000    6,250,000    5,000,000    -    (120,000)   -    5,339,000 
Preferred stock issued for debt   -    -    625,000    500,000    -    -    -    500,000 
Shares issued for services   82,000    115,200    -    -    -    -    -    115,200 
Stock-based compensation   -    688,920    -    -    -    -    -    688,920 
Beneficial conversion feature   -    1,537,500    -    -    -    -    (1,537,500)   - 
Net loss for year   -    -    -    -    -    -    (2,642,954)   (2,642,954)
                                         
Balance, December 31, 2005   15,829,133    5,904,759    6,875,000    5,500,000    -    -    (6,900,551)   4,504,208 
Shares issued for financial agreement penalty   440,000    330,000    -    -    -    -    -    330,000 
Stock-based compensation   -    59,896    -    -    -    -    -    59,896 
Net loss for year   -    -    -    -    -    -    (2,184,843)   (2,184,843)
                                         
Balance, December 31, 2006   16,269,133    6,294,655    6,875,000    5,500,000    -    -    (9,085,394)   2,709,261 
Shares issued for cash                                        
Private placement   5,070,000    2,340,683    -    -    -    -    -    2,340,683 
Shares issued for services   1,600,000    1,565,000    -    -    -    -    -    1,565,000 
Shares issued for conversion of preferred stock   6,250,000    5,000,000    (6,250,000)   (5,000,000)   -    -    -    - 
Stock-based compensation   -    718,184    -    -    -    -    -    718,184 
Net loss for the year   -    -    -    -    -    -    (3,921,817)   (3,921,817)
                                         
Balance, December 31, 2007   29,189,133    15,918,522    625,000    500,000    -    -    (13,007,211)   3,411,311 
Shares issued for cash                       -                
Private placement   2,814,909    1,967,086    -    -    -         -    1,967,086 
Stock-based compensation   -    45,339    -    -              -    45,339 
Net loss for the year   -    -    -    -              (3,175,908)   (3,175,908)
                                         
Balance, December 31, 2008   32,004,042   $17,930,947    625,000   $500,000   $-   $-   $(16,183,119)  $2,247,828 

 

 

See notes to consolidated financial statements.

 

55
 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

 

   Shares of
Common Stock
   Common Stock
and Paid-In
Capital in
Excess of
Par Value
   Shares of
Preferred Stock
   Preferred Stock
and Paid-in
Capital in
Excess of
Par Value
   Subscriptions
Receivable
   Subscriptions
Received
   Accumulated
Deficit
   Total
Stockholders’
Equity
(Deficit)
 
                                         
Balance, December 31, 2008   32,004,042   $17,930,947    625,000   $500,000   $-   $-   $(16,183,119)  $2,247,828 
Warrants exercised   2,100,000    1,045,340    -    -    -    -    -    1,045,340 
Shares issued for cash                                        
Private placement   1,496,930    900,691    -    -    -    -    -    900,691 
Reduction in warrant liability on exercise of 2,000,000 warrants   -    199,000    -    -         -    -    199,000 
Shares issued for services   800,000    560,000    -    -    -    -    -    560,000 
Cumulative effect of change in accounting principle   -    -    -    -    -    -    (1,084,375)   (1,084,375)
Correction of error   -    -    -    (500,000)   -    -    -    (500,000)
Stock-based compensation   -    1,024,122    -    -    -    -    -    1,024,122 
Net loss for the year   -    -    -    -    -    -    (6,480,005)   (6,480,005)
                                         
Balance, December 31, 2009   36,400,972    21,660,100    625,000    -    -    -    (23,747,499)   (2,087,399)
Warrants exercised (Note 8(e))   2,193,040    1,315,824    -    -    -    -    -    1,315,824 
Stock options exercised (Note 8(c))   50,000    25,000    -    -    -    -    -    25,000 
Shares issued for cash                                        
Private placement (Note 8(b))   5,384,624    3,186,947    -    -    -    -    -    3,186,947 
Subscription receivable (Note 8(b))   -    -    -    -    (32,500)   -    -    (32,500)
Shares issued for services (Note 8(b))   738,000    986,400    -    -    -    -    -    986,400 
Shares issued for technology (Note 7)   4,000,000    2,800,000    -    -    -    -    -    2,800,000 
Shares issued for conversion of preferred stock (Note 8(b))   1,000,000    740,000    (625,000)   -    -    -    -    740,000 
Stock-based compensation (Note 8(d))   -    120,409    -    -    -    -    -    120,409 
Net loss for the year   -    -    -    -    -    -    (2,246,280)   (2,246,280)
                                         
Balance, December 31, 2010   49,766,636   $30,834,680    -   $-   $(32,500)  $-   $(25,993,779)  $4,808,401 

 

 

See notes to consolidated financial statements.

