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MONTACU MINING INVESTMENTS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS I. Fonnalion ojthe Compam~: Montagu Mining Investments Inc. (the "Company"), was incorporated as a Delaware corpo anon on April 30, 1986 primarily for the purpose of participating in the Hog Ranch Joint Venture (t a "joint venture") which was formed in April 1986 to explore, develop and produce gold products at a prof t site in Nevada. There were no predecessor operations of the project prior to formation of the joint vent re. The Company is a wholly-owned subsidiary of Montagu Mining Investments Limited (the "Parent") which is incorporated in Great Britain. The Company had significant related party transactions with its Parent in 1986 as described in N to 7. 2. The Hog Ranch Joint Venture: The joint venture was formed pursuant to an agreement dated April I, 1966 between Montagu, Western Goldfields Company ("Western"), Geomex Development Sixth Partnership ("Geomex"), and Wes ern Hog Ranch Company, the designated manager of thejoint venture. Benefits and obligations of the joint ve ture are separate and not joint and several. In agreements among Western and Geomex, Western is responsible for 90"10 of joint venture exp nditures to the commencement of commercial production. From the commencement of commercial prod coon on October I, 1986, expenditures are allocated as follows: Western ........................................60% Geomex ........................................30%n Montagu .......................................10% Pursuant to thejoint venture agreement, gold production is distributed to the venturers in kind an asset of the joint venture. Therefore, no revenues are recorded by the joint venture for gold pri Summarized unaudited financial information for the joint venture at December 31, 1986 an. months then ended is as follows: Assets Cash ............................................................ $ 421,411 Due from venturers ................................................ 643,464 Inventory ........................................................ 2,221.575 Deposits ......................................................... 202,235 Mineral Properties,net ............................................. 8,265,107 $11,753.792 Liabilities and Owners' Investment in Venture Accounts payable and accrued liabilities ............................... $ 1,784,199 Owners'Investmentin Venture ...................................... 9,969,593 $11,753,792 Nine Months En opera tlon5 Decemher 31, 1 Production Costs ............................. ............... .. $359,195 General and Administrative .................... .................. 337,111 Depletion ................................... .................. 104,960 Total Expenses ........................... .................. $801,266 is not the nine C-5