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Gold Mountain Mining Corp. — Interim / Quarterly Report 2021
Dec 18, 2021
47810_rns_2021-12-17_58397cc4-0338-40c0-9193-221398d1d4b8.pdf
Interim / Quarterly Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE COMPANY’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE-MONTH PERIODS ENDED OCTOBER 31, 2021
GENERAL BUSINESS AND OVERVIEW
Gold Mountain Mining Corp., previously Freeform Capital Partners Inc. (hereinafter “GMTN” or the “Company”) was incorporated pursuant to the provisions of the Business Corporations Act of British Columbia on November 5, 2018. The Company’s common shares were listed on the TSX Venture Exchange (the “TSXV”) under the stock symbol (“FRM.P”) and commenced trading on June 19, 2020. On December 23, 2020, the Company changed its name to Gold Mountain Mining Corp. On December 31, 2020, the Company listed on the TSXV as a Tier 2 Mining Issuer and began trading on the TSXV under the stock symbol “GMTN.v”. Subsequently, on November 23, 2021, the Company’s common shares graduated to the main board of the Toronto Stock Exchange and continued to trade under the symbol “GMTN”. On January 22, 2021 the Company began trading on the Frankfurt Stock Exchange under the ticker “5XFA”. On April 15, 2021, the Company’s common shares also began trading on the OTCQB Venture Market under the stock symbol “GMTNF”.
It is fundamental for readers of this document to be aware that effective December 23, 2020, the Company underwent a reverse takeover transaction (“RTO”). The RTO resulted in numerous highly material changes to the Company’s business, including changing its name from Freeform Capital Partners Inc. to Gold Mountain Mining Corp. and acquiring all the shares of Bayshore Minerals Incorporated (“Bayshore”), a private company holding a 100% interest in Elk Gold Mining Corp (“Elk Mining”), which is the owner of the Elk Gold Property in British Columbia, Canada and its subsidiary Gold Mountain Resources Corp. (“GMRC”).
As a consequence of the RTO, Bayshore became the parent company of the consolidated entity for accounting purposes.
GMTN is a mineral exploration and development company currently focused on the exploration and development of the Elk Gold Property.
The Company’s registered head office address is Suite 1000, 1285 West Pender Street, Vancouver, B.C. V6E 4B1.
All public filings for the Company can be found on the SEDAR website www.sedar.com.
DATE AND SUBJECT OF REPORT
The following is Management’s Discussion & Analysis (“MD&A”) of the results of operations and financial condition of GMTN for the period ended October 31, 2021 and to the date of this MD&A. This MD&A has been prepared to provide material updates to the business operations, financial condition, liquidity and capital resources of the Company since its last management’s discussion and analysis for the fiscal year ended January 31, 2021 (the “Annual MD&A”).
This MD&A should be read in conjunction with the Annual MD&A and the audited consolidated financial statements for the years ended January 31, 2021 and January 31, 2020, together with the notes thereto, and the accompanying unaudited condensed interim consolidated financial statements for the three and nine-month periods ended October 31, 2021 and October 31, 2020. This report is dated December 15, 2021.
The Company reports its financial results in Canadian dollars and all references to $ in this MD&A refer to the Canadian dollar. All financial information in this MD&A is derived from the Company’s condensed interim consolidated financial statements for the three and nine-month periods ended October 31, 2021 and October 31, 2020 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
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FORWARD LOOKING STATEMENTS
The information set forth in this MD&A contains statements concerning future results, future performance, intentions, objectives, plans and expectations that are, or may be deemed to be, forward-looking statements. These statements concerning possible or assumed future results of operations of the Company are generally, but not always, preceded by, followed by or include the words ‘believes,’ ‘expects,’ ‘anticipates,’ ‘estimates,’ ‘intends,’ ‘plans,’ ‘forecasts,’ or similar expressions. Forward-looking statements are not a guarantee of future performance. These forward-looking statements are based on current expectations that involve numerous risks and uncertainties, including, but not limited to, those identified in the Risks and Uncertainties section in this MD&A and the Annual Information Form. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately. Although management believes such assumptions underlying the forward-looking statements to be reasonable, any of the assumptions could prove inaccurate. These factors should be considered carefully, and readers should not place undue reliance on forward-looking statements. The Company may not provide updates or revise any forward-looking statements, except those otherwise required under paragraph 5.8(2) of NI 51-102, whether written or oral that may be made by or on the Company's behalf.
BUSINESS DEVELOPMENT AND OVERALL PERFORMANCE
Strategic financings
On February 23, 2021, the Company closed its brokered private placement by issuing 10,310,000 units at a price of $0.97 per unit for gross proceeds of $10,000,700. Each unit consists of one common share of the Company and one-half of a share purchase warrant. Each full warrant is exercisable for one common share of the Company for a price of $1.25 for a period of three years following the closing of the private placement.
