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Discovery Silver Corp. — Interim / Quarterly Report 2020
Aug 26, 2020
44004_rns_2020-08-26_2ceb1750-10e9-4ab4-845b-10244e3b321a.pdf
Interim / Quarterly Report
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UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 2020 and 2019
(expressed in Canadian dollars)
Discovery Metals Corp. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited - (Expressed in Canadian dollars)
| June 30, | December 31, | ||||
|---|---|---|---|---|---|
| As at | Notes | 2020 | 2019 | ||
| ASSETS | |||||
| Current | |||||
| Cash and cash equivalents | 6 | $ | 26,913,163 | $ | 23,950,737 |
| Short-term investments | 6(a) | 15,000,000 | - | ||
| Sales tax and other receivables | 7 | 141,014 | 59,274 | ||
| Prepaids and deposits | 8 | 198,215 | 521,399 | ||
| Investments | 435,000 | 45,835 | |||
| 42,687,392 | 24,577,245 | ||||
| Non-current | |||||
| Property and Equipment | 9 | 434,871 | 429,419 | ||
| Reclamation deposits | - | 32,629 | |||
| Mineralproperties | 10 | 27,235,187 | 28,479,306 | ||
| TOTAL ASSETS | $ | 70,357,450 | $ | 53,518,599 | |
| LIABILITIES | |||||
| Current | |||||
| Accounts payable and accrued liabilities | 11 | $ | 474,367 | $ | 671,625 |
| Currentportion of lease liabilities | 12 | 45,867 | 44,971 | ||
| $ | 520,234 | $ | 716,596 | ||
| Non-current | |||||
| Lease liabilities | 12 | 64,709 | 87,870 | ||
| TOTAL LIABILITIES | $ | 584,943 | $ | 804,466 | |
| SHAREHOLDERS’ EQUITY | |||||
| Share capital | 13(b) | $ | 91,387,621 | $ | 76,174,408 |
| Contributed surplus | 14,656,592 | 13,943,396 | |||
| Warrants | 13(d) | 9,819,809 | 924,440 | ||
| Accumulated other comprehensive loss | (1,231,832) | (42,241) | |||
| Accumulated deficit | (44,859,683) | (38,285,870) | |||
| TOTAL EQUITY | $ | 69,772,507 | $ | 52,714,133 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 70,357,450 | $ | 53,518,599 |
Commitments and contractual obligations (Note 23). Events after the reporting period (Note 25)
Approved on Behalf of the Board on August 26, 2020:
“Jeff Parr” “Murray John” Jeff Parr – Director Murray John – Director
See accompanying notes to the unaudited condensed interim consolidated financial statements.
2
Discovery Metals Corp. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND TOTAL COMPREHENSIVE LOSS Unaudited - (Expressed in Canadian dollars, except per share and share information)
| Three Months | Ended June 30, | Ended June 30, | Six Months | Ended June 30, | Ended June 30, | ||||
|---|---|---|---|---|---|---|---|---|---|
| Notes | 2020 | 2019 | 2020 | 2019 | |||||
| Expenses (income) | |||||||||
| General office and other expenses | 16 | $ | 538,437 | $ | 286,681 | $ | 1,056,851 | $ | 605,931 |
| Interest income | (34,633) | (17,153) | (198,062) | (37,301) | |||||
| Interest expense | 12 | 1,183 | 2,203 | 2,458 | 3,907 | ||||
| Professional fees | 17 | 153,519 | 76,918 | 240,760 | 123,207 | ||||
| Exploration and project evaluation | |||||||||
| expenses | 15 | 731,237 | 481,528 | 4,746,447 | 756,503 | ||||
| Share-based compensation | 13(c) | 599,478 | 48,495 | 757,054 | 103,888 | ||||
| Other income | 14 | - | - | (479,386) | - | ||||
| Gain on sale of non-core property | 14(a) | (295,000) | (295,000) | - | |||||
| Gain on fair value remeasurement of | |||||||||
| investments | 14(a) | (140,000) | - | (140,000) | - | ||||
| Impairment of IVA receivable | 7 | 236,934 | - | 823,262 | - | ||||
| Foreign exchange(gain)loss | (43,478) | (70,775) | 59,429 | 45,446 | |||||
| Net loss | $ | 1,747,677 | $ | 807,897 | $ | 6,573,813 | $ | 1,601,581 | |
| Other comprehensive loss(gain) | 188,398 | 106,586 | 1,189,591 | 17,365 | |||||
| Net loss and total comprehensive | |||||||||
| loss | $ | 1,936,075 | $ | 914,483 | $ | 7,763,404 | $ | 1,618,946 | |
| Weighted average shares | |||||||||
| outstanding | |||||||||
| Basic and diluted | 13(b) | 226,123,223 | 65,043,998 | 218,730,169 | 65,043,998 | ||||
| Net loss per share | |||||||||
| Basic and diluted | $ | (0.01) | $ | (0.01) | $ | (0.03) | $ | (0.02) |
See accompanying notes to the unaudited condensed interim consolidated financial statements.
3
Discovery Metals Corp. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited - (Expressed in Canadian dollars)
| Three Months | Ended June 30, | Ended June 30, | Six Months | **Ended June 30, ** | **Ended June 30, ** | ||||
|---|---|---|---|---|---|---|---|---|---|
| Notes | 2020 | 2019 | 2020 | 2019 | |||||
| Operating Activities | |||||||||
| Net loss | $ | (1,747,677) | $ | (807,897) | $ | (6,573,813) | $ | (1,601,581) | |
| Items not affecting cash: | |||||||||
| Depreciation | 35,494 | 28,608 | 63,843 | 56,941 | |||||
| Share-based compensation | 13(c) | 599,478 | 48,495 | 757,054 | 103,888 | ||||
| Impairment of IVA receivable | 236,934 | - | 823,262 | - | |||||
| Gain on sale of investment | 14 | - | - | (182,556) | - | ||||
| Gain on sale of non-core property | (295,000) | - | (295,000) | - | |||||
| Gain on fair value remeasurement | (140,000) | - | (140,000) | - | |||||
| Unrealized foreign exchange loss | (114,216) | (69,997) | 71,899 | 48,218 | |||||
| Changes in non-cash operating | |||||||||
| working capital: | |||||||||
| Sales tax and other receivables | 7 | (336,482) | 1,742 | (928,999) | 3,245 | ||||
| Prepaids and deposits | 8 | 3,325 | (61,471) | 355,813 | (45,531) | ||||
| Accounts payable and accrued | |||||||||
| liabilities | 11 | (247,428) | 77,653 | (197,258) | (53,695) | ||||
| Net cash used in operating activities | $ | (2,005,572) | $ | (782,867) | $ | (6,245,755) | $ | (1,488,515) | |
| Investing Activities | |||||||||
| Proceeds from sale of investment | 14 | - | - | 228,391 | - | ||||
| Purchase of short-term investments | 6(a) | (15,000,000) | - | (15,000,000) | - | ||||
| Acquisition of property and | |||||||||
| equipment | 9 | (68,168) | (1,775) | (86,664) | (1,775) | ||||
| Net cash used in investing activities | **$ ** | (15,068,168) | $ | (1,775) | $ | (14,858,273) | $ | (1,775) | |
| Financing Activities | |||||||||
| Issuance of shares on private | |||||||||
| placement, net of costs | 23,814,999 | - | 23,814,999 | - | |||||
| Issuance of shares on exercise of | |||||||||
| options | 13(c) | 114,319 | - | 193,238 | - | ||||
| Issuance of shares on exercise of | |||||||||
| warrants | 56,487 | - | 56,487 | - | |||||
| Principalpayment on lease liability | (11,187) | (10,754) | (22,265) | (21,403) | |||||
| Net cash provided by (used in) financing | |||||||||
| activities | $ | 23,974,618 | $ | (10,754) | $ | 24,042,459 | $ | (21,403) | |
| Effect of exchange rates on cash and cash | |||||||||
| equivalents | (6,189) | (18,298) | 23,995 | (40,704) | |||||
| Increase (Decrease) in cash and cash | |||||||||
| equivalents | 6,894,689 | (813,694) | 2,962,426 | (1,552,397) | |||||
| Cash and cash equivalents, beginning of | |||||||||
| period | 6 | 20,018,474 | 3,952,973 | 23,950,737 | 4,691,676 | ||||
| Cash and cash equivalents, | |||||||||
| end ofperiod | 6 | $ | 26,913,163 | $ | 3,139,279 | $ | 26,913,163 | $ | 3,139,279 |
| Supplemental Cash Flow Information: | |||||||||
| Income tax expense paid | $ | - | $ | - | $ | - | $ | - | |
| Interestpaid | $ | 1,183 | $ | 2,203 | $ | 2,458 | $ | 3,907 |
See accompanying notes to the unaudited condensed interim consolidated financial statements.
