Element 29 Resources Inc. — Interim / Quarterly Report 2021

Nov 10, 2021

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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited - Expressed in Canadian dollars)

Three and nine month periods ended September 30, 2021

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORTING

The accompanying condensed consolidated interim financial statements of Element 29 Resources Inc. (the “Company”) have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”). Management acknowledges responsibility for the preparation and presentation of the condensed consolidated interim financial statements, including responsibility for significant accounting estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances.

NOTICE OF NO AUDITOR REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The Company’s independent auditor has not performed a review of these condensed consolidated interim financial statements in accordance with standards established by the Canadian Institute of Chartered Professional Accountants for a review of interim financial statements by a company’s auditor.

Element 29 Resources Inc.

Condensed Consolidated Interim Statements of Financial Position

As at September 30, 2021 and December 31, 2020 (Unaudited)

(expressed in Canadian dollars, except where indicated)

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Note September 30, 2021 December 31, 2020
Assets
Current assets
Cash and cash equivalents $ 3,451,747 $ 6,219,707
Receivables 11,780 38,177
Prepaid expenses 128,111 43,968
3,591,638 6,301,852
Non-current assets
Promissory notes receivable 5 - 57,456
Property and equipment 35,168 2,601
Exploration and evaluation assets 3 7,628,301 6,135,571
7,663,469 6,195,628
Total assets $ 11,255,107 $ 12,497,480
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 354,418 $ 200,937
354,418 200,937
Non-current liabilities
Loan payable 40,000 40,000
Total liabilities 394,418 240,937
Shareholders’ equity
Share capital 4 15,228,509 15,068,459
Reserves 1,362,754 483,657
Deficit (5,730,574) (3,295,573)
Total shareholders’ equity 10,860,689 12,256,543
Total liabilities and shareholders’ equity $ 11,255,107 $ 12,497,480
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Nature of operations (Note 1)

The accompanying notes are an integral part of these condensed consolidated interim financial statements

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Element 29 Resources Inc. Condensed Consolidated Interim Statements of Comprehensive Loss

For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

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Three months ended Nine months
September 30 ended September 30
Note
2021 2020 2021 2020
General and administrative expenses
Administration and office $ 41,251 $ 23,983 $ 101,815 $ 48,792
Investor relations 187,417 21,828 526,372 56,462
Personnel costs 5 219,501 140,062 643,211 502,443
Professional fees 70,862 124,872 185,402 220,327
Filing fees 10,757 - 32,414 -
Foreign exchange (gain) loss (26,230) 24,861 20,506 (33,987)
Share-based compensation 4 182,910 - 933,998 166,939
Other 4,981 662 7,637 1,238
Operating loss 691,449 336,268 2,451,355 962,214
Interest income (3,232) (3,085) (16,354) (4,306)
Interest expense - 36,248 - 66,777
Accretion expense - 15,121 - 26,665
Change in fair value of embedded derivatives - (14,645) - (29,085)
Loss and comprehensive loss for the period $ 688,217 $ 369,907 $ 2,435,001 $ 1,022,265
Loss per common share
Basic and fully diluted $ (0.01) $ (0.01) $ (0.04) $ (0.02)
Weighted average number of common shares
67,906,754 44,945,833 68,018,384 45,490,276
outstanding
Total common shares issued and outstanding 4 67,742,860 44,945,833 67,742,860 44,945,833
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The accompanying notes are an integral part of these condensed consolidated interim financial statements

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Element 29 Resources Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity For the nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

Note Number of Shares Share capital Commitment to issue shares Reserves	Note Number of Shares Share capital Commitment to issue shares Reserves	Note Number of Shares Share capital Commitment to issue shares Reserves	Note Number of Shares Share capital Commitment to issue shares Reserves	Note Number of Shares Share capital Commitment to issue shares Reserves	Note Number of Shares Share capital Commitment to issue shares Reserves	Deficit	Total
Balance at December 31, 2020 66,791,368 $ 15,068,459 $ - $ 483,657						$ (3,295,573) $ 12,256,543
Issuance of share capital – share options 4 1,490,000 213,901 - (54,901) Common shares cancelled 5 (538,508) (53,851) - - Loss and comprehensive loss - - - - Share-based compensation 4 - - - 933,998						- 159,000
						- (53,851)
						(2,435,001) (2,435,001)
						- 933,998
Balance at September 30, 2021		67,742,860	$15,228,509	$ -	$1,362,754	$(5,730,574)	$10,860,689

