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G.E.T.T. Gold Inc. — Management Reports 2021
Jan 29, 2021
45098_rns_2021-01-28_6f4a6afb-30c2-4502-b0ac-c9518bf78f20.pdf
Management Reports
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NIPPON DRAGON RESOURCES INC.
Management’s Discussion and Analysis 2020
FOR THE FINANCIAL YEAR ENDED SEPTEMBER 30, 2020
500-7055, Taschereau boulevard, Brossard (Quebec) J4Z 1A7 Phone: (450) 510-4442 Fax: (450) 510-9901
1
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
This report provides an analysis of our results from operations and financial situation which will help the reader to assess material changes in results from our operations and financial situation for the financial year ended September 30, 2020 in comparison to the previous year. The information contained in this document is dated as January 27, 2021. This Management Discussion and Analysis Report (“MD&A”) complies with Rule 51-102A of the Canadian Securities Administrators on continuous disclosure and is intended to supplement our financial statements. It presents management’s point of view on Nippon Dragon Resources Inc.’s (the “Company”) ongoing activities and its current and past financial results, it gives an indication of its present and future orientations, while elaborating on its financial results and other risks that could have an impact on the Company's business. This report should be read in conjunction with the annual audited financial statements. This present MD&A was approved by the Board of directors on January 27, 2021.
The financial statements are prepared in accordance with the International Financial Reporting Standards (“IFRS”). These financial statements have been audited by the auditors of the Company and they include the necessary adjustments required to present fairly, in all material respects, the financial position for the year. All dollar amounts are expressed in the functional and presentation currency of the Company, which is the Canadian dollar, unless otherwise specified. Further information about the Company, its properties, projects, annual and quarterly reports are available for consultation on the web site of the Company or SEDAR at the following addresses: www.nippondragon.com and www.sedar.com.
GOING CONCERN
The accompanying financial statements have been prepared using IFRS applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due.
In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. Management is aware in making its assessment of material uncertainties related to events and conditions that lend a significant doubt upon the Company’s ability to continue as a going concern and accordingly, the appropriateness of the use of IFRS applicable to a going concern, as described in the following paragraph. These financial statements do not reflect the adjustment to the carrying values of assets and liabilities, expenses and financial position classifications that would be necessary were the going concern assumption not appropriate. These adjustments could be material.
Given that the Company has not yet found a mineral property containing mineral deposits that are economically recoverable, the Company has not yet generated any income or cash flows from its mining properties. As at September 30, 2020, the Company has accumulated a deficit of $ 68,524,977 ($ 65,920,426 as at September 30, 2019) and has a working capital deficiency of $ 7,046,988 ($ 6,383,869 as at September 30, 2019).
Management considers that the cash balances are insufficient for the Company to continue operating. Any future funding shortfall may be met in a number of ways, including the issuance of new equity instruments, cost reductions and other measures such as the renegotiation of its debts and debentures or the disposal of mining properties. While management has been successful in securing financing in the past, there can be no assurance it will be able to do so in the future, that such sources of funding or initiatives will be available to the Company or that they will be available on terms acceptable to the Company. If management is unable to obtain new funding, the Company may be unable to continue its operations, and amounts realized for assets might be less than amounts reflected in these financial statements.
2
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
CORPORATE INFORMATION AND NATURE OF ITS ACTIVITIES
Nippon Dragon Resources Inc. was incorporated under the Québec Business Corporations Act on July 18, 2000. Its head office is located 500-7055 Taschereau boulevard, Brossard (Quebec) J4Z 1A7, phone: 450-510-4442, email: [email protected]. The Company is a Tier 2 publicly listed Company, its shares trade on the TSX Venture Exchange under the symbol NIP and also on the OTCQB exchange under the symbol RCCMF.
The Company specializes in the exploration of precious metals in mining sites located in Quebec. One of its properties, Rocmec 1, contains mineral resources. For the period ended September 30, 2020, the Company has installed a natural gas generator, a permanent installation of the ventilation network and the installation of the electric system at Rocmec 1 property. When further exploration will be conducted on Rocmec 1, Denain and Courville properties, the Company will then determine if these properties contain economically profitable ore resources. Additional details pertaining to the properties are presented in the section titled Mining properties and future exploration work.
In addition, the Company's mission is to introduce and commercialize the thermal fragmentation process within the mining industry. As such, the Company negotiates with mining companies to access ounces of gold that would not have been found if the conventional mining approach had been used. The Company has exclusive distribution agreements in Australia and South Africa.
GLOBAL PERFORMANCE OF 2020
Highlights on agreement with Material Japan Co. Ltd., Japan
On March 15 2019, the Company signed an agreement with Material Japan totaling an investment of $2.5 millions to earn 60% of the project’s profits that consists of driving an exploration ramp of approximately 400 meters within the Denain property and extracting mineralized rocks to verify the gold potential of this deposit.
The entire amount was received during the third quarter of 2019. The permits to allow the Company to start its work are in the process of being obtained, but have not yet been granted by the minister yet. This situation delayed the start of operations on Denain property.
However, the Company decided to start working on the Rocmec 1 property in the meantime, as this property already had all the required permits to develop the deposit.
As at September 30, 2020, the entire advance of $2.5 millions has been spent. This advance allowed the Company to install a natural gas generator, to complete the permanent installation of the ventilation network and to start using a technology that allows mining companies to visualise mining operations on its Rocmec 1 property. Furthermore, the advance contributed to pay part of the mining permits for the Denain property.
