News

Audited Financial Statements For Year Ended March 31, 2004

Aug 24, 2004

SKYHARBOUR RESOURCES LTD.

MANAGEMENT DISCUSSION AND ANALYSIS

YEAR END REPORT -- MARCH 31, 2004

This Management Discussion and Analysis of Skyharbour Resources Ltd. (the "Company") provides an analysis of the Company's financial results for the year ended March 31 2004. The following information should be read in conjunction with the accompanying audited financial statements and the notes to the financial statements.

1.1 Date of Report August 18, 2004

1.2 Overall Performance

Nature of Business and Overall Performance

Skyharbour Resources Ltd. is a public company listed on the TSX Venture Exchange under the symbol "SYH". The Company is primarily a junior exploration company with no revenues from mineral producing operations. Activities include the process of exploring its mineral properties, reviewing and subsequently acquiring potential new mineral properties and conducting exploration programs to determine whether these properties contain ore reserves that are economically recoverable. The recoverability of amounts shown for the mineral properties and related deferred exploration expenditures is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the exploration of the property, and upon future profitable production.

Private Placements

During the year ended March 31, 2004, the following private placements occurred:

On July 16, 2003, the Company closed its 2,500,000 unit private placement. Each unit consists of one share and one share purchase warrant which entitles the holder to purchase an additional share of the company at a price of $0.10 per share until July 16, 2005. In addition, the Company issued 43,750 units and paid the sum of $4,875 as compensation in connection with its private placement.

On July 28, 2003, the Company closed its 1,000,000 flow-through unit private placement. Each unit consists of one flow-through share and one share purchase warrant which entitles the holder to purchase an additional flow-through share of the Company at a price of $0.15 per share until July 28, 2005. The Company also issued Canaccord Capital Corporation 41,250 non flow-through units and paid the sum of $5,362. as compensation in connection with its private placement.

On October 27, 2003, the Company closed its 2,000,000 unit private placement. Each unit consists of one share and one share purchase warrant which entitles the holder to purchase an additional share of the Company at a price of $0.13 per share until October 27, 2005. In addition, the Company issued 10,000 units and paid the sum of $5,000 as compensation in connection with this private placement.
On December 9, 2003, the Company issued 2,270,000 units at a price of $0.15 per unit for proceeds of $340,500 in a non-brokered private placement. Each unit consisted of one flow-through common share and one flow-through share purchase warrant. Each flow-through share purchase warrant is exercisable into an additional flow-through common share at a price of $0.16 until December 9, 2004. Finder's fees included the Company issuing 200,000 units. Each united consisted of one common share and one share purchase warrant. Each share purchase warrant is exercisable into an additional common share at a price of $0.18 until December 9, 2004. The finder's warrants have been recorded at a fair value of $18,120, which is included in contributed surplus.

Mineral Properties

As at March 31, 2004, the Company has capitalized mineral property costs of $1,091,297 on its eight mineral properties, all located in Canada. Of the total amount, $785,677 relates to deferred exploration expenditures.

The most recent developments on the properties are as follows:

Heyson & Byshe Township, Red Lake District, Ontario

On May 6, 2003, the Company and ITL Capital Corporation ("ITL") amended the terms of their Option Agreement dated May 14, 2002. The Company was granted an option by ITL to acquire a 51% interest in a total of fifteen mineral claim units located in Heyson and Byshe Townships, Red Lake District, Ontario (the "HB Claims").

Pursuant to the terms of the Option Agreement, the Company was to have completed a $150,000 work program on the HB Claims by April 30, 2003. The parties have agreed to amend the Option Agreement by extending the term of the work commitment to December 31, 2003. In consideration for granting the extension, the Company issued on June 19, 2003, ITL a total of 200,000 shares at a deemed price of $0.14 per share.