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Number of Share Commitment
Note Reserves Deficit Total
Shares capital to issue shares
Balance at December 31, 2019 45,645,833 $ 5,929,000 $ - $ 90,790 $ (1,211,120) $ 4,808,670
Issuance of share capital – share options 300,000 39,541 - (9,541) - 30,000
Commitment to issue shares - - 1,500,000 - - 1,500,000
Cancellation of common shares 5 (1,000,000) (100,000) - - - (100,000)
Loss and comprehensive loss - - - - (1,022,265) (1,022,265)
Share-based compensation - - - 166,939 - 166,939
Balance at September 30, 2020 44,945,833 $ 5,868,541 $ 1,500,000 $ 248,188 $ (2,233,385) $ 5,383,344
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The accompanying notes are an integral part of these condensed consolidated interim financial statements

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Element 29 Resources Inc. Condensed Consolidated Interim Statements of Cash Flows

For the nine months ended September 30, 2021 and 2020 (Unaudited)

(expressed in Canadian dollars, except where indicated)

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Note 2021 2020
Cash flows used in operating activities
Loss and comprehensive loss $ (2,435,001) $ (1,022,265)
Items not affecting cash:
Depreciation 147 -
Loss on sale of fixed assets 1,280 -
Share-based compensation 4 933,998 166,939
Unrealized foreign exchange (gain)/loss (18,738) 33,987
Accretion - 26,665
Change in fair value of derivatives - (29,085)
Accrued interest expense - 66,777
Other 3,605 -
(1,514,709) (756,982)
Changes in non-cash operating working capital:
(Increase) decrease in receivables and prepaid expenses (57,746) 24,833
Decrease in accounts payable and accrued liabilities (12,787) (79,518)
(1,585,242) (811,667)
Cash flows used in investing activities
Receipts from promissory notes receivable 5 - 128,959
Payment for exploration and evaluation assets 3 (1,305,954) (536,379)
Purchase of equipment (35,764) (1,880)
(1,341,718) (409,300)
Cash flows from financing activities
Proceeds from secured convertible debentures - 1,500,000
Proceeds from unsecured convertible debentures - 295,000
Finance fees – convertible debentures - (13,140)
Proceeds from issuance of common shares – share options 4 159,000 30,000
Proceeds from loan - 40,000
159,000 1,851,860
(Decrease) increase in cash and cash equivalents (2,767,960) 630,893
Cash and cash equivalents - beginning of period 6,219,707 424,562
Cash and cash equivalents - end of period $ 3,451,747 $ 1,055,455
Cash and cash equivalents is represented by:
Cash $ 3,451,747 $ 1,055,455
Cash equivalents - -
Total cash and cash equivalents $ 3,451,747 $ 1,055,455
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Supplemental cash flow information (Note 7)

The accompanying notes are an integral part of these condensed consolidated interim financial statements

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Element 29 Resources Inc. Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

1 Nature of operations

Nature of operations

Element 29 Resources Inc. together with its subsidiaries (collectively referred to as the “Company” or “E29”), is focused on the exploration of mineral property interests in Peru.

The Company was incorporated on August 30, 2017 in British Columbia. The Company’s registered office is at 1900-1040 West Georgia Street, Vancouver, BC, V6E 4H3, Canada. The Company completed an initial public offering (“IPO”) on December 3, 2020 and the Company’s common shares commenced trading on the TSX Venture Exchange (“TSX-V”) on December 7, 2020 under the symbol “ECU”. On May 27, 2021, the Company commenced trading on the Over-the-Counter OTCQB Venture Market (“OTCQB”) under the symbol “EMTRF”.

All amounts are expressed in Canadian dollars, except for certain amounts denoted in United States dollars (“US$”).

The Company has not yet determined whether its exploration and evaluation assets contain mineral reserves that are economically recoverable. The recoverability of the amounts shown for exploration and evaluation assets is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of those reserves and upon future profitable production. To date, the Company has not earned any revenues and is considered to be in the exploration stage.

Going concern

These condensed consolidated interim financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations.

The Company has not generated revenues from its operations to date. As at September 30, 2021, the Company has accumulated net losses of $5,730,574 since inception and has working capital of $3,237,220. The operations of the Company have primarily been funded by the issuance of common shares. These condensed consolidated interim financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Management estimates its current working capital will be sufficient to fund its current level of activities for the next twelve months.