3
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
Gold production agreement
In February, June and August 2020, the Company announced that it secured fundings relating to a gold production agreement. Fundings were secured for a value of respectively $ 1,198,000, $ 1,361,600 and $ 1,697,600. Nippon sold 999 units at $ 1,200 per unit, in February 2020, 851 units at $ 1,600 per unit in June 2020 and 1 601 units at $ 1,600 per unit in August 2020. Each unit represents one (1) gold ounce. The Company intends to complete the delivery of the gold ounces to the buyers no later than 20 months following the on-site mobilization. In event that a default occurs or continues, the Buyer may, at is option, request the total refund or part of the purchases, and the Company must pay a price equivalent to the total principal amount then outstanding plus a penalty of three months of interest at a rate of 10 % per annum on the sum the outstanding principal at such date. These fundings will be used in addition to the advance from Material Japan, which is now completely spent, to complete the preparation of the Rocmec 1.
Health crisis related to Coronavirus
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a global pandemic, which continues to spread in Canada and around the world.
As at March 24, 2020, the Government of Quebec suspended activities in the mining sector. On that date, the Company stopped its development operations to limit its activities to minimum maintenance of the mine, such as pumping water and maintaining the galleries.
The Government of Quebec authorized the resumption of activities in the mining sector on April 15, 2020. From that date up to the date of this MD&A, the Company resumed its normal activities. In April 2020, the Company obtained a loan of $ 40,000 as part of the Canada Emergency Business Account program, a government program that helps companies facing theCOVID-19 related crisis.
Development of the Rocmec 1 property
For the year ended September 30, 2020, the Company focused on the development of the Rocmec 1 property by installing a natural gas generator that will decrease the impact of the Company’s activities on the environment and increase the energy efficiency of the Rocmec 1 project site. Moreover, the Company has completed the permanent installation of the ventilation network that will increase the number of mining equipment dedicated to clearing the mineralized rock.
The Company also started using a technology that allows mining companies to visualise a mining operation in real-time at its Rocmec 1 project. The platform optimizes the decision-making process by reporting high quality data in a single tool, which allows the user to perform several analyses. Through continuous data monitoring, the technology optimizes productivity and improves miners’ safety. Mine development planning is progressing well. The installation of a ventilation and electric system is in process of being completed at Rocmec 1 property.
Development of the Denain Project
During the year ended September 30, 2020, the Company spent $92,450 to obtain the required mining permits necessary to start working on the Denain property. As the permits are not delivered yet, the Company decided to focus in the meanwhile on the development of the Rocmec 1 property.
4
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
Mining properties and future exploration work
Rocmec 1
Infrastructures: The property includes a 100m deep two-compartment shaft, an 844 metres decline allowing access to four levels (50, 90, 110 and 130 metres). On these levels a total of 2,000 metres of drifts and cross-cut drift were made. The Rocmec 1 ore body is well defined by diamond drilling, sampled and certain areas were mined (McDowell vein).
Geology: The gold veins on the Rocmec 1 property are quartz-carbonated narrow veins included in intrusive rocks that hold quartz or have granophyric textures. The narrow veins can be confined in a more competent ground. The high-grade iron ore is most favourable for gold precipitation. These quartz-carbonated narrow veins are normally created in a table and lense shaped structure and are present in the central portion of the sheared zone with a fragile-ductile rocky behaviour parallel to the host structure and slightly oblique.
Mineralization: The gold mineralization at the Rocmec 1 Property is located east-to-northeast with centri-metric and metric-wide quartz veins, dipping moderately to steeply to the south. They are a kilometre in length by 600 meters wide gabbro contained in intrusive granodiorite. There are at least six major vein systems identified on the property; however recent underground work by the Company has confirmed that several veins are likely part of the same system, simply offset by north trending faults. The veins are part of diverging / converging or anastomosing fracture system than includes shearing, alteration (silica, chlorite, sericite, epidote and carbonate) and 2 to 10% disseminated and vein-type pyrite that can attain overall widths in excess of 30 meters.
The best-known vein system is named the McDowell Zone that may include three different vein sets, and has been identified over a 1,660 meter long strike length, up to a 317 meter depth, carrying an average of 6.07 g/t gold capped at 45 g/t over a 0.82 meter horizontal width.