4
Discovery Metals Corp. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited - (Expressed in Canadian dollars, except share information)
| Notes Number of Common Shares |
Share Capital Warrants Contributed Surplus Accumulated Other Comprehensive Loss Accumulated Deficit Total Equity |
Share Capital Warrants Contributed Surplus Accumulated Other Comprehensive Loss Accumulated Deficit Total Equity |
|---|---|---|
| At December 31, 2019 211,205,321 |
$ 76,174,408 $ 924,440 $ 13,943,396 $ (42,241) $ (38,285,870) $ 52,714,133 |
|
| Share-based compensation 13c - Shares issued under non- brokered private placement (May 29) 13b 45,454,545 Finders’ fees for private placement (May 29) 13b - Warrants issued under non-brokered private placement (May 29) 13e - Expiration of replacement warrants issued on close of Plan of Arrangement 13e - Shares issued on exercise of options 13c 587,342 Shares issued on exercise of warrants 13e 77,150 Net loss and total comprehensive loss for theperiod - |
- - 757,054 - - 757,054 25,000,000 - - - - 25,000,000 (1,185,001) - - - - (1,185,001) (8,976,252) 8,976,252 - - - - - (53,816) 53,816 - - - 317,979 - (124,741) - - 193,238 56,487 (27,067) 27,067 - - 56,487 - - - (1,189,591) (6,573,813) (7,763,404) |
|
| At June 30, 2020 257,324,358 |
$ 91,387,621 $ 9,819,809 $ 14,656,592 $ (1,231,832) $ (44,859,683) $ 69,772,507 |
|
| Notes Number of Common Shares |
Share Capital Warrants Contributed Surplus Accumulated Other Comprehensive Loss Accumulated Deficit Total Equity |
|
| At December 31,2018 65,043,998 |
$ 23,539,388 $ 8,010,367 $ 4,169,144 $ (102,958) $ (28,629,316) $ 6,986,625 |
|
| Share-based compensation 13c - Expiration of warrants issued under non- brokered private placement (August 17, 2017) Net loss and total comprehensive loss - |
- - 103,888 - - 103,888 - (346,993) 346,993 - - - - - - (17,365) (1,601,581) (1,618,946) |
|
| At June 30,2019 65,043,998 |
$ 23,539,388 $ 7,663,374 $ 4,620,025 $ (120,323) $ (30,230,897) $ 5,471,567 |
See accompanying notes to the unaudited condensed interim consolidated financial statements.
5
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Discovery Metals Corp. (“Discovery Metals” or the “Company”) is a mineral exploration company whose main objective is to identify and successfully define and develop mineral deposits, primarily in Mexico.
The Company was incorporated on October 10, 1986 under the laws of British Columbia as Ayubowan Capital Ltd. On June 13, 2017, the Company’s name was changed to Discovery Metals Corp. The Company is listed on the TSX Venture Exchange (the “Exchange” or “TSXV”) under the symbol “DSV”. The Company's head office is located at Suite 701 - 55 University Avenue, Toronto, Ontario, M5J 2H7.
The Company’s Board of Directors authorized the issuance of these unaudited condensed interim consolidated financial statements (the “interim financial statements”) on August 26, 2020.
2. BASIS OF PREPARATION
These interim financial statements for the three and six months ended June 30, 2020 and 2019, have been prepared in accordance with International Accounting Standard 34 – Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). As such, certain disclosures required by IFRS have been condensed or omitted. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto as at and for the years ended December 31, 2019 and 2018 (the “consolidated financial statements”). The Company’s interim results are not necessarily indicative of its results for a full year.
These interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at June 30, 2020, the Company had working capital (defined as current assets less current liabilities) of $42,167,158 (December 31, 2019 – $23,860,648), shareholders’ equity of $69,772,506 (December 31, 2019 – $52,714,132) and an accumulated deficit of $44,859,683 (December 31, 2019 – $38,285,870).
The Company has not yet determined whether the properties on which it has options contain mineral reserves that are economically recoverable. The continued operations of the Company are dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of such properties and upon future profitable production or proceeds from the disposition of the properties.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Company in the preparation of its interim financial statements are set out below.
a) Basis of Measurement
The interim financial statements have been prepared using the same accounting policies and methods of application as those disclosed in note 3 to the Company’s consolidated financial statements except those disclosed in Note 4 below.
6
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted) For the Three and Six Months Ended June 30, 2020 and 2019
b) Basis of Consolidation
These interim financial statements are presented in Canadian dollars (“CAD”) unless otherwise noted. The interim financial statements include the accounts of the Company and its wholly owned subsidiaries.
Subsidiaries are entities over which the Company has the power to, directly or indirectly, govern the financial and operating policies of the entity to obtain benefits from its activities. In assessing whether control exists, potential voting rights that are presently exercisable or convertible, are taken into consideration. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date on which control ceases.
The Company’s principal subsidiaries and their geographic locations at June 30, 2020 were as follows:
| Ownership | |||
|---|---|---|---|
| Direct Parent Company | Location | **Percentage ** | Properties |
| Puerto Rico, La Kika, Minerva, | |||
| Discovery México S.A. de C.V. | Mexico | 100% | Monclova, Jemi Rare, |
| Renata,Santa Rosa | |||
| Minera Titán S.A. de C.V. | Mexico | 100% | Cordero |
All intercompany assets, liabilities, equity, income, expenses and cash flows arising from intercompany transactions have been eliminated on consolidation.
c) Currency of Presentation
The interim financial statements are presented in Canadian dollars (“CAD”) which is the functional and presentation currency of the Company. The functional currency for the entities through which the Company conducts its operations is determined depending upon the primary economic environment in which they operate. The functional currency of the Mexican subsidiaries is Mexican pesos (“MXP”).
d) Foreign currency translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in foreign currencies are not re-translated. Total foreign exchange gains and losses are recognized in the income statement and the unrealized portion is reported separately in the consolidated statement of cash flows. The foreign exchange differences arising from the translation of the subsidiary with functional currency different than the consolidated functional currency are recognized as currency translation adjustments in other comprehensive loss in the consolidated statement of loss and total comprehensive loss.