If the going concern assumption was not appropriate for these condensed consolidated interim financial statements, then adjustments may be necessary to the carrying values of assets and liabilities, the reported expenses and the statement of financial position classifications used. Such adjustments could be material.

2 Basis of presentation

Basis of presentation

The Company prepares its condensed consolidated interim financial statements in accordance with International Accounting Standards 34, Interim Financial Reporting (“IAS 34”), under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretation of the International Reporting Interpretations Committee (“IFRIC”). These should be read in conjunction with the Company’s annual audited consolidated financial statements as at and for the year ended December 31, 2020 (“Annual Financial Statements”). The accounting policies and critical estimates and judgements applied by the Company in these condensed consolidated interim financial statements are the same as those applied in the Company’s Annual Financial Statements, unless otherwise stated.

These condensed consolidated interim financial statements of the Company have been prepared on an accrual basis and are based on historical costs, except for financial instruments measured at fair value or amortized cost.

The Board of Directors of the Company approved these condensed consolidated interim financial statements and authorized them for issue on November 9, 2021.

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Element 29 Resources Inc. Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

Basis of consolidation

These condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiaries:

• Candelaria Resources S.A.C. (“Candelaria”)

• Elida Resources S.A.C. (“Elida”)

• Pahuay Resources S.A.C. (“Pahuay”)

All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

3 Exploration and evaluation assets

Title to exploration and evaluation assets involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of many mineral properties. The Company has investigated title to its mineral properties and, to the best of its knowledge, title to the mineral property assets remains in good standing.

Flor de Cobre Copper Project

The Company owns 100% of the Flor de Cobre Copper Project, with the exception of certain claims (“Candelaria Claims”), where it has an option to earn 100% interest.

The Company can earn 100% interest in the Candelaria Claims at Flor de Cobre by making payments to the vendor in the total amount of approximately US$5 million over five years between 2020 and 2024. An additional US$6 million payment would be due on the positive feasibility study for the claim area.

In 2019, the Company acquired several claims through a government auction (the “San Jose Property”). The San Jose Property forms part of the Flor de Cobre Project.

Elida Copper Project

The Company owns 100% of the Elida copper project, subject to a 2% net smelter royalty (“NSR”) to Globetrotters Resource Group Inc. (“Globetrotters”), a private company incorporated under the laws of British Columbia, Canada.

Pahuay Copper Skarn Project

The Company owns 100% of the Pahuay Copper Skarn Project, subject to a 2% NSR to Globetrotters. The property is located 270 kilometres south of Lima, Peru.

Muñaorjo Copper Skarn Project

The Company owns 100% of the Muñaorjo Copper Skarn Porphyry Project, subject to a 2% NSR to Globetrotters. The project is located approximately 200 kilometres northeast of Arequipa, Peru.

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Element 29 Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

Expenditures for the nine months ended September 30, 2021 were as follows:

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Pahuay and
Flor de Cobre Elida Total
Muñaorjo
Balance at December 31, 2020 $ 1,449,929 $ 3,173,864 $ 1,511,778 $ 6,135,571
Additions:
Option payments - - - -
Geological and mapping 1,312 451,874 - 453,186
Geophysics and geochemistry 5,169 299,735 - 304,904
Permitting 1,168 2,609 - 3,777
Community, health, safety and environment 17,326 127,716 - 145,042
Concessions and taxes 11,938 263,807 1,483 277,228
Technical report 905 3,115 - 4,020
Geology salaries and fees - 132,435 - 132,435
Property maintenance and administration 55,247 103,428 13,463 172,138
Balance at September 30, 2021 $ 1,542,994 $ 4,558,583 $ 1,526,724 $ 7,628,301
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Expenditures for the nine months ended September 30, 2020 were as follows:

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Pahuay and
Flor de Cobre Elida Total
Muñaorjo
Balance at December 31, 2019 $ 1,148,499 $ 2,859,246 $ 1,504,563 $ 5,512,308
Additions:
Option payments 82,379 - - 82,379
Geological and mapping 341 - - 341
Geophysics and geochemistry 22,346 - - 22,346
Permitting 3,045 2,107 - 5,152
Community, health, safety and environment 21,916 41,973 - 63,889
Concessions and taxes 52,415 116,053 5,192 173,660
Technical report 13,422 8,000 - 21,422
Property maintenance and administration 68,540 56,921 7,743 133,204
Balance at September 30, 2020 $ 1,412,903 $ 3,084,300 $ 1,517,498 $ 6,014,701
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4 Share capital

a) Common shares

The Company’s authorized share capital consists of unlimited common shares without par value. At September 30, 2021, the Company had 67,742,860 (December 31, 2020 – 66,791,368) shares issued and outstanding.

b) Share options

The Company provides share-based compensation to its directors, officers, employees, and consultants through grants of share options.