 

56
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

 

   Shares of
Common Stock
   Common Stock
and Paid-In
Capital in
Excess of
Par Value
   Shares of
Preferred Stock
   Preferred Stock
and Paid-in
Capital in
Excess of
Par Value
   Subscriptions
Receivable
   Subscriptions
Received
   Accumulated
Deficit
    Total
Stockholders’ Equity
(Deficit)
 
Balance, December 31, 2010   49,766,636   $30,834,680    -   $-   $(32,500)  $-   $(25,993,779)  $4,808,401 
Stock-based compensation (Note 8(d))   -    188,097    -    -    -    -    -    188,097 
Share subscriptions received   -    -    -    -    32,500    -    -    32,500 
Common stock issued for services (Note 8(b))   2,565,000    3,137,250    -    -    -    -    -    3,137,250 

Additional paid in capital recognized on warrant conversion (Note 8(e))

   -    2,550,000    -    -    -    -    -    2,550,000 
Warrants exercised (Note 8(e))   4,499,306    2,325,375    -    -    -    -    -    2,325,375 
Stock options exercised (Note 8(c))   1,659,999    830,000    -    -    -    -    -    830,000 
Net loss for the year   -    -    -    -    -    -    (8,854,854)   (8,854,854)
Balance, December 31, 2011   58,490,941   $39,865,402    -   $-   $      -   $-   $(34,848,633)  $5,016,769 

 

 

See notes to consolidated financial statements. 

 

57
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

1.NATURE OF BUSINESS AND BASIS OF PRESENTATION

White Mountain Titanium Corporation (the “Company”) is in the business of exploring for titanium deposits or reserves on its Cerro Blanco mining concessions. The Company is an exploration stage company and its principal business is to advance exploration and development activities on the Cerro Blanco rutile (titanium dioxide) Property (“Cerro Blanco”) located in Region III of northern Chile.

 

These consolidated financial statements are prepared in accordance with United States (“US”) generally accepted accounting principles (“GAAP”).

 

2.GOING CONCERN

These consolidated financial statements have been prepared by management on the basis of GAAP applicable to a going concern, which assumes the Company will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations.

 

The Company has an accumulated deficit of $34,848,633 (2010 - $25,993,779), has not yet commenced revenue-producing operations, and has significant expenditure requirements to continue to advance its exploration and development activities on the Cerro Blanco property.

 

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate because management believes the actions already taken or planned will mitigate the adverse conditions and events that raise doubts about the validity of the going concern assumption used in preparing these consolidated financial statements. Management intends to raise additional capital through stock issuances to finance operations and invest in other business opportunities.

 

If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported expenses, and the balance sheet classifications used.

 

3.SIGNIFICANT ACCOUNTING POLICIES

(a)Principles of consolidation

These financial statements include the accounts of the Company and its wholly-owned subsidiaries, Sociedad Contractual Minera White Mountain Titanium (“White Mountain Chile”), a Chilean corporation; White Mountain Titanium Corporation, a Canadian corporation; and White Mountain Titanium (Hong Kong) Limited, an inactive Hong Kong corporation. All significant intercompany balances and transactions have been eliminated.

 

(b)Cash equivalents

The Company considers all highly liquid debt instruments that are readily convertible to known amounts of cash and purchased with a maturity of three months or less from the date acquired to be cash equivalents.

 

58
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c)Amortization

Amortization for property and equipment is provided using a straight-line method based on the following estimated useful lives:

 

Vehicles - 5 years
Office furniture - 5 years
Office equipment - 5 years
Computer equipment - 5 years
Computer software - 5 years
Field equipment - 5 years

 

Technology rights are amortized on a straight-line basis over their estimated useful life of nine years, which is the expected development period of the technology.

 

(d)Exploration expenditures

 

The Company is in the exploration stage of developing its mineral properties and has not yet determined whether these properties contain ore reserves that are economically recoverable.

 

Exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Mineral property acquisition costs are capitalized. Commercial feasibility is established in compliance with the Securities and Exchange Commission (“SEC”) Industry Guide 7, which consists of identifying that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. After an area of interest has been assessed as commercially feasible, expenditures specific to the area of interest for further development are capitalized. In deciding when an area of interest is likely to be commercially feasible, management may consider, among other factors, the results of prefeasibility studies, detailed analysis of drilling results, the supply and cost of required labor and equipment, and whether necessary mining and environmental permits can be obtained.

 

Mining projects and properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If the estimated future cash flows expected to result from the use of the mining project or property and its eventual disposition are less than the carrying amount of the mining project or property, impairment is recognized based upon the estimated fair value of the mining project or property. Fair value is generally based on the present value of the estimated future net cash flows for each mining project or property, calculated using estimated mineable reserves and mineral resources based on engineering reports, projected rates of production over the estimated life of the mine, recovery rates, capital requirements, remediation costs and future prices considering the Company’s hedging and marketing plans.