7
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2020 and 2019
4. CHANGES IN ACCOUNTING POLICIES
a) Application of new or amended standards effective January 1, 2020
There were no new or amended standards effective January 1, 2020.
5. CRITICAL JUDGMENTS AND ESTIMATES IN APPLYING ACCOUNTING POLICIES
The preparation of interim financial statements in conformity with IFRS requires management to make judgments and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, contingent liabilities, income and expenses. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and applied prospectively.
Information about critical judgments and estimates in applying accounting policies that have the most significant effect on the amounts recognized in the interim financial statements for the three and six months ended June 30, 2020 are consistent with those applied and disclosed in note 5 of the consolidated financial statements. The Company's interim results are not necessarily indicative of its results for a full year.
COVID-19 Update
On March 31, 2020, the Company announced that it would temporarily suspend all exploration activities in Mexico as a result of an emergency decree issued by the Mexican Ministry of Health stating that all non-essential services be stopped until May 31, 2020. On May 13, 2020, the Government published another decree announcing that mining and several other sectors were to be considered essential services and could begin operations as early as June 1, 2020. Commencement of operations would be subject to government approval of a company’s application to resume operations. The applicant must demonstrate that strict health and safety protocols are in place and will be adhered to. The Company applied and was granted permission to restart operations.
The Company remains committed to being engaged with our local stakeholders during this uncertain period and will continue to closely monitor the directives of all levels of government in both Mexico and Canada as well as the relevant health authorities.
6. CASH AND CASH EQUIVALENTS
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cash | $ | 2,323,163 | $ | 23,860,737 |
| Cash equivalents(1) | 24,590,000 | 90,000 | ||
| $ | 26,913,163 | $ | 23,950,737 |
(1) Marketable securities with short-term maturities and no restrictions on redemption.
8
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
a) Short-term investments
The Company invested $15,000,000 of excess cash from the non-brokered private placement (note 13b) in a two-year fixed rate GIC, bearing interest at 1.55% per annum. This investment has been classified as current as there are no restrictions on redemption and the Company may, at its discretion, withdraw any amount to fund current operations.
7. SALES TAX AND OTHER RECEIVABLES
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Sales tax receivable | $ | 1,899,917 | $ | 1,454,986 |
| Accumulated impairment of sales tax receivable | (1,767,702) | (1,409,637) | ||
| Other receivables | 8,799 | 13,925 | ||
| $ | 141,014 | $ | 59,274 |
At June 30, 2020, the Company had an aggregate Mexican value added tax (“IVA”) recoverable balance of $3,213,870 including $1,446,167 remaining from the IVA acquired in the Levon transaction (December 31, 2019: $3,197,997 including $1,743,011 acquired in the Levon transaction).
The Company does not have a history of collection of Mexican IVA recoverable amounts due to the recent commencement of operations in Mexico. In addition, there is a high degree of uncertainty regarding the timing of repayment of IVA amounts by the Mexican government. As a result, on acquisition of Levon, no value was allocated to the IVA receivable balance. At June 30, 2020, the Company has established a provision in full for the IVA receivable balance of $1,767,702 accumulated since acquisition.
On February 21, 2020, the Company received a partial IVA refund in the amount of 4,402,046MXP or $296,830. The Company also received interest on this balance in the amount of 998,384MXP or $67,321. The partial refund and interest received are recognized in ‘other income’ and ‘interest income’, respectively, in the interim consolidated Statement of Loss and Total Comprehensive Loss for the three and six months ended June 30, 2020.
Subsequent to June 30, 2020, on August 5, 2020, the Company received another partial IVA refund in the amount of 1,609,384MXP or $95,211. The Company also received interest on this balance in the amount of 503,737MXP or $29,801. The partial refund and interest received is expected to be recognized in ‘other income’ and ‘interest income’, respectively in the interim consolidated Statement of Loss and Total Comprehensive Loss for the three and nine months ended September 30, 2020.
The Company expects to continue to recognize a provision for 100% of the IVA recoverable balance until such time as there are sufficient indicators of recoverability.
9
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
8. PREPAIDS AND DEPOSITS
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Insurance | $ | 65,026 | $ | 38,805 |
| Office | 15,672 | 16,114 | ||
| Drillingcontract(1) | 117,517 | 466,480 | ||
| $ | 198,215 | $ | 521,399 |
(1) At December 31, 2019, the Company had made deposits in aggregate of USD$390,000 to a contractor performing exploration drilling activities at the Cordero Project. Under the contract, the deposit will be used to offset amounts due to the contractor by an amount equal to 10% of every invoice until the deposit is used in its entirety. At June 30, 2020, the Company had applied approximately USD$312,000 of the deposit against invoices received.
9. PROPERTY AND EQUIPMENT
| Office & | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Equipment | Vehicles | Furniture | Computer | Total | ||||||
| Cost | ||||||||||
| Balance at January 1, 2020 | $ | 174,713 | $ | 88,088 | $ | 213,878 | $ | 128,000 | $ | 604,679 |
| Additions1 | 10,773 | 62,668 | - | 13,223 | 86,664 | |||||
| Disposals | - | - | - | - | - | |||||
| Currency translation | ||||||||||
| adjustment | (8,795) | (12,386) | (2,418) | (8,912) | (32,511) | |||||
| Balance at June 30, 2020 | $ | 176,691 | $ | 138,370 | $ | 211,460 | $ | 132,311 | $ | 658,832 |
| Accumulated depreciation | ||||||||||
| Balance at January 1, 2020 | $ | (14,675) | $ | (41,825) | $ | (57,901) | $ | (60,859) | $ | (175,260) |
| Additions1 | (3,310) | (14,096) | (25,864) | (20,573) | (63,843) | |||||
| Disposals | - | - | - | - | - | |||||
| Currency translation | ||||||||||
| adjustment | 2,278 | 7,119 | 461 | 5,284 | 15,142 | |||||
| Balance at June 30, 2020 | $ | (15,707) | $ | (48,802) | $ | (83,304) | $ | (76,148) | $ | (223,961) |
| Office & | ||||||||||
| Carrying amount | Equipment | Vehicles | Furniture | Computer | Total | |||||
| At January1,2020 | $ | 160,038 | $ | 46,263 | $ | 155,977 | $ | 67,141 | $ | 429,419 |
| At June 30, 2020 | $ | 160,984 | $ | 89,568 | $ | 128,156 | $ | 56,163 | $ | 434,871 |
| Office & | ||||||||||
| Equipment | Vehicles | Furniture | Computer | Total | ||||||
| Cost | ||||||||||
| Balance at December 31,2018 | $ | 68,151 | $ | 83,827 | $ | 37,929 | $ | 107,670 | $ | 297,577 |
| IFRS 16 transition(note 25) | - | - | 176,073 | - | 176,073 | |||||
| Balance at January1,2019 | 68,151 | 83,827 | 214,002 | 107,670 | 473,650 | |||||
| Additions1 | 107,948 | 4,398 | - | 20,657 | 133,003 | |||||
| Disposals | - | - | - | - | - | |||||
| Currency translation | ||||||||||
| adjustment | (1,386) | (137) | (124) | (327) | (1,974) | |||||
| Balance at December 31,2019 | $ | 174,713 | $ | 88,088 | $ | 213,878 | $ | 128,000 | $ | 604,679 |
10
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
| Accumulated depreciation | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January1,2019 | $ | (6,441) | $ | (20,641) | $ | (5,324) | $ | (25,560) | $ | (57,966) |
| Additions1 | (9,098) | (20,811) | (52,563) | (35,199) | (117,671) | |||||
| Disposals | - | - | - | - | - | |||||
| Currency translation | ||||||||||
| adjustment | 864 | (373) | (14) | (100) | 377 | |||||
| Balance at December 31,2019 | $ | (14,675) | $ | (41,825) | $ | (57,901) | $ | (60,859) | $ | (175,260) |
| Office & | ||||||||||
| Carryingamount | Equipment | Vehicles | Furniture | Computer | Total | |||||
| At December 31,2018 | $ | 61,710 | $ | 63,186 | $ | 32,605 | $ | 82,110 | $ | 239,611 |
| At January1,2019 | $ | 61,710 | $ | 63,186 | $ | 208,678 | $ | 82,110 | $ | 415,684 |
| At December 31,2019 | $ | 160,038 | $ | 46,263 | $ | 155,977 | $ | 67,141 | $ | 429,419 |
(1) As part of the acquisition of Levon Resources Ltd., the Company acquired certain property and equipment including vehicles, machinery and computer hardware. Depreciation has been calculated for the period from acquisition date of August 2, 2019 to December 31, 2019 and based on the combined acquisition date fair values of $5,998.