5
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
Table of Resources
Rocmec 1
| Vein/Structure | Classification | Tonnage | Au | Oz | Thickness | Volume | Area |
|---|---|---|---|---|---|---|---|
| (3 1. 103 | Average | ||||||
| (gr/t) | (m3) | (m 2) | |||||
| g) | (m) | ||||||
| McDowell | Measured*(M) | 73,100 | 7.33 | 17,200 | 0.83 | 27,100 | 32,600 |
| I n d icated(I) | 159,900 | 5.99 | 30,800 | 0.66 | 59,200 | 90,000 | |
| Total(M + l) | 233,000 | 6.41 | 48,000 | 0.70 | 86,300 | 122,600 | |
| Inferred | 394,200 | 4.50 | 57,000 | 0.74 | 146,000 | 197,400 | |
| * Historical 2008/2009 miningand bulk samplingremoved from these numbers. | |||||||
| Shaft | Measured*(M) | 20,700 | 6.68 | 4,400 | 0.52 | 7,700 | 14,700 |
| I n d icated(I) | 116,200 | 5.79 | 21,600 | 0.56 | 43,000 | 77,100 | |
| Total(M + l) | 136,900 | 5.92 | 26,000 | 0.55 | 50,700 | 91,800 | |
| Inferred | 253,500 | 8.24 | 67,200 | 0.59 | 93,900 | 159,600 | |
| Talus | Measured*(M) | 31,100 | 6.24 | 6,200 | 0.88 | 11,500 | 13,100 |
| I n d icated(I) | 79,100 | 6.50 | 16,500 | 0.70 | 29,300 | 41,900 | |
| Total(M + I) | 110,200 | 6.43 | 22,700 | 0.74 | 40,800 | 55,000 | |
| Inferred | 215,700 | 7.57 | 52,500 | 0.62 | 79,900 | 129,800 | |
| Boucher | Indicated | 58,700 | 5.46 | 10,300 | 0.86 | 21,700 | 25,400 |
| Inferred | 348,100 | 9.94 | 111,200 | 0.91 | 128,900 | 141,600 | |
| Boucher 2 | Indicated | 31,500 | 12.20 | 12,400 | 0.57 | 11,700 | 20,600 |
| Inferred | 272,900 | 7.20 | 63,100 | 0.92 | 101,100 | 110,300 | |
| Talus 2 | Inferred | 18,000 | 5.28 | 3,100 | 1.25 | 6,700 | 5,300 |
| Front West | Inferred | 8,500 | 18.41 | 5,000 | 0.65 | 3,100 | 4,300 |
| T 1 ( Extruded Block) | Inferred | 600 | 10.58 | 200 | 0.39 | 200 | 600 |
| T2 | Inferred | 500 | 18.42 | 300 | 0.33 | 200 | 600 |
| T3 | Inferred | 500 | 4.36 | 100 | 0.35 | 200 | 600 |
| Total | Measured(M) | 124,900 | 6.95 | 27,800 | 0.77 | 46,300 | 60,400 |
| Indicated(I) | 445,400 | 6.40 | 91,600 | 0.65 | 164,900 | 255,000 | |
| Total(M E l) | 570,300 | 6.52 | 119,400 | 0.67 | 211,200 | 315,400 | |
| Inferred | 1,512,500 | 7.40 | 359,700 | 0.75 | 560,200 | 750,100 |
- Calculations are in metric units with results rounded to reflect their true estimated nature. Mineral Resources are not MineralReserves, since Mineral Reserves have a demonstrable economic viability. Système Géostat International Inc. has verified and is notaware of any environmental, permitting, legal, claim title, taxation, socio-political, marketing or other constraints that could affect the resource estimate.
6
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
The resources were estimated with a minimum horizontal width of 0.3 m based on the hypothesis of thermal fragmentation mining. This method of mining is designed for narrow vein type mining.
SGS Canada inc. (“SGS”) verified and reviewed most of historical analytical data during its first resource estimation of 2010. The same database was used and updated with the recent underground and surfaces drill-hole data. SGS considers the historical data as adequate.
The project requires definition diamond drilling, specifically for the Boucher and Boucher 2 structures, before they are ready to be mined. This can be done from the surface or underground drilling from rehabilitated drifts.
During the year ended September 30, 2019, the Company extended the McDowell vein regarding the Rocmec 1 gold property. The exploration hole proved to be successful and shows there is potential to extend the gold mineral resources east of the property. Moreover, at the request of the Minister of Energy and Natural Resources of Quebec and to demonstrate its good faith on maintaining the site of Rocmec 1 in good condition, while operations were suspended, the Company has undertaken restoration work on a certain portion of the property. During the first quarter of fiscal year 2020, emphasis was placed on site preparation and the development of the project. During the second quarter, the Company continued to install the electrical and ventilation infrastructure. The access to levels 90 and 110 were cleaned up as well as the ore clearing. A custom machining contract is being negotiated with a few companies. During the third quarter, the Company focused on its Rocmec 1 property by completing the permanent installation of the ventilation network, installed a natural gas generator and started using a technology that allows mining companies to visualise a mining operation in real-time. During the fourth quarter of 2020, mine development planning has progressing well. The installation of a ventilation and electric system is in process of being completed at Rocmec 1 property.
Denain
The property, which is located in Louvicourt, in close proximity to Val-d'Or, is one of the sites on which the Company undertook development work in order to evaluate its future potential. The principal vein, referred to as the South vein, has been intercepted close to 400 metres in length, and identified to a depth of 100 metres. The technical report prepared by a consulting geologist measured and indicated resources of 9,570 ounces and inferred resources of 31,185 ounces. Furthermore, another mineralized structure, referred to as the North vein, has been identified but as of yet no resource calculation has been made.
Courville Maruska
For the moment this property is at the exploration stage. Very little work is planned for this property during the coming year because management has decided to focus their attention on exploration of Rocmec 1 and Denain.
