SYH: TSX.V   $0.45 (+1.14%)
OTCQX: SYHBF  $0.34 (+5.68%)
SC1P: FRA   $0.29 (0.00%)
SYH: TSX.V   $0.45 (+1.14%)
OTCQX: SYHBF  $0.34 (+5.68%)
SC1P: FRA   $0.29 (0.00%)

News

First Quarter Report Ended June 30, 2004

Aug 30, 2004

MANAGEMENT DISCUSSION AND ANALYSIS

THREE MONTHS ENDED JUNE 30, 2004

This Management Discussion and Analysis of Skyharbour Resources Ltd. (the "Company") provides an analysis of the Company's financial results for the three months ended June 30, 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 30, 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 three months ended June 30, 2004, the following private placement occurred:

Subsequent to the three months ended June 30, 2004, Skyharbour Resources Ltd. has closed their two tranches of its six-million-unit private placement announced on July 6, 2004. The company issued 4.45 million units with each unit consisting of one share and one share purchase warrant entitling the holder to purchase an additional share of the company at a price of 10 cents per share until July 27, 2005. The company also issued 135,000 units to finders in connection with this private placement. The shares issued and any shares to be issued upon exercise of the warrants will be subject to a hold period and will not trade before Nov. 28, 2004. On August 25, 2004, the Company closed the second and final tranche of their private placement.

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

Results from the 2003-to-2004 drilling program on Skyharbour's Heyson property are being evaluated. A large alteration system has been identified. Although "high-grade" gold values were intersected within the system (2003 drilling intercepted 59.4 grams per tonne over 0.4 metre), it shows some hallmarks of a base-metal setting. The company is considering a possible joint venture to finance further work on the property.

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.

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.

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

Data from Skyharbour's Baird property drilling program in 2003 are being evaluated using 3-D modelling. Additional drilling has been recommended on the property. Placer Dome is currently earning an interest in the property. The Baird property borders Claude Resources/Placer Dome's Madsen project to the south, and Goldcorp projects to the north and east.



Sidace Lake and Black Bear

Skyharbour has commenced a detailed prospecting and geological work program on its Sidace Lake and Black Bear properties in the Red Lake mining district of Northwestern Ontario.
The exploration management committee has recommended that this further exploration be conducted as a followup of the company's initial drill program carried out in March/April, 2004. The winter drill program consisted of 1,450 metres in seven drill hole locations (4,750 feet drilled).
As previously reported, diamond drill hole SL4-04 was successful in establishing a trend of mafic volcanics on to the east side of the Sidace Lake property. The identification of this mafic volcanic suite of rock type is significant, as these mafic volcanics are believed to be the strike extension of the geological sequence hosting the gold discovery on the adjoining Goldcorp/Planet Exploration property to the west. Diamond drill holes No. BB4-01 to No. BB4-03 on the Black Bear property identified a belt of mafic volcanics with pyritic interflow sediments several hundred metres wide. Sulphides and veining were encountered in the mafic unit but no economic gold values were received from assaying. However, the major intersections of volcanics encountered in four of the drill holes are considered to be very significant, in that the Sidace Lake/Black Bear area has very limited outcropping exposure due to the thick overburden coverage from end-moraine deposition. Little to no work has ever been done on these claims in the past.
The work program now under way on the Sidace Lake/Black Bear properties will be directed at extending the structures and lithologies of the newly discovered mafic volcanic zones that have the potential to host gold mineralization. It is anticipated that this comprehensive geological work program will benefit the company in establishing a phase 2 drill program, to begin early in the fall of 2004.
Skyharbour Resources Ltd. and Cons Abaddon Resources Inc., pursuant to the terms of the option and joint venture agreement of Feb. 4, 2003, and in connection with the Sidace Lake Black Bear II property located in the Red Lake District of the Kenora mining division of Ontario, the parties recently agreed to dilute Abaddon's interest to offset the expenditures contributed by Abaddon on the property. As a result of the dilution, Abaddon will hold a 30-per-cent interest and Skyharbour will hold a 70-per-cent interest in the property.

Results of Operations for the Quarter Ended June 30 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 the three months ended June 30, 2004 was $1,284 (2003 - $2,382). The decrease of $1,098 is attributed to lower 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 for the period of $120,897 for the three months ended June 30, 2004, or $0.005 per share. Comparatively, the loss for the same period in 2003 was $437,035 or $0.03 per share. The difference is attributed to the write off of the Grays Bay Claim of 292,479.

The Company's general and administrative expenses were lower during the quarter ended June 30, 2004 than in the same period in 2003. General & administrative expenses decreased by $54,968 to $122,145 (2003 - $171,113). However, $9,648 of the decrease 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. 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



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 June 30, 2004, the Company had cash and cash equivalents of $210,044 compared to $459,707 at March 31, 2004. The restricted cash at June 30, 2004 was $145,604 and March 31, 2004 was $412,108. 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 $302,416 at June 30, 2004 compared to a working capital of $507,964 at March 31, 2004.

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:
June 30, 2004 March 31, 2004
Consulting fees $15,000 $23,500
Management fees $ 7,500 $30,000

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 30, 2004, the total issued and outstanding common shares are 30,055,432.




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