The Company following table summarizes the changes in right-of-use assets within plant and equipment:
| Leased assets | Total | |
|---|---|---|
| At January1,2019 | $ | 176,073 |
| Depreciation | (45,932) | |
| At December 31,2019 | $ | 130,141 |
| Depreciation | (22,966) | |
| At June 30, 2020 | $ | 107,175 |
10. MINERAL PROPERTIES
| Balance at December 31,2018 | $ | 1,264,007 |
|---|---|---|
| Acquisition of mineralproperties(1) | 27,226,224 | |
| Currencytranslation adjustment | (10,925) | |
| Balance at December 31,2019 | $ | 28,479,306 |
| Acquisition of mineralproperties | - | |
| Currency translation adjustment | (1,244,119) | |
| Balance at June 30, 2020 | 27,235,187 |
(1) On August 2, 2019, the Company acquired Levon Resources Ltd. and the 100%-owned Cordero Project.
The value attributed to each the Company’s mineral properties is as follows:
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cordero | $ | 27,226,224 | $ | 27,226,224 |
| Puerto Rico | 856,687 | 856,687 | ||
| Minerva | 174,580 | 174,580 | ||
| Renata(1) | 153,313 | 153,313 | ||
| La Kika | 93,131 | 93,131 | ||
| 28,503,935 | 28,503,935 | |||
| Cumulative CTA | (1,268,748) | (24,629) | ||
| $ | 27,235,187 | $ | 28,479,306 |
11
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
(1) The Renata mineral exploration and option agreement expired in August 2020.
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Trade and other payables | $ | 473,643 | $ | 342,883 |
| Salaries and benefits payable | - | 241,125 | ||
| Accrued liabilities | 724 | 87,617 | ||
| $ | 474,367 | $ | 671,625 |
(1) At December 31, 2019, salaries and benefits payable comprised short-term incentive amounts payable to Executive Management and employees.
12. LEASE LIABILITIES
| June 30, | December 31, | |
|---|---|---|
| 2020 | 2019 | |
| Lease liabilities $ 110,576 |
$ | 132,841 |
| Less: currentportion 45,867 |
44,971 | |
| Non-currentportion $ 64,709 |
$ | 87,870 |
| (1) As a result of the adoption of IFRS 16, the Company recognized a lease liability of $176,073 |
on | January 1, 2019 |
| related to the long-term lease contract for office space, with a remaining term of 3.5 years at | an incremental | |
| borrowing rate of 3.95%. As at June 30, 2020, remaining payments are as follows: |
| Year | ||
|---|---|---|
| 2020 | $ | 22,707 |
| 2021 | 46,780 | |
| 2022 | 41,089 | |
| Total | $ | 110,576 |
Interest expense for the three and six months ended June 30, 2020 related to the lease liability was $1,166 and $2,441, respectively (three and six months ended June 30, 2019 - $1,598 and $3,302, respectively).
13. SHARE CAPITAL AND WARRANTS
a) Authorized
-
i. Unlimited common shares with no par value; and
-
ii. Unlimited preferred voting shares with no par value.
12
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
b) Shares issued and outstanding
| Common Shares | Amount | ||
|---|---|---|---|
| As at December 31,2019 | 211,205,321 | $ | 76,174,408 |
| Shares issued for Private Placement(1) | 45,454,545 | 25,000,000 | |
| Finders’ fees on Private Placement(1) | - | (1,185,001) | |
| Warrants issued on Private Placement(note 13e) (1) | - | (8,976,252) | |
| Shares issued on exercise of options | 587,342 | 317,979 | |
| Shares issued on exercise of warrants | 77,150 | 56,487 | |
| As at June 30, 2020 | 257,324,358 | $ | 91,387,621 |
(1) The Private Placement closed in two tranches on May 29 and June 8, 2020.
The Company has completed several non-brokered private placements resulting in the issuance of common shares. These private placements include:
-
1) gross proceeds of $15,618,500 on August 15, 2018 through the issuance of 31,237,000 common shares at a price of $0.50 per share during the year ended December 31, 2017;
-
2) gross proceeds of $9,004,770 received through a non-brokered private placement of 39,151,174 common shares at a price of $0.23 per share on July 24, 2019;
-
3) gross proceeds of $19,000,000 received through a non-brokered private placement of 42,222,219 common shares at a price of $0.45 on November 5, 2019; and
-
4) gross proceeds of $25,000,000 received through a non-brokered private placement of 45,454,545 common shares at a price of $0.55 per share on May 29, 2020 and June 8, 2020 (closed in two tranches).
On August 7, 2020, the Company closed a non-brokered private placement of 25,927,000 common shares at a price of $1.35 per share for gross proceeds of $35,001,450 (note 25).
c) Stock Options
The Company has adopted rolling 10% stock option plan (the “Option Plan”) which provides that the directors of the Company may grant options to purchase common shares of the Company to directors, officers, employees and service providers, with the number of options being limited to 10% of the issued common shares at the time of granting of options.
The Board in its sole discretion may determine any vesting provisions for options. The exercise price shall be determined by the directors of the Company at the time of grant in accordance with the provisions of the Plan. The expiry date for an option shall not be more than ten years from the grant date.
There were 5,235,000 stock options granted during the six months ended June 30, 2020 comprised of 400,000 granted during the three months ended March 31, 2020 and 4,835,000 granted during the three months ended June 30, 2020 (three and six months ended June 30, 2019 – no options were granted). The options have a weighted average exercise price of $0.48 and a five-year term to expiry. One third vested immediately, and 1/3 will vest on each subsequent anniversary of grant date. Options issued to consultants have a vesting schedule of 1/8 each quarter beginning three months
13
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Unaudited - (Expressed in Canadian dollars, except where otherwise noted) For the Three and Six Months Ended June 30, 2020 and 2019
after grant date. The fair value of these options was determined using the Black-Scholes model for option valuation.