 

(e)Research and development

 

The Company expenses all research and development costs, related to technology rights, as incurred.

 

59
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (Continued)

(f)Asset retirement obligations (“ARO”)

The Company recognizes a legal liability for obligations related to the retirement of property and equipment, and obligations arising from the acquisition, construction, development or normal operations of those assets. Such asset retirement costs must be recognized at fair value when a reasonable estimate of fair value can be estimated in the period in which the liability is incurred. A corresponding increase to the carrying amount of the related asset, where one is identifiable, is recorded and amortized over the life of the asset. Where a related future value is not easily identifiable with a liability, the change in fair value over the course of the year is expensed. The amount of the liability is subject to re-measurement at each reporting period. The estimates are based principally on legal and regulatory requirements.

 

It is possible that the Company’s estimates of its ultimate reclamation and closure liabilities could change as a result of changes in regulations, changes in the extent of environmental remediation required, changes in the means of reclamation or changes in cost estimates. Changes in estimates are accounted for prospectively commencing in the period the estimate is revised.

 

(g)Long-lived assets

Long-lived assets, including mineral properties and intangible assets with determinable useful lives, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and is charged to earnings.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell.  Intangible assets with determinable useful lives are amortized on a straight line basis over their respective estimated useful lives.

 

(h)Income taxes

The Company uses the asset and liability method of accounting for income taxes which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using tax rates expected to be in effect when the temporary differences are likely to be realized. A valuation allowance against deferred tax assets is recorded if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

The Company provides for uncertain tax provisions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. This assessment is based on only the technical merits of the tax position. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements and a liability for unrecognized tax benefits is established. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize the financial statements. The tax benefit recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.

 

60
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i)Stock-based compensation

The Company accounts for stock-based compensation expenses associated with stock options and other forms of equity compensation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10 Stock Compensation. ASC 718-10 requires the Company to estimate the fair value of share-based payment awards on the date of grant using an option pricing model.  The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statements of operations.  The Company uses the straight-line single-option method to recognize the value of stock-based compensation expense for all share-based payment awards.  Stock-based compensation expense recognized in the statements of operations is reduced for estimated forfeitures, as it is based on awards ultimately expected to vest.  ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses a Monte Carlo probability calculator for calculating the probabilities relating to the exercisability and vestability of their share-based payments.

 

(j)Loss per share

The Company accounts for loss per share in accordance with ASC 260-10 Earnings Per Share, which requires the Company to present basic and diluted earnings per share. The computation of loss per share is based on the weighted average number of shares of common stock outstanding during the period presented (see Note 8(b)). The Company uses the two-class method to calculate loss per share for common stock, as well as preferred stock at their conversion equivalent to common stock.

 

The calculation of diluted loss per share excludes the effects of all common share equivalents that would be anti-dilutive.

 

(k)Financial instruments

All financial instruments are classified as one of the following: held-to-maturity, loans and receivables, held-for-trading, available-for-sale or other financial liabilities. Financial assets and liabilities held-for-trading are measured at fair value with gains and losses recognized in net income. Financial assets held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) and reported in shareholders’ equity. Any financial instrument may be designated as held-for-trading upon initial recognition.

 

Transaction costs that are directly attributable to the acquisition or issue of financial instruments that are classified as other than held-for-trading, which are expensed as incurred, are included in the initial carrying value of such instruments.

 

61
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (Continued)

(l)Conversion of foreign currency

The functional and reporting currency of the Company and its subsidiaries is the US dollar. The Company’s Chilean operations are re-measured into US dollars as follows:

 

·             Monetary assets and liabilities, at year-end rates;

·             All other assets and liabilities, at historical rates; and

·             Revenue and expense items, at the exchange rate in effect on the date of the transaction.

 

Exchange gains and losses arising from these transactions are reflected in operations for the year.

 

(m)Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates and could impact future results of operations and cash flows.

 

Significant areas requiring the use of estimates relate to the rates for depreciation and amortization of property and equipment and technology rights, determining the variables used in calculating the fair value of stock-based compensation expense and other liabilities - warrants, recoverability of intangible assets and mineral properties, accrued liabilities, determination of valuation allowance for deferred income tax assets and determining AROs.

 

(n)Recently adopted accounting pronouncements

The following changes have been adopted by the FASB and the US SEC:

 

(i)In April 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-13 Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (“ASU 2010-13”). ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance or service condition. Therefore, an entity would not classify such an award as liability if it otherwise qualifies as equity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or results of operations.