Phase 1 of the 2003 drill program on the Heyson property was completed in June 2003, and intersected several zones of gold mineralization on the "Sulley Creek Till Anomaly". Significant gold values (59.4 grams / ton over .4 meters) were encountered in H03 - #3. This intercept was in a vein within a 15-meter thick "hematite-epidote-silica" alteration zone in a quartz porphyry The hemitization (destruction of magnetite) has resulted in a distinct magnetic low over the geologically altered zone, and this data is now being used in identifying potential drill targets. Drilling in Phase 2, which was completed in September 2003, has identified significant widths of this favorable alteration along a strike length of 280 meters. Additional anomalous gold intercepts have been encountered within the alteration system.

Diamond drilling to date has tested only a small portion of the large "gold-in-till" anomaly that exists of the Heyson / Byshe property and has explained only a small part of the anomaly. The type and style of the mineralization encountered to date is encouraging but the head of the till anomaly is contained in a large system of more than 2 kilometers in length, and has shown very good anomalous gold numbers in the previous till sampling program.

The immediate 3-hole, 1,000 meter drill program will begin by testing the, continuity of the high-grade gold mineralization intersected to date on the "Sully Creek Zone". Significant gold values (59.4 grams gold per ton over .4 meters) were encountered in drill hole HO3-3. This intercept was in a vein within a 15 meter thick "hemitite-epidote-silica" highly altered zone of fracturing and brecciation. Drilling has identified significant widths of this style of alteration along a strike length of over 300 meters. This alteration assemblage is typical of a number of past and present gold producing mines in the Canadian Archean.

In May 2004, ITL Capital and the Company agreed to dilute ITL's interest to offset ITL's expenditures incurred on the property. As a result of the dilution, the Company will hold a 60.97 percent interest in the property.

CD Claims, Dome Township, Red Lake District, Ontario

On May 12, 2003, the Company entered into an agreement with Carl D. Huston to purchase a 100% interest in and to 3 mineral claim blocks consisting of 4 units located in the Dome Township, Red Lake Mining District, Ontario, covering approximately 200 acres (the "CD Property"). The Company paid the sum of $1,500 and issued 20,000 common shares to Carl D. Huston as consideration for the CD Property.

Option Agreement with The Hunter Group

The Company issued 275,000 units on June 9, 2003, pursuant to an agreement dated February 28, 2002 between the Company and Hunter Exploration Group. Each unit consists of one share and one share purchase warrant. Each warrant entitles the holder to purchase an additional share of the Company at a price of $0.13 until May 30, 2004. The units were issued in connection with 23 prospecting permits located in the Coronation District, Nunavut.

Management decided to relinquish its option on the Property and will not be proceeding with any further exploration.

Dent, Township, Red Lake District, Kenora Mining Division, Ontario

On June 11, 2003, the Company amended an option agreement dated May 22, 2003 with Carl D. Huston wherein the Company had been granted an option to earn a 100% interest in and to 6 claim blocks consisting of 51 units located in the Dent, Agnew and Uchi Townships, Red Lake District, Kenora Mining Division, Ontario. Pursuant to the terms of the Option Agreement, the Company was to pay the sum of $5,000 and issue 20,000 shares on or before June 21, 2003. The Option Agreement has been amended such that the Company paid the sum of $1,500 and issued 50,000 shares.

Dome & Fairlie Township, Red Lake Area, Ontario

The Company entered into an Acquisition Agreement dated March 25, 2004 with Dan Patrie Exploration Ltd. to acquire a 100% interest in and to one (1) mineral claim consisting of 6 units (approximately 240 acres) located in the Dome Township, Red Lake Area, Kenora Mining Division, Ontario. The consideration payable to Patrie for the mineral claim is the sum of $3,000 and the issuance of 65,000 common shares. (issued on April 1, 2004) A 2% net smelter return royalty is reserved in favour of Patrie. Regulatory approval was received on April 1, 2004. This acquisition will form part of the McKenzie Island property of which Skyharbour Resources Ltd. has a 20% interest. Subsequent to the March 31, 2004 quarter, as per the Second Agreement dated April 16, 2004, Skyharbour was vested with a 20% interest in this property for the sum of $2,400.