During the year-ended December 31, 2019, an aggregate 4,909,300 replacement options were issued on completion of the acquisition of Levon Resources on August 2, 2019 at an exercise price of $0.2909 with a one-year term to expiry from the acquisition date (the “Replacement Options”). The fair value of these options was determined using the Black-Scholes model for option valuation.
During the three and six months ended June 30, 2020, 238,500 and 511,300 Replacement Options were exercised, respectively, for gross proceeds of $69,380 and $148,737, respectively (year-ended December 31, 2019, 375,000 Replacement Options were exercised for gross proceeds of $109,032). By the expiration date of August 2, 2020, the remaining 4,023,000 Replacement Options were all exercised for gross proceeds of $1,285,296. Option transactions and the number of options outstanding are summarized as follows:
| Weighted Average | Weighted Average | ||
|---|---|---|---|
| Outstanding | Exercise Price | ||
| As at January1,2019 | 5,100,000 | $ | 0.56 |
| Replacement options issued | 4,909,300 | 0.29 | |
| Optionsgranted | 5,300,000 | 0.48 | |
| Options exercised | (375,000) | 0.29 | |
| Options cancelled/forfeited | (175,000) | 0.55 | |
| As at December 31,2019 | 14,759,300 | $ | 0.46 |
| Optionsgranted | 5,235,000 | 0.48 | |
| Options exercised | (587,342) | 0.33 | |
| As at June 30, 2020 | 19,406,958 | $ | 0.47 |
The share-based compensation expense for the three and six months ended June 30, 2020 was $599,478 and $757,054, respectively (three and six months ended June 30, 2019 - $48,495 and $103,888, respectively). As at June 30, 2020, the options outstanding and exercisable are as follows:
| Options Outstanding | Options Exercisable | |
|---|---|---|
| Exercise Price |
Number Weighted average remaining life Weighted average exerciseprice |
Number Weighted average remaining life Weighted average exerciseprice |
| $0.45 $0.60 $0.48 $0.53 $0.50 $0.29 $0.71 $0.48 $0.65 $0.47 |
650,000 1.26 $0.45 3,233,333 2.13 $0.60 300,000 2.38 $0.48 300,000 2.52 $0.53 400,000 3.02 $0.50 3,748,000 0.09 $0.29 275,000 0.09 $0.71 5,265,625 4.13 $0.48 400,000 4.52 $0.65 4,835,000 4.83 $0.47 |
650,000 1.26 $0.45 3,266,667 2.13 $0.60 300,000 2.38 $0.48 300,000 2.52 $0.53 266,667 3.02 $0.50 3,748,000 0.09 $0.29 275,000 0.09 $0.71 3,332,943 4.13 $0.48 133,333 4.52 $0.65 1,566,667 4.83 $0.47 |
| 19,406,958 0.98 $0.47 |
13,839,277 0.95 $0.46 |
14
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted) For the Three and Six Months Ended June 30, 2020 and 2019
The fair value of the option grants issued during the three and six months ended June 30, 2020 have been estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| Three Months | Six Months | |||
|---|---|---|---|---|
| Ended | Ended, | |||
| June 30, 2020 | June 30, 2020 | |||
| Exercise price | $ | 0.47 | $ | 0.48 |
| Share price | $ | 0.47 | $ | 0.48 |
| Expected life (years) | 2.21 | 2.27 | ||
| Risk free interest rate | 0.34% | 0.44% | ||
| Expected volatility | 96.3% | 96.2% | ||
| Expected forfeiture rate | 16.4% | 16.6% | ||
| Dividendyield | - | - | ||
| Fair Value | $ | 0.24 | $ | 0.25 |
d) Deferred Share Units and Restricted Share Units
At the Company’s Annual General Meeting held on June 26, 2020, shareholders of the Company approved a resolution which allowed the Company to adopt Deferred Share Unit (“DSU”) and Restricted Share Unit (“RSU”) plans (together referred to as the “DSU and RSU Plans”). The DSU and RSU Plans are rolling 10% plans, with the 10% threshold being shared with the Option Plan so the combined aggregate total Options, DSUs and RSUs granted cannot exceed 10% of the issued and outstanding common shares of the Company.
The DSU Plan provides that the directors of the Company may grant DSUs to non-executive directors of the Company, to be settled in cash or the purchase common shares of the Company. The RSU Plan provides that the directors of the Company may grant RSUs to eligible officers, employees and service providers, to be settled in cash or the purchase common shares of the Company.
The Board in its sole discretion may determine any vesting provisions for DSUs and RSUs. The exercise price shall be determined by the directors of the Company at the time of grant in accordance with the provisions of the Plan. The expiry date for DSUs or RSUs shall not be more than ten years from the grant date.
There were no DSUs or RSUs granted during the three and six months ended June 30, 2020.
e) Warrants
On February 13, 2020, the 1,414,168 replacement warrants issued on completion of the acquisition of Levon on August 2, 2019 with an exercise price of $0.91 expired unexercised. The Company also expired the remaining 427,500 broker warrants issued as part of the August 17, 2017 private placement which were not extended in accordance with regulatory requirements.
On closing of the two tranches of the private placement on May 29 and June 8, 2020, an aggregate total of 22,727,267 warrants were issued to subscribers at an exercise price of $0.77 and a two-year
15
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2020 and 2019
expiry from the date of issuance with 15,545,467 expiring May 29, 2022 and 7,181,800 expiring June 8, 2022. In addition, 804,545 warrants were issued to finders at an exercise price of $0.55 and a twoyear expiry from the date of issuance with 373,636 expiring May 29, 2022 and 430,909 expiring June 8, 2022. All warrants are subject to a regulatory hold period of four months plus one day from the date of issuance. The total fair value of warrants issued is $8,976,252.
The fair value of the warrants issued during the three months ended June 30, 2020 have been estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| Three Months | ||
|---|---|---|
| Ended, | ||
| June 30, 2020 | ||
| Exercise price | $ | 0.75 |
| Share price | $ | 0.73 |
| Expected life (years) | 1.97 | |
| Risk free interest rate | 0.29% | |
| Expected volatility | 96.2% | |
| Expected forfeiture rate | - | |
| Dividendyield | - | |
| Fair Value | $ | 0.36 |
Warrants outstanding as at June 30, 2020 and December 31, 2019 are summarized as follows:
| Issue date | 8/17/2017 | 8/2/2019 | 11/4/2019 | 5/29/2020 | 6/8/2020 | 5/29/2020 | 6/8/2020 | |
|---|---|---|---|---|---|---|---|---|
| Expiry | 2/17/2021 | 2/13/2020 | 11/4/2021 | 5/29/2022 | 6/8/2022 | 5/29/2022 | 6/8/2022 | |
| Price | $1.00 | $0.91 | $0.50 | $0.77 | $0.77 | $0.55 | $0.55 | |
| December | ||||||||
| 31,2019 | 31,664,500 | 1,414,168 | 1,063,166 | - | - | - | - | 34,141,834 |
| Issued | - | - | - | 15,545,467 | 7,181,800 | 373,636 | 430,909 | 23,531,812 |
| Exercised | - | - | (9,000) | (68,150) | - | - | - | (77,150) |
| Expired | (427,500) | (1,414,168) | - | - | - | - | - | (1,841,668) |
| June 30, | ||||||||
| 2020 | 31,237,000 | - | 1,054,166 | 15,477,317 | 7,181,800 | 373,636 | 430,909 | 55,754,828 |
The remaining contractual lives of Warrants outstanding as at June 30, 2020 are as follows:
| Number of Warrants | Weighted average remaining life | Weighted average exerciseprice |
|---|---|---|
| 55,754,828 | 1.19years | $0.89 |
16
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
14. OTHER INCOME
| Three Months | Ended | June 30, | Six Months | Ended | June 30, | |||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Sale of investment | $ | - | $ | - | $ | 182,556 | $ | - |
| IVA refund(note 7) | - | - | 296,830 | - | ||||
| $ | - | $ | - | $ | 479,386 | $ | - |
On March 2, 2020, the Company completed the disposition of its entire position in Great Thunder Gold Corp. for cash proceeds of $228,391. The position was acquired as part of the acquisition of Levon on August 2, 2019 and at December 31, 2019 had a fair value of $45,835. The difference of $182,556 is recognized in ‘other income’ on the Interim Consolidated Statement of Loss and Total Comprehensive Loss.