(ii)In May 2010, the FASB issued ASU 2010-19 Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates – An announcement made by the staff of the U.S. Securities and Exchange Commission (“ASU 2010-19”). The purpose of this ASU is to codify the SEC staff announcement made at the March 18, 2010 Emerging Issues Task Force (“EITF”) meeting providing the SEC staff’s views on certain foreign currency issues related to investments in Venezuela. Staff announcements made at EITF meetings are generally effective as of the announcement date, in this case, March 18, 2010. Adoption of this ASU did not have a material impact on the material impact on the Company’s consolidated financial statements or results of operations.

 

62
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (Continued)

(o)Future accounting pronouncements

(i)In May 2011, the FASB issued ASU 2011-04 Fair Value Measurement (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU amended ASC 820, to converge the fair value measurements guidance in US GAAP and IFRS. Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, this ASU requires additional fair value disclosures. The amendments to this ASU are to be applied prospectively, and will be effective for fiscal years and quarters beginning after December 15, 2011. Early adoption is not permitted. This guidance will be effective for the Company in the first quarter of fiscal 2012. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

(ii)In June 2011, the FASB issued ASU 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 provides amendments to the FASB Codification to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively, and will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements or results of operations.

 

63
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

4.FINANCIAL INSTRUMENTS AND RISKS

The Company has classified its financial instruments as follows:

 

Cash and cash equivalents – as held-for-trading

Receivables – as loans and receivables

Accounts payable and accrued liabilities – as other financial liabilities

Other liabilities – warrants – as other financial liabilities.

 

(a)Fair value

 

The Company’s financial instruments consist of cash and cash equivalents, receivables, and accounts payable and accrued liabilities. The carrying amounts of these instruments approximate their respective fair values due to the short maturities of these instruments. The three levels of the fair value hierarchy are described below:

 

§Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
§Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
§Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table summarizes fair value measurement by level at December 31, 2011 and 2010, for assets and liabilities measured at fair value on a recurring basis.

 

December 31, 2011  Level 1   Level 2   Level 3   Total 
Cash and cash equivalents  $1,983,725   $-   $-   $1,983,725 
Other liabilities – warrants  $-   $-   $-   $- 

 

December 31, 2010  Level 1   Level 2   Level 3   Total 
Cash and cash equivalents  $3,766,959   $-   $-   $3,766,959 
Other liabilities – warrants  $-   $2,006,850   $-   $2,006,850 

 

(b)Credit risk

 

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge its contractual obligations.

 

The Company mitigates credit risk, in respect of cash and cash equivalents, by purchasing highly liquid, short-term guaranteed investment certificates (“GIC”) held at a high credit quality Canadian financial institution and by maintaining its cash with high credit quality Canadian and Chilean financial institutions. The receivables consist of Harmonized Sales Tax due from the Government of Canada and expenditure advances to a director.

 

  2011 2010
         
Cash $ 230,373 $ 966,121
GICs   1,753,352   2,800,838
         
  $ 1,983,725 $ 3,766,959

 

64
 

 

WHITE MOUNTAIN TITANIUM CORPORATION

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in US dollars)

 

 

4.FINANCIAL INSTRUMENTS AND RISKS (Continued)

(c)Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows required for operations and anticipated investing and financing activities. The Company’s cash and cash equivalents at December 31, 2011 totalled $1,983,725 (2010 - $3,766,959). At December 31, 2011, the Company had accounts payable and accrued liabilities of $324,580 (2010 - $493,814), all of which are due in the first fiscal quarter of 2012.

 

(d)Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk.

 

(i)Interest rate risk

Interest rate risk consists of two components:

 

(a)To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk.

(b)To the extent that changes in prevailing market interest rates differ from the interest rate in the Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk.

The Company’s cash and cash equivalents consist of cash held in bank accounts and variable rate GICs. Due to the short-term nature of these financial instruments, fluctuations in market interest rates do not have a significant impact on estimated fair values and on cash flows associated with the interest income as of December 31, 2011.

 

(ii)Foreign currency risk

The Company is exposed to foreign currency risk to the extent expenditures incurred or funds received and balances maintained by the Company are denominated in currencies other than the US dollar (primarily Canadian dollars (“CAD”) and Chilean pesos (“CLP”). The Company has net monetary assets of $62,800 (2010 – $9,000) denominated in CAD and net monetary assets of $10,600 (2010 – net liabilities of $279,000) in CLP.

 

For the year ended December 31, 2011, the Company’s sensitivity analysis suggests that a change in the absolute rate of exchange in CAD by 12% will not have a material effect on the Company’s business, financial condition and results of operations, and a change in the absolute rate of exchange in CLP by 17% will also not have a material impact.

 

The Company has not entered into any foreign currency contracts to mitigate this risk.

 

(iii)Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to other price risk.