7
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
Advance for exploration expenses
Following the receipt of the advance of $ 2,500,000 by Material Japan in 2019, the Company carried out work on its mining properties. Exploration and evaluation expenditures during the periods were as follows:
| Denain Geology and prospection $ Salaries and fringe benefits Consulting fees Mining claims Other exploration expenses E&E expenses before tax credits reclassified against the advance received from a partner $ Rocmec 1 Geology and prospection $ Salaries and fringe benefits Consulting fees Mining claims Other exploration expenses E&E expenses before tax credits reclassified against the advance received from a partner $ |
2020 2019 92,450 $ 118,407 - 149,289 - 148,270 - 3,220 - 32,215 92,450 $ 451,401 2020 2019 1,235,581 $ 93,430 327,472 39,060 120,493 6,300 3,744 4,491 109,388 16,190 1,796,678 $ 159,471 |
2019 |
|---|---|---|
Below is a continuity schedule of the balance of the advance for exploration expenses of $2,500,000 received by Material Japan.
| Exploration and Evaluation Expenditures Beginning balance $ Granted during the year E&E expenses reclassed against the advance for exploration expenses regarding Denain E&E expenses reclassed against the advance for exploration expenses regarding Rocmec 1 Closing balance $ |
September 30, 2020 1,889,128 $ - 92,450 1,796,678 - $ |
September 30, 2019 |
|---|---|---|
| - 2,500,000 451,401 159,471 |
||
| 1,889,128 |
8
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
As at September 30, 2020, the advance for exploration expenses has been completely used and as such, the extra geology and prospecting expenses started to be accounted for as expenses through the statement of loss and comprehensive loss instead of being accounted for against the advance for exploration expenses in the financial position statement as it was the case during the last several quarters.
Below is a summary of the E&E expenses accounted for in statement of income (loss) and comprehensive income (loss) for the period ended September 30, 2020:
| E&E expenses statements of income (loss) and comprehensive income (loss) Geology and prospection $ Salaries and fringe benefits Equipment rental Maintenance and repairs Recovery of tax credits E&E expenses $ |
September 30, 2020 September 30, 2019 452,299 $ - 737,030 - 28,890 - 75,506 - 1,293,725 - - ( 2,513 ) |
September 30, 2019 |
|---|---|---|
| - ( 2,513 ) |
||
| 1,239,725 $ |
( 2,513 ) |
SELECTED ANNUAL INFORMATION
| ELECTED ANNUAL INFORMATION | |||
|---|---|---|---|
| Total assets $ Current liabilities Revenue from distribution and licensing of Thermal Fragmentation Technology Total Revenue Contract Costs Exploration and evaluation expenses General and administration expenses Net loss Net loss per share, basic and diluted |
As at or for the years ended September 30, | ||
| 2020 2,894,563 $ 7,913,236 13,798 14,399 20,435 1,293,725 1,045,672 (2,604,551) (0.0159) |
2019 2,244,724 $ 8,040,591 5,020 5,020 7,787 2,513 399,367 (344,110) (0.0021) |
2018 | |
| 313,584 5,765,341 426,677 591,352 346,595 21,092 902,887 (600,126) (0.0037) |
Since its incorporation, the Company has never paid cash dividends on its outstanding common shares. Cash dividend is unlikely to be paid in the near future.
The receipt of the advance of $2.5 millions in early 2019 had the effect of increasing the assets and liabilities of the Company simultaneously. Cash increased from $13,690 as at September 30, 2018 to $1,548,851 as at September 30, 2019. Assets and liabilities continued to increase during the current year in relation with the prepaid gold sales that the Company was able to complete. These prepaid gold sales generated cash of $4,258,000 but generated an equivalent liability as long as the Company will not have delivered the gold ounces. Also, the advance for exploration and evaluation expenses decrease of $ 1,889,128 since the advance has been completely used.
9
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
Most of the liabilities of the Company are current. In addition of the prepaid gold sales and the advance from Material Japan discussed above, the increase in liabilities is due to the following factors:
-
Accrued interest payable amount to $ 593 630 ($ 419,275 as at September 30, 2019)
-
The adoption of the new IFRS 16 standard on lease agreements resulted in a current lease obligations of $ 630,174 (nil as at September 30, 2019)
The balance of the current liabilities includes long-term debts and debentures that have almost all matured, but have not been repaid, and therefore are presented in the current section. The risks associated with the Company defaulting payments is discussed in the Cash flows section in this report.
OPERATING RESULTS
For the year ended September 30, 2020, the Company realized a net loss of $ 2,604,551 (net loss of $ 344,110 in 2019). The difference in the results between the two periods can be explained by the following factors:
-
Exploration and evaluation (E&E) expenses and general and administrative (G&A) expenses are significantly higher during the year ended September 30, 2020 compared to 2019. The expenses have increased in 2020 due to the increase of the exploration activities at the Rocmec 1 property.
-
Moreover, the salaries and fringe benefits included in the E&E and G&A of $ 1,080,921 as at September 30, 2020 ($ 112,069 in 2019) increased following the hiring of new employees into the mining department for the exploration ongoing at the Rocmec 1 property.
-
Also, the other expenses increased of $ 294 ,496 due to the corporate development costs which generated additional expenses in 2020.
10
Nippon Dragon Resources Inc.