a) Sale of non-core exploration property
On April 9, 2020, the Company completed the divestiture of its 100% interest in the Congress Property (“Congress”) located in British Columbia, to Talisker Resources Ltd. (“Talisker”). Congress was a non-core exploration property acquired by the Company as part of the Levon Resources Ltd. transaction that closed on August 2, 2019. Under the terms of the purchase agreement, Talisker issued 1,000,000 common shares to the Company in return for 100% ownership of Congress.
The shares had a fair value of $295,000 at the transaction date which was recorded in ‘investments’ on the Interim Consolidated Statement of Financial Position with a corresponding gain on sale in the Interim Consolidated Statement of Loss and Total Comprehensive Loss. On June 30, 2020, a fair value remeasurement was performed and the Company recorded an unrealized gain of $140,000 with a corresponding increase to the investment balance.
15. EXPLORATION AND PROJECT EVALUATION
| Three Months | Three Months | Ended | June 30, 2020(2) | June 30, 2020(2) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Project | ||||||||||||||||
| Puerto Rico | La Kika | Minerva | Monclova | Cordero | Other(1) | Evaluation | Total | |||||||||
| Permitting | $ | - | $ | - | $ | - | $ | - |
$ | - | $ | - | $ | - |
$ | - |
| Mining duties | - | - | - | - | - | 40,065 | - | 40,065 | ||||||||
| Surface access | - | - | - | - | - | - | - | - | ||||||||
| Site access | - | - | - | 3,874 | - | 25,134 | - | 29,008 | ||||||||
| Drilling | - | - | - | - | - | - | - | - | ||||||||
| Mapping, Sampling | ||||||||||||||||
| & Assays | - | - | - | - | - | 465,378 | - | 465,378 | ||||||||
| Geophysics | - | - | - | - | - | - | - | - | ||||||||
| Salaries and | ||||||||||||||||
| benefits | 4,406 | - | 4,480 | 4,406 | - | 46,485 | - | 59,777 | ||||||||
| Travel | 1,618 | - | 469 | 869 | - | 99,608 | - | 102,564 | ||||||||
| Administrative and | ||||||||||||||||
| other | 4,251 | - | 1,204 | 13 | - | 1,452 | - | 6,920 | ||||||||
| Project Evaluation | - | - | - | - | - | 27,525 | - | 27,525 | ||||||||
| Total | $ | 10,275 | $ | - | $ | 6,153 | $ | 9,162 | $ | - | $ | 705,647 | $ | - | $ | 731,237 |
17
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
| Three Months | Three Months | Ended June | 30, | 2019 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Project | ||||||||||||||
| Puerto Rico | La Kika | Minerva | Monclova | Other(1) | Evaluation | Total | ||||||||
| Permitting | $ | - | $ | - | $ | - | $ | - | $ | - |
$ | - |
$ | - |
| Mining duties | - | - | 9,733 | - | - | - | 9,733 | |||||||
| Surface access | - | - | 11,664 | - | - | - | 11,664 | |||||||
| Site access | - | - | - | 16,370 | - | - | 16,370 | |||||||
| Drilling | - | - | - | - | - | - | - | |||||||
| Mapping, Sampling & Assays | - | - | - | - | - | - | - | |||||||
| Geophysics | - | - | - | - | - | - | - | |||||||
| Salaries and benefits | 41,241 | - | 41,943 | 41,240 | - | - | 124,424 | |||||||
| Travel | 14,767 | - | 5,012 | 4,472 | - | - | 24,251 | |||||||
| Administrative and other | 21,128 | - | 28,703 | 9,628 | - | - | 59,459 | |||||||
| Project Evaluation | - | - | - | - | - | 235,627 | 235,627 | |||||||
| Total | $ | 77,136 | $ | - | $ | 97,055 | $ | 71,710 | $ | - | $ | 235,627 | $ | 481,528 |
| Six Months | Six Months | Ended | June 30, 2020(2) | June 30, 2020(2) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Project | ||||||||||||||||
| Puerto Rico | La Kika | Minerva | Monclova | Cordero | Other(1) | Evaluation | Total | |||||||||
| Permitting | $ | - | $ | - | $ | - | $ | - |
$ |
- | $ | - | $ | - |
$ | - |
| Mining duties | 30,985 | 4,941 | 8,458 | 20,130 | 273,602 | 4,098 | - | 342,214 | ||||||||
| Surface access | - | - | - | - | 5,269 | - | - | 5,269 | ||||||||
| Site access | - | 20,417 | 35,891 | 11,614 | 46,858 | - | - | 114,780 | ||||||||
| Drilling | - | - | - | - | 2,580,621 | - | - | 2,580,621 | ||||||||
| Mapping, Sampling | ||||||||||||||||
| & Assays | - | - | - | - | 534,362 | - | - | 534,362 | ||||||||
| Geophysics | - | - | - | - | 2,968 | - | - | 2,968 | ||||||||
| Salaries and | ||||||||||||||||
| benefits | 10,623 | - | 10,815 | 10,623 | 816,766 | - | - | 848,827 | ||||||||
| Travel | 6,911 | - | 1,451 | 2,610 | 146,190 | - | - | 157,162 | ||||||||
| Administrative and | ||||||||||||||||
| other | 8,624 | - | 3,756 | 88 | 120,251 | - | - | 132,719 | ||||||||
| Project Evaluation | - | - | - | - | 27,525 | - | - | 27,525 | ||||||||
| Total | $ | 57,143 | $ | 25,358 | $ | 60,371 | $ | 45,065 | $ |
4,554,412 | $ | 4,098 | $ | - | $ | 4,746,447 |
| Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | 2019 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Project | ||||||||||||||
| Puerto Rico | La Kika | Minerva | Monclova | Other(1) | Evaluation | Total | ||||||||
| Permitting | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
| Mining duties | 32,311 | 5,152 | 18,556 | 20,991 | 2,757 | - | 79,767 | |||||||
| Surface access | - | - | 21,037 | - | - | - | 21,037 | |||||||
| Site access | - | - | - | 27,451 | - | - | 27,451 | |||||||
| Drilling | - | - | - | - | - | - | - | |||||||
| Mapping, Sampling & Assays | 7,000 | - | - | - | - | - | 7,000 | |||||||
| Geophysics | - | - | 10,998 | - | - | - | 10,998 | |||||||
| Salaries and benefits | 109,454 | - | 66,578 | 68,265 | - | 244,297 | ||||||||
| Travel | 26,562 | - | 12,699 | 12,240 | - | - | 51,501 | |||||||
| Administrative and other | 36,715 | - | 31,655 | 10,455 | - | - | 78,825 | |||||||
| Project Evaluation | - | - | - | - | - | 235,627 | 235,627 | |||||||
| Total | $ | 212,042 | $ | 5,152 | $ | 161,523 | $ | 139,402 | $ | 2,757 | $ | 235,627 | $ | 756,503 |
-
1) Other includes Jemi Rare, Renata and Santa Rosa
-
2) Exploration activities were suspended on March 31, 2020 due to COVID-19 restrictions and recommenced on June 19, 2020.