East Humlin, McKenzie Island, Dome and Fairlie Townships, Red Lake Area, Kenora Mining Division, Ontario

On April 15, 2003, the results received to date from the drilling carried out on its McKenzie Island Joint Venture with Cypress Development Corp. in the Red Lake District, Northwestern Ontario were released. Orko Gold has the right to earn a 60% interest in the property by spending $500,000 in exploration expenses in 2003. The program was designed to test geophysical and geochemical targets as defined from previous Skyharbour fieldwork. The Phase 1 diamond drill program included 8 drill holes located in the MacAndrew geological trend plus 5 additional drill holes located on the NMI zone, which are situated off the north shore of McKenzie Island. The drilling program consisting of 2,081.5 meters (6,828.3 feet) in 13 holes has now been completed.

Eight of the drill holes tested .5 kilometer of strike length along the MacAndrew trend. The gold values encountered here are generally associated with sheared and altered margins of a quartz diorite body that has intruded the Dome Stock. Numerous anomalous gold values have been encountered in this trend.

Results to date have indicated minor gold values in the system and that the area warrants additional exploration.

Hole:

M03-1 intersected .4 meters of 5.56 grams / ton gold
M03-6 intersected .2 meters of .82 grams / ton gold
M03-12 intersected .5 meters of .65 grams / ton gold

The geological setting is considered to be similar to that hosting the McKenzie Red Lake deposit on the east end of McKenzie Island.

The area off the north shore of McKenzie Island (NMI zone) was drilled with a total of 5 holes testing an area of indicated structural disturbance along the contact between the volcanic formations and sedimentary formations. These holes targeted structural zones interpreted from previous magnetic data. All of the structural zones encountered were confirmed as carbonate shear/breccia zones with associated anomalous gold values.

Hole M03-7 (NMI zone) intersected 1.3 meters of 1.89 grams / ton gold. This intercept was in an altered porphyritic zone flanking carbonate shearing and containing arsenopyrite in narrow quartz-chloritic veinlets.

An overburden-drilling program has also been carried out on a portion of McKenzie Island and to the south in St. Paul's Bay area. The base of till was sampled at 133 sites with 2,990 feet of overburden drilling. Numerous elevated gold values were identified in tills from both areas. These anomalous gold values correspond well with the large till sampling program carried out by Skyharbour in 2002. Results to date from both the diamond drill program and the overburden drill program are continuing to be compiled. A Phase 2 program is anticipated to commence in the third quarter of 2003.

Gold assay samples were prepared and assayed by TSL Laboratories of Saskatoon, Saskatchewan, using industry standard fire assay geochemical and/or gravimetric methods. Standard samples were submitted with each sample batch. The McKenzie Island Phase 1 drill program was carried out and supervised by David Busch, P.Geo., a qualified person.

On December 19, 2003, the Company announced that Orko Gold Corporation has provided notice that it will not be proceeding with its option to earn an interest in the McKenzie Island Property located in the Red Lake District, Northwestern Ontario.

A table including material sections from the fall 2003 drill program follows:

Hole No. From M. To M. Length M. Au gpt
B03-10 28 28.5 0.5 1.66
28.5 29 0.5 3.08
29 30.3 1.3 1.19

B03-11 258.2 258.5 0.3 0.69
347.3 347.7 0.4 13.68

B03-12 182.8 183.9 1.1 0.9
185.6 186.6 1.0 1.74
186.6 188.1 1.5 4.11
232 233.7 1.7 0.87
591.5 593 1.5 0.55

B03-13 166.2 167.6 1.4 0.69
173.4 174.9 1.5 3.44
174.9 175.9 1 1.62

NOTE: Assays over 1gr/ton determined by Total Metallic Assay


In addition to the above assays, holes 10 to 13 contained a number of wider anomalous gold intercepts where values of up to 500 parts per billion (.5grams) were also encountered. These gold intercepts may form or be Part of a larger mineralized system. There are still some additional samples of drill core in for assay that have not been processed at this time.