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Element 29 Resources Inc. Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

The Company has adopted a stock option plan (the “Plan”), as amended, to grant options to directors, officers, employees and consultants to acquire up to 10% of the issued and outstanding shares of the Company. Vesting is determined at the discretion of the Board of Directors.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. For employees, the share-based compensation expense is amortized on a graded vesting basis over the requisite service period which approximates the vesting period. Share-based compensation expense for share options granted to non-employees is recognized over the contract services period or, if none exists, from the date of grant until the share options vest.

The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the share options. Since the Company has not paid and does not anticipate paying dividends on its common shares, the expected dividend yield is assumed to be zero. Companies are required to utilize an estimated forfeiture rate when calculating the share-based compensation expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of nil in determining the share-based compensation expense recorded in the accompanying condensed consolidated interim statements of comprehensive loss.

On August 4th, 2021, the Chief Executive Officer and President of the Company retired and as a result, 925,000 share options were cancelled.

Share option transactions are summarized as follows:

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Number of share Weighted average
options exercise price $
Outstanding – December 31, 2020 3,365,000 0.24
Exercised (1,490,000) 0.11
Cancelled (925,000) 0.37
Granted 2,675,000 0.45
Outstanding – September 30, 2021 3,625,000 0.33
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At September 30, 2021, the following share options were outstanding:

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Number of share options Exercise price per share
Number of share options Expiry date
vested option $
300,000 300,000 0.30 August 23, 2024
200,000 133,333 0.30 May 19, 2025
350,000 233,333 0.30 June 25, 2025
150,000 100,000 0.30 June 29, 2025
150,000 50,000 0.50 October 28, 2025
225,000 75,000 0.50 November 9, 2025
2,100,000 1,050,000 0.45 February 3, 2026
150,000 75,000 0.445 April 7, 2026
3,625,000 2,016,666
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	September 30, 2021
Weighted average exercise price for exercisable share options Weighted average share price for share options exercised Weighted averageyears to expiryfor exercisable share options	$0.40
	$0.43
	3.98years

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Element 29 Resources Inc. Notes to Condensed Consolidated Interim Financial Statements

For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

For the nine months ended September 30, 2021, the total share-based compensation charges relating to options granted and vested to directors, officers, employees and consultants was $933,998 (2020 - $166,939).

The weighted average fair value at date of grant for the options granted during the nine months ended September 30, 2021 was $0.36 (2020 - $0.18) per option. The following weighted average assumptions were used for the Black-Scholes valuation of share options granted:

	2021
Risk-free interest rate Expected life of share options (years) Expected volatility Expected dividend	0.42%
	5.00 years
	115.00%
	0.00%

c) Share purchase warrants

At September 30, 2021, the following share purchase warrants were outstanding:

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Number of share purchase Exercise price per share
Expiry date
warrants purchase warrant $
394,714 0.50 December 3, 2021
6,655,200 0.70 December 3, 2023
2,666,478 0.50 December 3, 2023
9,716,392
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No share purchase warrants were exercised during the nine month period ended September 30, 2021.

5 Related party transactions

The Company’s related parties include key management personnel and directors. Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of members of the Board of Directors and corporate officers, including the Company’s former Chief Executive Officer, Chief Financial Officer, Vice President of Exploration, the former Non-Executive Chairman and the former Vice President of Business Development.

Direct remuneration paid to the Company’s directors and key management personnel during the nine months ended September 30, 2021 and 2020 was as follows:

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2021 2020
Salaries and benefits – personnel costs $ 337,715 $ 206,250
Consulting fees – personnel costs 75,875 245,050
Directors’ fees – personnel costs 76,685 35,250
Share-based compensation 655,312 166,939
$ 1,145,587 $ 653,489
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As at September 30, 2021, included in accounts payable and accrued liabilities was an amount of $21,075 (December 31, 2020 - $8,939) due to the Company’s key management personnel and $25,500 (December 31, 2020 - $9,639) due to the directors of the Company.