Management’s Discussion and Analysis For the year ended September 30, 2020
QUARTERLY DATA
The financial information chosen for the last eight quarters is as:
| 30/09/20 $ Revenue 601 Net (loss) income (1,870,140) Net (loss) income per share, basic and diluted (0.0114) |
30/06/20 $ - (856,847) (0.0052) |
31/03/20 $ - (279,610) (0.0017) |
31/12/19 $ 13,800 402,046 0.0025 |
30/09/19 (a) $ - 139,781 0.0009 |
30/06/19 (a) $ (180,000) (264,286) (0.0016) |
31/03/19 (a) $ 180,000 (19,396) (0.0001) |
31/12/18 (a) $ 5,020 (200,208) (0.0012) |
|---|---|---|---|---|---|---|---|
(a) The 2019 quarters do not include the application of IFRS 16 – Lease agreements
The main changes in quarterly results compared to the previous year quarters are explained as follows:
31/12/18 – The loss for this quarter is caused by general and administrative expenses that the Company has to incur whether there is revenue generated or not. Professional fees are important as well as salaries and accrued interests on debts and debentures, as they are all pending to be paid.
31/03/19 - The loss for this quarter is caused by general and administrative expenses that the Company has to incur whether there is revenue generated or not. Professional fees are important as well as salaries and accrued interests on debts and debentures, as they are all pending to be paid. However, the loss is lower due to the $ 180,000 incentive received regarding the Denain property. As at June 30, 2019, the $180,000 incentive as been reclassed against the advance for exploration expenses.
30/06/2019 - The net loss for this quarter reflects the general and administrative expenses that the Company must incur, whether there is income generated or not. Although the loss in the quarter has been significantly reduced due to the fact that most of the expenses incurred have been reclassified to the balance sheet, the fact remains that, in order to remain active, the Company must, each quarter, incur a minimum of fixed costs, which cause the Company a loss.
30/09/2019 - The net income for this quarter is explained by the fact that most of the expenses incurred have been reclassified to the balance sheet and that the Company reported a non-recurring gain of $250,000 resulting from the write-off of indemnities payable to subscribers.
31/12/2019 - The net income for this quarter is explained by a non-recurring gain of $ 277,152 resulting from the disposal of fixed assets resulting from the work carried out at Denain and Rocmec 1 during the third and fourth trimester of 2019.
31/03/2020 – The loss for this quarter reflects the general and administrative expenses that the Company must incur. However, the Company completed negotiations related to the prepaid sales of gold which generated legal expenses of $71,973, This decrease of the net income is also due to the foreign exchange loss of $33,615.
11
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
30/06/2020 – The loss for this quarter is mainly explained by the significant exploration and evaluation expenses that were accounted for in the statement of loss and comprehensive loss as the advance for exploration expenses of $ 2,500,000 previously received from Material Japan has been completely used.
Furthermore, the Company has hired new employees into the mining department which increased the salary expenses by $ 231,176. The Company also closed new prepaid gold sales which generated legal expenses of $ 56,644.
30/09/2020 – The loss for this quarter is mainly explained by the significant exploration and evaluation expenses that were accounted for in the statement of loss and comprehensive loss as the advance for exploration expenses of $ 2,500,000 previously received from Material Japan has been completely used.
Furthermore, the Company has hired new employees into the mining department which increased the salary expenses by $ 704,089. The Company also closed new prepaid gold sales which generated legal expenses of $ 294,496.
CASH FLOWS AND FINANCING SOURCES
| Years ended September | Years ended September | Years ended September | Years ended September | 30, | ||
|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||
| Cash flows from operating activities | $ | 331,268 | $ | 1,600,822 | $ | (517,489) |
| Cash flows used in investing activities | $ | (622,351) | $ | (65,661) | $ | 9,000 |
| Cash flows used in financing activities | $ | (546,017) | $ | - | $ | 516,579 |
| Net change in cash and cash equivalents | $ | (837,100) | $ | 1,535,161 | $ | 8,090 |
| Cash and cash equivalents at beginning of year | $ | 1,548,851 | $ | 13,690 | $ | 5,600 |
| Cash and cash equivalents at end of year | $ | 711,751 | $ | 1,548,851 | $ | 13,690 |
For the year ended September 30, 2020, the operating activities generated $ 331,268 of cash compared to $ 1,600,822 used in the prior year. This variation can be explained by the following elements:
-
The net loss in 2020 is higher than the loss in 2019 by $ 2,260,441. This is explained by the fact that expenses started to be accounted for in the statement of loss and comprehensive loss as the whole advance from Material Japan of $ 2,500,000 was completely spent. However, the Company was able to complete prepaid gold sales for an amount of $ 4,258,000 which compensated for the high level of expenses.
-
Administration and general expenses for the year ended September 30, 2020 amounted to $ 1,045,672 compared to $ 399,367 as at September 30, 2019. Also, Exploration and evaluation expenses for the year ended September 30, 2020 amounted to $ 1,293,725 compared to $ (2,513) as at September 30, 2019. The expenses had increased due to the work done for the exploration on the Rocmec 1 property which is more important than the work done in 2019.
-
The net change in working capital decreased from $ 2,115,496 as at September 30, 2019 to $ (1,503,063) as at September 30, 2020. This significant change is largely due to the variation of the advance for exploration expenses and the account payable.
Investing activities had a negative impact on cash flows of $ 622,351 in 2020 compared to a negative impact of $ 65,661 in 2019. During the current period, the Company acquired $ 613,066 in property, plant and equipment ($ 65,661 in 2019) for exploration work on the Rocmec 1 property.
12
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
For the year ended September 30, 2020, the financing activities had a negative impact on cash flows of $ 546,017 (nil in 2019). This variation is due to the debt repayment of $ 190,000 and the adoption of IFRS 16 that generated lease obligations repayments of $ 396,017 in 2020. Also, during the current period the Company contracted a new debt of $ 40,000.
