IN THE SUPREME COURT OF THE YUKON TERRITORY. IN THE MATTER OF THE JUDICATURE ACT R.S.Y. 2002, c. 128 AND

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1 No. 04-A0004 WHITEHORSE REGISTRY IN THE SUPREME COURT OF THE YUKON TERRITORY IN THE MATTER OF THE JUDICATURE ACT R.S.Y. 2002, c. 128 AND IN THE MATTER OF THE CANADA BUSINESS CORPORATIONS ACT R.S.C c. C-44 AND IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT R.S.C. 1985, c. B-3 AND IN THE MATTER OF THE RECEIVERSHIP OF November 28, 2005

2 TABLE OF CONTENTS 1 INTRODUCTION ACTIVITIES OF THE RECEIVER ASSETS OF BYG CREDITORS OF BYG LITTLE SALMON / CARMACKS FIRST NATION EFFORTS TO SELL THE ASSETS RECEIPTS AND DISBURSEMENTS OF THE RECEIVER BUDGET TO JUNE 30, INTENDED ACTIVITIES OF THE RECEIVER... 6 APPENDICES A Receipts and Disbursements of the Receiver B Receiver s Budget to June 30, 2006

3 1 INTRODUCTION 1.1 PricewaterhouseCoopers Inc. ( PwC ) was appointed Interim Receiver and Receiver-Manager of the Company (in such capacities, the Receiver ) pursuant to a Court Order made by the Supreme Court of the Yukon Territory (the Court ) on April 6, 2004 (the Order ). 1.2 The Receiver s First Report to the Court with respect to these proceedings was dated August 31, Pursuant to this report, the Court approved the Receiver s budget to December 31, This is the Second Report to the Court as Receiver. The purpose of this report is to update the Court on the activities of the Receiver and to present a further budget to June 30, ACTIVITIES OF THE RECEIVER 2.1 The activities of the Receiver since the First Report to the Court are summarized as follows: (i) (ii) Review and assess the validity of the claims of two potential secured creditors, Ellake Services Corporation Limited ( Ellake ) and Mark L. Cosman ( Cosman ). This review has included discussions and correspondence with the Receiver s legal counsel, Fraser Milner Casgrain ( FMC ) as well as legal counsel for the other creditors; Meetings and discussions with the Governments of Canada and Yukon (the Governments ) surrounding the environmental condition of the property and the ongoing need for care and maintenance; 1

4 (iii) Meetings and discussions with the local First Nation, Little Salmon / Carmacks First Nation, with respect to its interest and concerns surrounding the assets, environmental issues, and potential sale of the BYG assets; (iv) (v) (vi) (vii) Discussions with potential purchasers surrounding their interest in the assets and mineral claims of BYG; Review and assess the nature of the assets and their potential value; Assess the potential options for a sale of BYG s assets, including how to deal with the significant environmental issues on the portion of the property where the mining operation were previously conducted (the Core Area ); and Discuss with the Governments their potential participation in BYG dealing with the environmental issues in the context of an asset sale. 3 ASSETS OF BYG 3.1 Mineral Claims BYG owns numerous mineral claims and land leases in the Mount Nansen area. 3.2 Mill and Other Equipment The assets at BYG s mine site include a 700 ton-per-day mill, a sag mill, cone crushers, a maintenance shop, a cookhouse, a bunkhouse, and various mining equipment, all of which are situated in the Core Area. The assets have not been in operation for the past seven years and are in poor physical condition. 2

5 An appraisal of the mill equipment and other non-real property assets prepared by Century Services Inc. ( Century ) in August 2004 indicated a gross liquidation value of $197,000 and a net realization value of $118,000, after allowing for the costs of sale. Century has further advised the Receiver that if it were required to remove all of the non-real property assets (i.e., both those with value and those without value) from the mine site, there would be a net cost (rather than value) of between $225,000 and $275, Shares of YGC Resources Ltd. ( YGC ) BYG owns 795,000 shares (2%) of YGC, a public gold exploration and mining company based in the Yukon Territory. Over the past three months, the shares have traded in the range of $0.50 to $0.80 per share. In addition to the above noted shares, Mr. Alan Thompson, a former director of BYG, is currently in possession of approximately 368,400 shares of YGC. These shares that he is holding were pledged by BYG to AGT Financial Corporation ( AGT ), a Thompson company, as security for the obligations of BYG pursuant to an agreement with AGT to provide 240 ounces of gold and 800 ounces of silver for a purchase price of $100,000 which was paid by AGT to BYG. AGT only received the first delivery of gold and silver and demanded repayment of the balance of funds advanced, being approximately $83,000. We understand that AGT has sold 18,500 shares of YGC for proceeds of approximately $9,200 and is holding these funds, along with the remaining shares (350,000), pending the Receiver finalizing its plan of realization. We further understand that Gerald Mineral Inc. ( Gerald ) has, in the past, disputed the validity of AGT s security. The Receiver has requested a legal opinion on whether the AGT security is likely valid and enforceable as against the Receiver, and will consider its options once the legal opinion is finalized. 3