Additional mineral rights have been acquired on the Company's McKenzie Island property to cover a geological setting that has similarities to the McKenzie Red Lake and Gold Eagle mines on the eastern end of the island. Discussions are ongoing in an effort to find a possible joint venture partner to fund further work on the property.

Baird Township, Red Lake Area, Kenora Mining Division, Ontario

On June 26, 2003, the Company announced that its spring (2003) drilling program has been completed. A total of 3,068 meters (10,062 feet) were drilled on the property. This drill program has been a collaboration with the Company (operator), Bayfield Ventures and Placer Dome (CLA) Ltd. (optionee). The program was designed to systematically section the property at 200-meter intervals. The drill program was intended to define the extent and character of previously identified gold mineralization, alteration, and structures. The drilling targeted a broad, known deformation zone interpreted from airborne geophysical data.

Skyharbour and Bayfield are very encouraged with the results received to date from the drilling program, which has confirmed the presence of gold mineralization within broad zones of quartz carbonate alteration. The quartz carbonate alteration system was significantly expanded by the Phase 1 drilling program. Gold values encountered in B03-9 were in an entirely new geological setting. This setting includes veins and veining in mafic / ultramafic flows and subvolcanics and is 400m west of any previously known gold values. The planar nature of gold bearing veins in this setting indicates a strong likelihood of lateral continuity.

This geological setting is interpreted as displaying many similarities to the known major gold deposits that have been developed in heart of the Red Lake gold belt. (Placer Dome's Campbell Mine and Goldcorp's Red Lake mine as examples). It is believed sufficient data was obtained from the current program to effectively target new and prospective settings for further drilling.

Placer Dome has provided the funding necessary for the drill program as part of an earn-in option agreement. (see news release March 21, 2003). Follow up exploration programs on the property will focus on further delineating the gold bearing zones and targeting higher-grade gold bearing shoots within these zones.

Gold assays were by metallic screen fire assays as carried out by TSL Laboratories Inc. of Saskatoon, Saskatchewan. Industry standards and blanks were incorporated into each sample batch to ensure quality control of the assaying. These results have been prepared under the direct supervision of Mr. David Busch, P Geo., who is designated a Qualified Person with the ability and authority to attest to the authenticity and validity of this data.

Skyharbour Resources Ltd. announces it has now completed its fall 2003 diamond drilling program on the Baird property that had commenced October 26, 2003. A total of 4 holes consisting of 2121 meters (6957 feet) were drilled in this Phase II Program. This property is jointly held by Skyharbour Resources Ltd. (50%) and Bayfield Ventures Corp. (50%) and is currently under option to Placer Dome, whereby, Placer will provide $800,000 for exploration by December 31/2004 to earn a 51% interest in the Baird Property. As stated, two
phases of diamond drilling have now been carried out on the Baird property in 2003. The total footage drilled to date is 17,019 feet (5189 meters) and is contained in 13 drill hole locations. To date, all diamond drill exploration carried out on the Baird Project in 2003 has been financed by Placer Dome, as per the terms of the option agreement, with Skyharbour acting as the operator.

A larger drilling rig was moved on to the property in October to allow the company to drill deeper holes to depths of 2500 + feet. The fall 2003 drill program was planned to test an interpreted structural hinge (fold) area that was previously identified from the spring 2003 drill program. The target area is known to be intersected by structures containing associated alteration and gold values in the mafic/ultramafic rock types and is situated in a broad, known deformation zone that has been interpreted from previous geophysical data and diamond drilling.

Skyharbour, Bayfield, and Placer Dome are very encouraged with the results received to date from the latest round of drilling. The assaying has confirmed the presence of gold mineralization within a broad zone of quartz carbonate alteration. This quartz carbonate alteration system has been significantly expanded upon with this latest drill phase. The gold values encountered in the latest round of drilling (holes B03-10 -- B03-13) are interpreted to be in a new geological setting which includes veins and veining in mafic/ultramafic flows. This new setting is approximately 400 meters west of any previously known gold values encountered on the Baird property and this newly encountered geological sequence indicates the potential for lateral continuity with previously reported gold results.