At September 30, 2020, the Company had $ 711,751 in cash, accounts receivable and other receivables of $ 112,817, prepaid expenses of $ 34,180 and other assets of $ 7,500. Overall, the Company’s working capital remains largely negative and consequently will not be sufficient to settle its projected liabilities and expenses. The Company will therefore need to obtain additional funds in a timely manner to continue the exploration and appraisal of the Rocmec 1 and Denain properties as well as paying for general administration expenses.
The Company aims to overcome and meet its financial obligations with certain tools at its disposal such as equity
financing depending on needs and availability.
The Company will continue its efforts to obtain financing on the open market in order to improve its cash position. However, it is important to mention that the Company is in default with one creditor whom has senior mortgage on the Rocmec 1 property of $ 1,250,541 as at September 30, 2020 ($1,440,541 as at September 30, 2019). The Company risks losing control on the property given as collateral. The Company and the lender agreed to new repayment terms. The Company began the repayment of the debt by capital payment as follows, a first payment of $ 70,000 on July 1, 2020 followed by monthly, consecutive and equal payment of $ 60,000 on the 1st of each month until full payment of the capital. The Company may, from January 2021, settle the debt by paying only the remaining capital amount. The Company will also pay 15% of the gross proceeds of each gold cast from Rocmec 1 ore. Its payments will be made on the last of each month in which the sales money will be collected. A repayment of $ 190,000 was made to the lender in 2020 (nil in 2019).
OFF-BALANCE SHEET ARRANGEMENTS, OBLIGATIONS AND COMMITMENTS
The Company has no off-balance sheet arrangements, nor obligations other than those declared or concluded in the normal course of the Company’s business.
The Company is considered as an exploration company. Many external factors influence and could have significant impact on the results of the Company and on its financing and capital needs. The Company plans to take measures to meet its obligations in terms of payments of accounts payable and accrued liabilities, interest and principal on the debts and debentures, loans and prepaid gold sales. Management intends to continue as they previously did to finance these activities by the issuance of private placements in shares and debentures. Even if the Management has been successful in the past in doing so, they cannot predict if they are going to be successful in the future to raise money and it believes that the liquidity risk is high.
13
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
RELATED PARTY TRANSACTIONS
The related parties include key management personnel and key management personnel’s companies.
Key management personnel includes the directors and officers of the Company.
The key management compensation includes:
| Salaries and fringe benefits $ Professional fees - Guimond Lavallée inc.¹ Purchases from a company controlled by an administrator Total $ |
Years ended September 30, 2020 2019 192,000 $ 188,876 98,000 107,422 105,750 - 395,750 $ 296,298 |
Years ended September 30, 2020 2019 192,000 $ 188,876 98,000 107,422 105,750 - 395,750 $ 296,298 |
|
|---|---|---|---|
| 2020 | |||
| 192,000 $ 98,000 105,750 395,750 $ |
|||
| 296,298 |
At September 30, 2020, the accounts payable include an amount of $ 390,567 ($ 383,894 as at September 30, 2019) and the prepaid gold sales included an amount of $ 32,000 in connection with related parties.
¹ Guimond Lavallée is considered as a related party as Vanessa Guimond who is a partner at the firm, is also the acting CFO of the Company.
SHARES AND EQUITY INSTRUMENTS OUTSTANDING
The changes in shares, warrants and options outstanding of the Company is detailed as follows:
| Shares Issued | At September 30, 2020 163,566,413 |
Issued 38,480,000 |
Exercised - |
Expired - |
At January 27, 2021 |
|---|---|---|---|---|---|
| 202,046,413 |
14
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
ASSET RETIREMENT OBLIGATION
The Company’s operations are regulated by governmental laws and regulations regarding environmental protection. The environmental consequences are difficult to identify as a result of its expiry or impact. Presently, to management’s best knowledge, the Company conforms to the laws and regulations. In 2020, a provision of $ 174,631 ($2,060 in 2019) for restoration of the premises is included in the non-current liabilities. Refer to note 15 in the financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts recorded in the financial statements and the notes to financial statements. Significant estimates listed in Note 5 of the annual financial statements include the going concern, the exploration and evaluation assets, the other provisions and contingent liabilities and the classification of joint arrangements. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.
Furthermore, a full description of the accounting methods used by the Company are listed in the annual financial statements of September 30, 2020 in Note 4.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, accounts receivable and other receivables, investment in a mining company, accounts payable, advance for exploration expenses, loans, debts and debentures. The Company’s financial instruments and risk management disclosure can be found in Note 19 of the audited financial statements for the year ended September 30, 2020. For the twelve-month periods ended September 30, 2020, no material changes were identified in respect of the Company’s risk management. Details of changes in financial instruments can be found in Note 19 of the financial statements.
RISKS AND UNCERTAINTIES
As at September 30, 2020, the Company is considered an exploration company. Several external factors influence and may have a significant impact on the Company's results and its financing and capital requirements. Exploration and deposit appraisal involve significant financial risks but do not guarantee that exploration campaigns will result in profitable commercial production.
Volatility Risk of the Financial Market
During the last few years, the securities markets have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations in price, which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that fluctuations in price will not occur. It may be anticipated that the price of the Company’s common shares will be subject to market trends generally, notwithstanding any potential success of the Company in creating value in its mining properties, and its price will be affected by such volatility.