6 4 CREDITORS OF BYG 4.1 There are two creditors of BYG who have claimed to be secured against BYG s existing property, which include equipment, some buildings and the above mentioned YGC shares. A comprehensive review of the claims of these two secured creditors is ongoing and counsel for the Receiver is corresponding with counsel representing the two creditors. 4.2 The other creditors of BYG consist of the Governments in respect of environmental care and maintenance costs incurred, miners liens, and unpaid property taxes. 5 LITTLE SALMON / CARMACKS FIRST NATION 5.1 The Reciever has met representatives of the Little Salmon / Carmacks First Nation to discuss the BYG property and the Receiver s strategy to sell the mine site. The local First Nation has expressed positive interest in seeing mine exploration and development at the site, including certain claims they are entitled to a royalty on and where land title reverts to them when the claims expire. 5.2 A number of BYG s mineral claims and leases are deemed to be Type A Settlement Lands belonging to the First Nation. The First Nation must be paid a royalty from any mining commenced on these Type A lands and once the mineral claims expire (between 2007 and 2012), a purchaser will not have the option to renew the respective claim or lease. 5.3 The Receiver has attempted to determine whether the local First Nation has any objections to including these claims in the sale. To date, the Receiver has not received a response from the first nation, but will continue to seek their input. 4

7 6 EFFORTS TO SELL THE ASSETS 6.1 There are several outstanding issues regarding BYG that must be resolved prior to finalizing a plan to sell the assets. Due to a lack of resolution of the legitimacy of creditor claims and the lack of a formal response from the local First Nation regarding the claims that revert to them, a marketing plan has not been finalized. 6.2 The Receiver continues to pursue a resolution of these issues. 7 RECEIPTS AND DISBURSEMENTS OF THE RECEIVER 7.1 A copy of the Receiver s Statement and Disbursements for the period from our appointment on April 6, 2004 to November 18, 2005 is attached as Appendix A. 7.2 As set out in Appendix A, receipts total $315,634 and disbursements total $161,243, which represents an excess of receipts over disbursements totalling $154,390. 5

8 8 BUDGET TO JUNE 30, The Receiver s budget for the period to June 30, 2006 is attached as Appendix B. Total estimated funding required for the 6-month period ending June 30, 2006 is $247, The Court has to-date approved budgets submitted by the Receiver pursuant to the initial application in April 2004 and the Receiver s First Report to Court dated August 31, The two budgets required the Receiver to receive funding from the Governments totalling $305,000. This funding has fully been received by the Receiver. 8.3 During 2005, the Receiver did not submit further budgets as no further funding has been necessary since the activities which were contemplated to occur by December 2004 have been delayed and were performed, in part, during The required funding to June 30, 2006 has been reviewed with the Governments and they have agreed to provide this funding, subject to approval from the Court. 9 INTENDED ACTIVITIES OF THE RECEIVER 9.1 The intended future activities of the Receiver to June 30, 2006 relate primarily to finalizing an asset realization plan. In order to finalize this plan, it will be necessary for the Receive to deal with the secured creditors, the local First Nation, the ongoing care and maintenance as well as the environmental issues that currently exist on the property. 9.2 Since our appointment, we have consulted with the key stakeholders affected by the BYG assets and are now at a stage where the asset realization plan can be finalized. 6

9 All of which is respectfully submitted this 28 th day of November PricewaterhouseCoopers Inc. Court Appointed Interim Receiver and Receiver-Manager of B.Y.G. Natural Resources Inc. Michael J. Vermette Senior Vice President W:\FASdata\B\BYG Natural Resources - IR\Reports\Report to court\receiver's Second Report to Court Nov doc 7

10 APPENDIX A

11 APPENDIX A PRICEWATERHOUSECOOPERS INC. IN ITS CAPACITY AS RECEIVER-MANAGER AND INTERIM RECEIVER OF STATEMENT OF RECEIPTS AND DISBURSEMENTS FOR THE PERIOD APRIL 6, 2004 TO NOVEMBER 18, 2005 RECEIPTS $ Advances from Government of Yukon 305, GST Refund 6, Interest 4, DISBURSEMENTS Total Receipts 315, Interim Receiver fees 109, Legal fees and disbursements 33, Registration, transfer and renewal of Mineral claims & leases Appraisal 3, Travel 1, Meals and Accomodation Contract labour 1, Title searches Advertising Filing fees Registration of land title Other administrative costs 4, GST Paid 6, Total Disbursements 161, EXCESS OF RECEIPTS OVER DISBURSEMENTS 154, REPRESENTED BY: Cash in bank 154,390.12

12 APPENDIX B

13 Appendix B PRICEWATERHOUSCOOPERS INC. IN ITS CAPACITY AS RECEIVER-MANAGER AND INTERIM RECEIVER OF B.Y.G NATURAL RESOURCES INC. ESTIMATED COSTS FOR THE PERIOD JANUARY 1, 2006 TO JUNE 30, 2006 Actual $ Receiver's Fees 172, Claim Renewals 5, Travel and other administrative costs 10, Legal fees and disbursements 60, Total Disbursements 247,000.00