18
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
16. GENERAL OFFICE AND OTHER EXPENSES
| Three Months | Ended | June 30, | Six Months | Ended | June 30, | |||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Travel | $ | - | $ | 4,683 | $ | 16,088 | $ | 11,781 |
| Salaries and benefits | 249,314 | 170,620 | 517,407 | 369,948 | ||||
| Shareholder communication and | ||||||||
| investor relations | 39,388 | 815 | 87,565 | 16,114 | ||||
| Filing and transfer agent fees | 71,594 | 19,259 | 99,571 | 20,512 | ||||
| Business development | 57,333 | - | 64,980 | 16,586 | ||||
| Rent | 16,576 | 16,566 | 33,824 | 33,314 | ||||
| Depreciation | 26,972 | 28,608 | 55,321 | 56,941 | ||||
| General office and other | 77,260 | 46,130 | 182,095 | 80,735 | ||||
| $ | 538,437 | $ | 286,681 | $ | 1,056,851 | $ | 605,931 |
17. PROFESSIONAL FEES
| Three Months | Ended | June 30, | Six Months | Ended | June 30, | |||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Legal | $ | 104,761 | $ | 15,899 | $ | 109,917 | $ | 26,724 |
| Audit, tax and accounting | 41,739 | 61,019 | 50,963 | 96,483 | ||||
| Consultingand other | 7,019 | - | 79,880 | - | ||||
| $ | 153,519 | $ | 76,918 | $ | 240,760 | $ | 123,207 |
18. INCOME TAXES
| Three Months | Ended June 30, | Ended June 30, | Six Months | Ended June 30, | Ended June 30, | |||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Loss before tax at statutory rate of 28% | ||||||||
| (2019 – 28%) | $ | 2,173,753 | $ | 218,132 | $ | 3,805,405 | $ | 432,427 |
| Effect on taxes of: | ||||||||
| Non-deductible expenses | (167,538) | (15,655) | (184,693) | (32,198) | ||||
| Change in deductible temporary | ||||||||
| differences | (2,006,215) | (202,477) | (3,620,712) | (400,229) | ||||
| Income tax expense | $ | - | $ | - | $ | - | $ | - |
19. CAPITAL MANAGEMENT
The Company defines capital as its shareholder’s equity (comprised of issued share capital, contributed surplus and deficit). The Company’s objectives when managing capital are to support the Company’s main activities of identifying, defining and developing mineral deposits, thus creating shareholder value, as well ensuring that the Company will be able to meet its financial obligations as they become due.
The Company manages its capital structure to maximize its financial flexibility to enable the Company to respond to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital, but rather relies on the expertise of the Company’s management to sustain the future development of the business. Management reviews its capital management approach on an ongoing
19
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Unaudited - (Expressed in Canadian dollars, except where otherwise noted) For the Three and Six Months Ended June 30, 2020 and 2019
basis and believes that this approach, given the relative size of the Company, is reasonable. The current excess funds realized from the non-brokered private placements are invested in highly liquid, interestbearing marketable securities with no restrictions on redemption.
As at June 30, 2020, aside from the long-term portion of the lease liability (note 12), the Company does not have any long-term debt outstanding and is not subject to any externally imposed capital requirements or debt covenants. There was no change to the Company’s approach to capital management during the three and six months ended June 30, 2020.
20. FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, other receivable and deposits, investments in marketable securities, accounts payable and accrued liabilities and lease liabilities.
Cash and cash equivalents, accounts receivable and deposits are classified as receivables and are measured at amortized cost using the effective interest method. Investments are classified as receivables and are measured at fair value through profit and loss. Accounts payable and accrued liabilities are classified as other financial liabilities and are measured at amortized cost. These financial instruments approximate their fair value due to their short-term nature.
The fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Financial instruments are classified into one of three levels in the fair value hierarchy according to the degree to which the inputs used in the fair value measurement are observable.
-
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;
-
Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
-
Level 3: Inputs that are not based on observable market data.
As at June 30, 2020 the Company had no financial instruments classified as Level 2 or 3.
21. FINANCIAL RISK MANAGEMENT
The Company’s has exposure to certain risks resulting from its use of financial instruments.
a) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at June 30, 2020, the Company had a cash and cash equivalents balance of $26,913,163 (December 31, 2019 – $23,950,737) to settle current
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Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Unaudited - (Expressed in Canadian dollars, except where otherwise noted) For the Three and Six Months Ended June 30, 2020 and 2019
liabilities of $520,234 (December 31, 2019 – $716,596). The Company’s financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.
As at June 30, 2020, the Company has no sources of revenue to fund its operating expenditures. Since inception the Company has relied solely on private placements to fund its operations. Since the change of business transaction in August 2017, such private placements include gross proceeds of $68,623,270 received through multiple non-brokered private placements (note 13b), or $103,624,720 including the $35,001,450 non-brokered private placement that closed on August 7, 2020 (note 25).
Management believes these financings will fund the Company’s initial exploration work on the properties in both Coahuila and Chihuahua, Mexico as well as the existing administrative needs. The Company may require additional financing to accomplish long-term strategic objectives. Future funding may be obtained by means of issuing share capital, or debt financing. At June 30, 2020, the Company is currently exposed to a low level of liquidity risk.
b) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to fulfill an obligation and cause the other party to incur a financial loss. The Company’s cash and cash equivalents, accounts receivable and prepaids and deposits are exposed to credit risk. The Company has assessed the credit risk on its cash and cash equivalents as low as its funds are held in highly rated Canadian financial institutions. Management deems the credit risk associated with other receivables and deposits to be at an acceptable level.
The Company’s maximum exposure to credit risk related to certain financial instruments as identified below, approximates the carrying value of these assets on the Company’s consolidated statements of financial position.
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cash and cash equivalents | $ | 26,913,163 | $ | 23,950,737 |
| Short-term investments | 15,000,000 | - | ||
| Other receivables | 8,799 | 13,925 | ||
| Deposits | 133,189 | 482,594 | ||
| $ | 42,055,151 | $ | 24,447,256 |
c) Market Risks
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and equity prices.
i. Interest rate risk
The Company has significant cash balances and no interest-bearing debt. The Company’s current policy is to invest excess cash in high-yield savings accounts or other highly liquid
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Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
interest-bearing short-term investments. The Company regularly monitors its cash management policy. Management has determined interest rate risk to be low.
ii.