As a result of the extreme volatility occurring in the financial markets, investors are moving away from assets they perceive as risky to those they perceive as less so. Companies like Ressources Nippon Dragon Inc. are considered risky assets and as mentioned above are highly speculative. The volatility in the markets and investor sentiment may make it difficult for the Company to access the capital markets to raise the capital it will need to fund its current level of expenditures.
15
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
Dilution Risk of Common Shares
During the life of the Company’s outstanding stock options and warrants granted under its share based compensation plans, the holders are given an opportunity to profit from an increase in the market price of the common shares with a resulting dilution in the interest of shareholders. The holders of stock options may exercise such securities at a time when the Company may have been able to obtain any needed capital by a new offering of securities on terms more favourable than those provided by the outstanding options. The increase in the number of common shares in the market, if all or part of these outstanding options were exercised, and the possibility of sales of these additional shares may have a depressive effect on the price of the common shares.
Furthermore, the Company will require additional funds to fund further exploration. If the Company raises additional funding by issuing additional equity securities, such financing may dilute the holdings of the Company’s shareholders.
Risk inherent in the Industry
Mineral exploration and development involve several risks which experience, knowledge and careful evaluation may not be sufficient to overcome. Large capital expenditures are required in advance of anticipated revenues from operations. Many exploration programs do not result in the discovery of mineralization; moreover, mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, explosions, tailings impoundment failures, cave-ins, landslides and the inability to obtain adequate machinery, equipment or labour are some of the risks involved in the conduct of exploration programs and the operation of mines.
The commercial viability of exploiting any metal deposit is dependent on a number of factors including infrastructure and governmental regulations, in particular those respecting the environment, price, taxes, and royalties. No assurance can be given that minerals of sufficient quantity, quality, size and grade will be discovered on any of the Company's properties to justify commercial operation.
Numerous external factors influence and may have significant impacts on the operations of the Company and its financing needs. Significant expenses may be necessary in order to establish ore reserves, develop metallurgical processes and to construct mining and processing facilities on the particular sites.
Technological risk
The thermal fragmentation mining method is a technological innovation and, for all technological innovations, there is a risk that the new technology will not be as effective as expected.
However, research and development over the past years has led to confirmation of the effectiveness of the thermal fragmentation mining process. This has been concretely demonstrated and proven through the implementation and usage in both South Africa, and Canada. We therefore consider the technological risk as negligible. As for the risk of being plagiarized, the Company has valid patents across the world and makes sure to maintain them.
Protection of our intellectual property
We rely, in part, on trade secrets, copyrights and contractual restrictions, such as confidentiality agreements, patents and licenses to establish and protect our proprietary rights. These may not be effective in preventing a misuse of our technology or in deterring others from developing similar technologies. We may be limited in our ability to acquire or enforce our intellectual property rights in some countries. Litigation related to our intellectual property rights could be lengthy and costly and could negatively affect our operations or financial results, whether or not we are successful in defending a claim.
16
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
Our ability to penetrate new markets
We are leveraging our knowledge, experience and best practices in thermal fragmentation mining process to penetrate the mining industry.
As we operate in this market, unforeseen difficulties and expenditures could arise, which may have an adverse effect on our operations, profitability and reputation.
Commercial risk
To be a commercial success, a technological advance must offer its potential users a way to use it in a context that is economically sustainable.
Our exclusive distributor has been operating with the technology, under contract that includes a non-disclosure agreement, with a major mining company for the past years. We therefore consider the commercial risk as limited.
COVID-19 Pandemic
The COVID-19 pandemic is having significant impacts on the financial markets. The pandemic could result in adverse development, including mine closures, due to workforce reductions, personnel quarantine, supply interruptions, travel restrictions, downturn in equity and debt financings for mining projects and other consequences beyond our control or that we cannot foresee. Accordingly, COVID-19 could materially adversely affect our financial condition and results of operation.
Risks related to Resources Estimates
The mineral resources identified on properties are estimates only, and no assurance can be given that the estimated resources are accurate or that the indicated level of minerals will be produced. Such estimates are, in large part, based on interpretations of geological data obtained from drill holes and other sampling techniques. Actual mineralization or formations may be different from those predicted. Accordingly, such resource estimates may require revision as more drilling or other exploration information becomes available or as actual production experience is gained. Further, it may take many years from the initial phase of drilling before production is possible, and during that time the economic feasibility of exploiting a discovery may change.
Further, resources may not have demonstrated economic viability and may never be extracted by the operator of a property. It should not be assumed that any part or all of the mineral resources on properties constitute or will be converted into reserves. Market price fluctuations of the applicable commodity, as well as increased production and capital costs or reduced recovery rates, may render the proven and probable reserves on properties unprofitable to develop at a particular site or sites for periods of time or may render reserves containing relatively lower grade mineralization uneconomic.
Moreover, short-term operating factors relating to the reserves, such as the need for the orderly development of ore bodies or the processing of new or different ore grades, may cause reserves to be reduced or not extracted. Estimated reserves may have to be recalculated based on actual production experience.
Any of these factors may require the operators to reduce their reserves and resources, which may result in a material and adverse effect on the Company’s future results of operation and financial condition if one or more of its projects were to go in production.