This geological setting is interpreted as displaying many of the same features known to the major gold deposits that have been brought into production in the Red Lake gold belt (Placer Dome's Campbell Mine and Goldcorp's Red Lake mine). The property is located adjacent (on the north boundary) to Placer Dome's major diamond drill exploration program in progress on Claude Resources' Madsen property.

Results of Operations for the Year Ended March 31, 2004

Revenue and Interest Income

The Company is in the exploration and development stage and does not generate any revenue. To date the Company has not earned any revenues other than interest income as well as administration fees. Interest income for 2004 was $17,320 (2003 - $8,444). The increase of $8,876 being attributed to higher cash balances invested during the current period as compared to the same period in the previous year.

General and Administrative Expenses

The Company incurred a loss before other items of $904,860 for the year ended March 31, 2004, or $0.05 per share. Comparatively, the loss for the same period in 2003 was $716,438 or $0.08 per share.

The Company's general and administrative expenses were higher during the year ended March 31, 2004 than in the same period in 2003. General & administrative expenses increased by $188,422 to $904,860 (2003 - $716,438). However, $43,824 of the increase is attributable to a non-cash transaction wherein stock based compensation expense was realized under the Black-Scholes option-pricing method, when the Company issued the stock options to directors and employees of the Company. Also, the Company has been actively participating in many drill programs on their mineral properties, which would result in an overall increase in administrative expenses.
There are no trends, commitments, events or uncertainties presently known to management that are reasonably expected to have a material effect on the Company's business, financial condition or results of operation other than uncertainty as to the speculative nature of the business.

Results of Operations - Selected Annual Information

Years Ended March 31 (audited)
Fiscal year 2004 2003 2002
(a) Revenue - interest - other $ 17,320$ 77,937 - $ 8,444$ 8,434 $ 543$ -
(b) Loss for the year $ 1,033,332 $ 731,502 $ 606,474
(c) Loss per share:Basic - $ 0.05 $ 0.08 $ 0.16
(d) Total Assets $ 1,739,227 $ 1,400,224 $ 164,546
(e) Long Term Debt $ - $ - $ -
(f) Total Exploration Expenditures $ 785,677 $ 462,054 $ 79,900

During the 2004 year, the Company received interest income on cash equivalents. The interest amounts earned fluctuate with changing amounts on deposit and with changing interest rates. These interest amounts are used to offset administrative operating expenses. The increase in other revenue is due to administrative fees received.

March 31, 2004 Compared With March 31, 2003

The Company's loss for the year ended March 31, 2004 was $1,033,332, or $0.05 per share, compared with a loss in fiscal 2003 of $731,502, or $0.08 per share, an increase of approximately 17%. The write-off of $223,729 in 2004 (2003 - $11,417) in mineral properties and deferred exploration costs resulted in the increase in the loss for the 2004 fiscal year. Due to the Company's focus on exploration, rather than on mining operations, an annual profit or loss is not currently a meaningful measure of the Company's performance or value.

The Company's total expenses of $904,860 for the year ended March 31, 2004, increased from those in the previous year (2003 - $716,438) by approximately 20% or $188,422. The wages and benefits expense had the greatest variance, an increase of $56,583, due to the increase in exploration.

The Company granted 1,729,490 stock options during fiscal 2004, whereby stock-based compensation expense increased from $88,828 to $132,652 for the fiscal year of 2003 and 2004. This amount was also recorded to contributed surplus on the balance sheet.

In fiscal 2004, the Company raised $920,500 by way of the issuance of 7,770,000 units pursuant to private placements (each unit consisting of one share and one share purchase warrant which entitles the holder to purchase an additional share of the Company). An additional $234,438 was received by the Company through the exercise of 2,158,750 share purchase warrants and an additional $26,825 was received by the Company through the exercise of 268,250 incentive stock options.