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Element 29 Resources Inc. Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

The Company has issued common shares of the Company to certain executives in exchange for promissory notes (the “Promissory Note”) to the Company.

In November 2018, the former Non-Executive Chairman was issued 1,500,000 common shares of the Company in exchange for a Promissory Note of $150,000. The Non-Executive Chairman’s Promissory Note bears interest at 2% per annum, matures on April 1, 2022 and is secured by the 1,500,000 common shares of the Company acquired with the Promissory Note and are held in escrow. In January 2020, the Non-Executive Chairman repaid $51,250 of the outstanding balance. In May 2020, the Non-Executive Chairman resigned from the Company and cancelled the remaining balance of the Promissory Note. As a result, 1,000,000 common shares in relation to this Promissory Note were returned to treasury and cancelled.

In January 2019, the former Chief Executive Officer and President was issued 2,000,000 common shares of the Company in exchange for a Promissory Note of $200,000. The former Chief Executive Officer’s Promissory Note bears interest at 2% per annum, matures on September 15, 2022 and is secured by the 1,500,000 common shares of the Company acquired with the Promissory Note and are held in escrow. For the nine month period ended September 30, 2021, the former Chief Executive Officer repaid $Nil (2020 - $78,959) of the Promissory Note. On September 25, 2021, the Chief Executive Officer and President retired from the Company and the remaining balance of the Promissory Note was cancelled. As a result, 538,508 common shares in relation to this Promissory Note were returned to treasury and will be cancelled.

In February 2019, the former Vice President of Business Development was issued 1,500,000 common shares of the Company in exchange for a Promissory Note of $150,000. The Vice President of Business Development’s Promissory Note bears interest at 2% per annum, matures on September 1, 2022 and is secured by the 1,500,000 common shares of the Company acquired with the Promissory Note and are held in escrow. In November 2020, the former Vice President of Business Development resigned from the Company and repaid the remaining balance of the Promissory Note.

The following is a continuity schedule of Promissory Notes:

Balance at January 1, 2020 Repayments Cancellation Interest	$ 459,000
	(301,899)
	(100,000)
	355
Balance at December 31, 2020 Cancellation Interest	57,456
	(53,851)
	(3,605)
Balance at September 30, 2021	$ -

6 Segmented information

The Company has one business segment, the exploration of mineral properties. As at September 30, 2021, all of the Company’s significant non-current non-financial assets are located in Peru.

7 Supplemental cash flow information

Supplemental cash flow information for the nine months ended at September 30, 2021 and 2020:

	Note	2021	2020
Non-cash financing activities
- Promissorynotes	(i)	$53,851	$ 100,000

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Element 29 Resources Inc. Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2021 and 2020 (Unaudited) (expressed in Canadian dollars, except where indicated)

• (i) On September 25, 2021, the Chief Executive Officer and President retired from the Company and the outstanding balance of the Promissory Note to acquire common shares of the Company were cancelled. The related common shares were returned to treasury of the Company and cancelled (Note 5).

8 Financial instruments

a) Fair value classification of financial instruments

The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices). Level 3 inputs are for the assets or liabilities that are not based on observable market data (unobservable inputs). The Company’s financial instruments consist of cash and cash equivalents, receivables, accounts payable and accrued liabilities, and loan payable.

The carrying values of these financial instruments approximate their fair value due to their short terms to maturity.

The following table summarizes the classification and carrying values of the Company’s financial instruments at September 30, 2021:

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Amortized cost
Amortized cost
FVTPL (financial Total
(financial assets)
liabilities)
Financial assets
Cash and cash equivalents $ - $ 3,451,747 $ - $ 3,451,747
Receivables - 11,780 - 11,780
Total f inancial assets $ - $ 3,463,527 $ - $ 3,463,527
Financial liabilities
Accounts payable and accrued $ - $ - $ 354,418 $ 354,418
liabilities
Loan payable - - 40,000 40,000
Total financial liabilities $ - $ - $ 394,418 $ 394,418
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9 Capital management

The Company considers items included in shareholders’ equity as capital. The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets which are revised periodically based on the results of its exploration programs, availability of financing and industry conditions. There are no external restrictions on management of capital and there has been no changes to the Company’s capital management during the current year. The Company believes it will be able to raise new funds as required in the long term to fund its exploration programs but recognizes there will be risks involved that may be beyond its control.

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