17
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
Risks of Property Title
Although the Company has taken steps to verify title to the property on which it is conducting exploration and in which it is acquiring an interest in accordance with industry standards for the current stage of exploration and evaluation of such property, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements, aboriginal claims and noncompliance with regulatory requirements. A first rank mortgage on the Rocmec 1 property also poses a risk.
Permits & Licenses
The Company’s operations may require licenses and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and mining operations at its projects.
Environmental & Other Regulations
The laws, regulations and other measures present now, or in the future can result in fees, asset acquisitions, restrictions or additional delays for the Company that we cannot forecast for. The environmental requirements are constantly being re-evaluated and could become stricter, which could harm the Company’s ability to obtain the most value from its properties. Before production can begin on a property, the Company needs to obtain approvals from environmental & regulatory boards. There is no guarantee that the approvals will be obtained or be obtained in a timely manner. The cost related to assessing changes in government regulations may reduce the profitability of the operation or altogether prevent a property from being developed. The Company maintains an environmental management system including operational plans and practices and considers that it is in material compliance with the existing environmental legislation.
Mining Law and Governmental Regulation
The Company’s activities entail compliance with the applicable legislation or review processes and the obtaining of land use and all other permits, and similar authorizations of future overall mining operations are subject to the constraints contained in such legislation. The Company believes that it is in compliance in all material respects with such existing laws. Changing government regulations may, however, have an adverse effect on the Company.
Although the Company continues to ensure that its exploration projects receive support from concerned municipal authorities and other stakeholders, amendments to various governmental regulations might affect its exploration projects.
In addition, current political and social debate on the distribution of mining wealth in Québec and elsewhere may result in increased mining taxes and royalties, which could adversely affect the Company’s business and mining operations.
Taxes
The refundable credit for resources and credit on duties refundable for losses (the “tax credits”) for the current period and prior periods are measured at the amount the Company expects to recover from the tax authorities as at the closing date. However, uncertainties remain as to the interpretation of tax rules and the amount and timing of the recovery of such tax credits. Accordingly, there may be a significant difference between the recorded amount of tax credits receivable and the actual amount of tax credits received following the tax authorities’ review of issues, whose interpretation is uncertain. However, given the uncertainty inherent in obtaining the approval of the relevant tax authorities, the amount of tax credits that will actually be recovered or the amount to be repaid, as well as the timing of such recovery or repayment, could differ materially from the accounting estimates, which would affect the Company’s financial position and cash flows.
18
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
Litigation
All industries, including mining, are subject to legal claims that can be with and without merit. Defense and settlement costs can be substantial, even for claims that have no merit. Notably, the litigation with the indemnity to subscribers is an example of an unfavorable situation for the Company in terms of cash flow and financial situation.
Potential litigation may arise with respect to a property in which the Company is in the process of evaluating as a strategic investment and/or holds an interest directly or indirectly in an exploring, developing and/or operating mineral property now or in the future.
The Company might not generally have any influence on the litigation nor will it necessarily have access to data. In case where that litigation results in the cessation or reduction of production from a property (whether temporary or permanent), it could have a material and adverse effect on the Company’s results of operations and financial condition. The litigation process is inherently uncertain, so there can be no assurance that the resolution of a legal proceeding will not have a material adverse effect on our future cash flow, results of operations or financial condition.
Commodity Prices
The market for uranium, gold, diamonds, base metals or other minerals discovered can be affected by factors beyond the Company’s control. Commodity prices have fluctuated widely, particularly in recent years. The impact of these factors cannot be accurately predicted.
Dependence on key personnel
The development of the Company’s business is and will continue to be dependent on its ability to attract and retain highly qualified management and mining personnel. The Company faces competition for personnel from other mining companies.
Conflicts of interest
Certain directors of the Company are also directors, officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts of interest from time to time. The directors of the Company are required by law to act honestly and in good faith to the best interests of the Company, and to disclose any interest, which they may have in any project or opportunity of the Company. If a conflict arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter.
19
Management’s Discussion and Analysis For the year ended September 30, 2020
Nippon Dragon Resources Inc.
FORWARD-LOOKING STATEMENTS – CAUTION
Our report contains “forward-looking statements”, which are not based on historical facts. Forward-looking statements reflect, as at the date of this Management Discussion and Analysis Report, our estimates, forecasts, projections, expectations and beliefs as to future events or results. Forward-looking statements are reasonable estimates, but involve a number of risks and uncertainties, and there can be no assurance that such statements will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements. Factors that could cause results or events to differ materially from current expectations expressed or implied by the forward-looking statements include, but are not limited to factors associated with fluctuations in the market price of gold and precious metals, mining industry risks, unexpected geological situations, uncertainty as to calculation of mineral reserves, changes in laws or governmental policies, inability to obtain permits and approval from governmental bodies and requirements of additional financing and the capacity of the Company to obtain financing and any other risk associated mining and development.
The Company believes that the assumptions inherent in the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this document.
This management’s discussion and analysis contains forward-looking statements reflecting the Company’s objectives, estimates and expectations. These statements are identified by the use of verbs such as “believe”, “anticipate”, “estimate” and “expect” as well as the use of the future or conditional tense. By their very nature, these types of statements involve risk and uncertainty. Consequently, results could differ materially from the Company’s projections or expectations.
- (S) Jean-Yves Therrien
Jean-Yves Therrien President and CEO
- (S) Vanessa Guimond
Vanessa Guimond CFO
January 27, 2021