1.3 Summary of Quarterly Results


2004
4th (12 months) 3rd (9 months) 2nd (6 months) 1st (3 months)
(a) Revenue $ 95,257 $ 66,698 $ 56,881 $ 26,557
(b) Net loss $ 1,033,332 $ 832,477 $ 584,732 $ 437,035
(c) Net loss per share:Basic -Fully Diluted - $ 0.05$ 0.05 $ 0.05$ 0.05 $ 0.04$ 0.04 $ 0.03$ 0.03

2003
4th (12 months) 3rd (9 months) 2nd (6 months) 1st (3 months)
(a) Revenue $ 16,878 $ - $ - $ 696
(b) Net loss $ 731,502 $ 468,838 $ 311,038 $ 165,209
(c) Net loss per share:Basic -Fully Diluted - $ 0.08$ 0.08 $ 0.05$ 0.05 $ 0.04$ 0.04 $ 0.03$ 0.03

1.4 Liquidity and Capital Resources

In management's view, given the nature of the Company's operations, which consist of exploration and evaluation of mining properties, the most relevant financial information relates primarily to current liquidity, solvency and planned property expenditures. The Company's financial success will be dependent upon the extent to which it can discover mineralization and the economic viability of developing its properties. Such development may take years to complete and the amount of resulting income, if any, is difficult to determine. The sales value of any minerals discovered by the Company is largely dependent upon factors beyond the Company's control, including the market value of the metals to be produced. The Company does not expect to receive significant income from any of its properties in the foreseeable future.

At March 31, 2004, the Company had cash and cash equivalents of $459,707 compared to $590,954 at March 31, 2003. The restricted cash at March 31, 2004 was $412,108 and March 31, 2004 was $298,209. The restricted cash relates to proceeds received from flow thru private placements and/or the exercise of flow thru warrants and can only be used for certain expenditures on the Company's Canadian properties.

Working capital was $507,964 at March 31, 2004 compared to a working capital of $470,936 at March 31, 2003.

The Company has historically met all cash requirements for operation by equity financing. Future funding needs of the Company are dependent upon the Company's continued ability to obtain equity and/or debt financing to meet its financial obligations and to pursue further exploration on its properties.

1.5 Off-Balance Sheet Arrangements

At March 31, 2004, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, derivative instruments obligations or any obligations that trigger financing, liquidity, market or credit risk to the Company.

1.6 Transactions With Related Parties
The aggregate amount of expenditures made to parties at non-arm's length to the issuer consists of the following:
March 31, 2004 March 31, 2003
Consulting fees $23,500 $12,250
Management fees $30,000 $28,500

1.7 Proposed Transactions

There are currently no material proposed transactions being pursued or negotiated by the Company.

1.8 Changes In Accounting Policies Including Initial Adoption

During the year ended March 31, 2004, the Company elected to adopt the fair value method to value all stock based compensation. Under the transitional provisions of Section 3870, the method has been applied prospectively. As a result, the stock-based compensation expense recognized, using the Black-Scholes option-pricing model, was $132,652. This amount was also recorded as contributed surplus on the balance sheet.

1.9 Financial Instruments and Other Risks

The Company's financial instruments consist of cash and equivalents, receivables, and accounts payable and accrued liabilities. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair market values of these financial instruments approximate their carrying values, unless otherwise noted.

In conducting business, the principal risks and uncertainties faced by the Company center around exploration and development and metal prices and market sentiment.

Exploration for minerals and development of mining operations involve many risks, many of which are outside the Company's control. In addition to the normal and usual risks of exploration and mining, the Company often works in remote locations that lack the benefit of infrastructure or easy access.

The prices of metals fluctuate and are affected by many factors outside of the Company's control. The relative prices of metals and future expectations for such prices have a significant impact on the market sentiment for investment in mining and mineral exploration companies. The Company relies on equity financing for it working capital requirements and to fund its exploration programs. The Company does not have sufficient funds to put any of its resource interests into production from its own financial resources. There is no assurance that such financing will be available to the Company, or that it will be available on acceptable terms.

As at August 17, 2004, the total issued and outstanding common shares are 30,055,432.



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