Foreign currency risk
The Company’s functional currency is the Canadian dollar. At June 30, 2020, cash balances were held primarily in Canadian dollars. Foreign currency risk is the risk that the value of the Company’s financial instruments denominated in foreign currencies will fluctuate due to changes in foreign exchange rates. Changes in the exchange rate between foreign currencies and the Canadian Dollar could have a significant impact on the Company’s financial position, results of operations, and cash flows. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.
The Company is mainly exposed to foreign currency risk on financial instruments (consisting of trade payables) denominated in USD and MXP. As at June 30, 2020 and December 31, 2019, the Company had the following foreign currency denominated trade payables:
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2020 | 2019 | |||
| United States dollar | $ | 166,763 | $ | 54,133 |
| Mexican Peso | 54,144 | 157,598 | ||
| $ | 220,907 | $ | 211,731 |
It is estimated that a 10% fluctuation in the United States Dollar and Mexican Pesos against the Canadian dollar would affect net loss at June 30, 2020 by approximately $21,933 (December 31, 2019: $20,782).
As at June 30, 2020, Management has determined the Company’s exposure to foreign currency risk to be at an acceptable level.
iii. Price risk
The Company is exposed to price risk with respect to commodity prices and prices of equity securities. Equity security price risk is defined as the potential adverse impact on the Company’s net income or loss due to movements in individual prices of equity securities or price movements in the stock market generally. Commodity price risk is defined as the potential adverse impact on net income or loss and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, particularly as they relate to base and precious metals, and movement in the price of individual equity securities movements and the stock market generally, to determine the appropriate course of action to be taken by the Company.
There have been significant fluctuations in commodity prices and prices of equity securities during Q2 2020 as a result of the COVID-19 pandemic. Due to this volatility, the Company determined it was exposed to a higher level of overall price risk when compared to the risk assessed at December 31, 2019.
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Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
As at June 30, 2020 Management has determined the Company’s exposure to price risk to be at an acceptable level.
22. SEGMENTED INFORMATION
Operating segments are components of an entity whose operating results are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance and for which separate financial information is available.
The Company has one operating segment, which involves the exploration of polymetallic deposits. All mineral properties are located in Mexico. The Company currently has no revenues.
Segment performance is evaluated based on several operating and financial measures, including net loss and total comprehensive loss, which is measured consistently with net loss and total comprehensive loss in the interim financial statements.
The net loss and total comprehensive loss is distributed by geographic region as follows:
| Three Months | Ended June 30, | Ended June 30, | Six Months | Ended June 30, | Ended June 30, | ||
|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | ||||
| Canada | $ | (781,114) | $ | (559,615) | $ (1,172,942) | $ | (984,009) |
| Mexico | (1,154,961) | (354,868) | (6,590,462) | (634,937) | |||
| Net loss and total comprehensive loss | $ | (1,936,075) | $ | (914,483) | $ (7,763,404) | $ | (1,618,946) |
23. COMMITMENTS AND CONTRACTUAL OBLIGATIONS
a) Other commitments
The Company has operating leases for rent and certain office equipment that fall within the IFRS -16 exemption criteria. Total payments made during the three and six months ended June 30, 2020 for these operating leases were $630 and $1,260), respectively (three and six months ended June 30, 2019 - $690 and $1,380, respectively).
Total future minimum lease payments, under non-cancellable operating leases as at June 30, 2020 and December 31 ,2019 are as follows:
| June 30, | December 31, | December 31, | ||
|---|---|---|---|---|
| Year | 2020 | 2019 | ||
| 2020 | $ | 1,260 | $ | 9,540 |
| 2021 | 2,520 | 2,520 | ||
| 2022 | 2,520 | 2,520 | ||
| 2023 | 2,520 | 2,520 | ||
| 2024 | 2,520 | 2,520 | ||
| 2025 | 2,520 | 2,520 | ||
| Total | $ | 13,860 | $ | 22,140 |
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Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted)
For the Three and Six Months Ended June 30, 2020 and 2019
24. RELATED PARTY TRANSACTIONS
a) Key management personnel
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company. The Company has determined that key management personnel consist of executive and non-executive members of the Company’s Board of Directors and corporate officers.
A company partially owned by one of the directors of the Company provides access to administrative and exploration personnel and has made certain payments on behalf of the Company on an asneeded basis. There is no fee charged to the Company, as all expenses are allocated at cost. Reimbursed expenses for the three and six months ended June 30, 2020 totaled $1,333 and $13,283, respectively (three and six months ended June 30, 2019 –$12,676 and $18,448, respectively). The Company had $nil in expenses payable to this company as at June 30, 2020 (December 31, 2019 – $8,216). These expenses are not included in the table below.
Under similar arrangements, during the three and six months ended June 30, 2020 the Company reimbursed expenses of $nil and $nil, respectively (three and six months ended June 30, 2019 – $4,619 and $5,326) to other companies which have a Director in common. There was $nil in expenses payable at June 30, 2020 (December 31, 2019 –$nil). These expenses are not included in the table below.
| Three Months | Ended | June 30, | |||
|---|---|---|---|---|---|
| **Transaction Type ** | Nature of Relationship | 2020 | 2019 | ||
| Share-based payments | Directors and officers | $ | 447,039 | $ | 31,690 |
| Salaries and benefits | Officers | 175,670 | 162,451 | ||
| Directors fees | Directors | 76,736 | 43,750 | ||
| $ | 699,445 | $ | 237,891 | ||
| Six Months | Ended | June 30, | |||
| **Transaction Type ** | Nature of Relationship | 2020 | 2019 | ||
| Share-based payments | Directors and officers | $ | 524,426 | $ | 63,033 |
| Salaries and benefits | Officers | 351,340 | 324,901 | ||
| Consulting fees | Director | 25,000 | - | ||
| Directors fees | Directors | 126,736 | 87,500 | ||
| $ | 1,027,502 | $ | 475,434 | ||
| A summary of amounts due to related parties: | |||||
| June 30, | December 31, | ||||
| Transaction Type | Nature of Relationship | 2020 | 2019 | ||
| Salaries and benefits payable |
Directors, officers and employees | $ | - | $ | 266,125 |
| $ | - | $ | 266,125 |
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Discovery Metals Corp. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited - (Expressed in Canadian dollars, except where otherwise noted) For the Three and Six Months Ended June 30, 2020 and 2019
b) Exploration and Option agreements
A director of the Company is also party to the mineral exploration and option agreements and amendments thereto, entered into between the Company and the Vendors for all properties except for Cordero.
25. EVENTS AFTER THE REPORTING PERIOD
a) Non-brokered private placement
On July 24, 2020, the Company announced its intention to complete a $35,001,450 non-brokered private placement (the “Private Placement”) through the issuance of up to 25,927,000 units (“Units”) at a price of $1.35 per Unit. The Private Placement closed on August 7, 2020. Each Unit is comprised of one common share of Discovery (“Common Share”) and one half of one Common Share purchase warrant, with each full warrant exercisable at $1.75 for a period of two years after the date of issuance, expiring on August 7, 2022. A total of $1,763,848 in finders’ fees were paid on close.
Mr. Eric Sprott invested $14,999,850 in the Private Placement, on acquisition of 11,111,000 Units resulting in Mr. Sprott holding approximately 26.4% of Discovery’s issued and outstanding Common Shares, post-closing on an undiluted basis.
The proceeds of the Private Placement will be used primarily to fund Discovery’s continuing exploration program at its Cordero project and its Coahuila projects.
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