On June 24, 2021, the Company announced that it had completed a bought deal private placement (the “Offering”) led by Canaccord Genuity Corp, Eight Capital and Red Cloud Securities Inc. (collectively the “Underwriters”). The Company issued a total of 4,255,190 units (the “HD Units”) at a price of $2.10 per HD Unit and 1,326,450 flow-through units (the “FT Units”) at a price of $2.31 per FT Unit, for total gross proceeds of $11,999,999. Each FT Unit consists of one common share of the Company and one-half of one common share purchase warrant where each common share entitles the holder to a renunciation, for tax purposes, of qualifying expenditures incurred by the Company in respect of the Elk Gold Property. Each HD Unit consists of one common share of the Company and one-half of one common share purchase warrant. Each HD Unit and FT Unit warrant will entitle the holder thereof to purchase one common share of the Company at an exercise price of $3.15 for a period of two years following the closing date of the Offering.
In connection with the Offering, the Underwriters received an aggregate cash fee of $690,000 and 320,612 nontransferrable broker warrants. Each broker warrant entitles the holder thereof to purchase one common share at an exercise price of $2.10 for a period of two years from closing.
Mine Permit
In October 2021, the Company received its M-199 Mining Permit which allows the Company to mine up to 70,000 tonnes of ore per year from the Elk Gold Project. Subsequently in November 2021, the Company mined its first mineralized material from the Elk Gold Project.
TSX Listing
On November 23, 2021, the Company’s common shares began trading on the Toronto Stock Exchange under the symbol GMTN.
Base Shelf Prospectus
On December 9, 2021, the Company filed and obtained a receipt for its final short form base shelf prospectus with securities regulatory authorities in each of the provinces (except Quebec) and territories of Canada (the “Base Shelf”). The Base Shelf allows the Company to qualify the distribution by way of prospectus in Canada of up to $50,000,000 of common shares, warrants, subscription receipts, units or debt securities or any combination thereof, during the 25-month period that the Base Shelf is effective. It is intended to provide the Company with financing flexibility. The specific terms of any offering under the base shelf prospectus will be established in a prospectus supplement, which will be filed with the applicable Canadian securities regulatory authorities in connection with any such offering.
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The Company has no near-term plans to conduct a financing using the Base Shelf. It is intended to provide the Company with financing flexibility.
OUTLOOK
The Company’s primary focus will be to continue with the exploration and development of the Elk Gold Project. Below are the upcoming milestones management is forecasting to accomplish in the near term:
-
Deliver first ore to New Gold
-
Achieve commercial production; and
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Continue to expand the resource base by delineating additional resources at the Elk Gold Project.
Since March 2020, several measures have been implemented in Canada and the rest of the world in response to the increased impact from novel coronavirus (“COVID-19”). The impact of COVID-19 is expected to be long term, and the effects on business operations cannot be reasonably estimated at this time. The Company anticipates this could have an adverse impact on its business, results of operations, financial position, and cash flows in future periods.
ELK GOLD PROJECT
Property Description and Location
On May 16, 2019, the Company acquired the Elk Gold Property in British Columbia, Canada from Equinox Gold Corp (“Equinox”).
The Elk Gold Project is located in south central British Columbia, Canada, approximately 325km northeast of Vancouver and 55km west of Okanagan Lake, midway between the cities of Merritt and West Kelowna. The map below sets out the location of the Elk Gold Project.
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Land Tenure
The Company holds its interest in the Elk Gold Project through its wholly owned subsidiary, Elk Mining. The entire Elk Gold Project consists of 26 contiguous mineral claims covering 16,121 ha and two mining leases covering 496 ha. The mining leases expire on September 14, 2022 and November 17, 2022 and all mineral claims expire on December 31, 2021. The claims may be maintained beyond their current expiry date by continuing to conduct work on the property at the rate of $331,321 per annum or by cash payment in lieu at double that rate. The mining leases may be maintained by paying a
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yearly rental of $3,000 per lease and providing an annual reclamation report that is acceptable to the B.C. Ministry of Energy, Mines and Low Carbon Innovation (formerly the Ministry of Energy, Mines and Petroleum Resources). Surface rights are currently held by the Provincial Government. The Company anticipates keeping all claims in good standing.
Permitting
The Company holds Mine Permit M-199 (“Mine Permit”), Effluent Discharge Permit #106262 (“Discharge Permit”) as well as Exploration Permit M-4-387 (“Exploration Permit”). In October 2021, the Company obtained an amendment to the Mine Permit to allow for production up to 70,000 tonnes per year. The Company anticipates the receipt of its amendment to the Discharge Permit in Q1 2022 which will allow for construction of a new waste rock storage facility.
Exploration on the Elk Gold Project is regulated via two permits: the Mine Permit for work on the mining lease and the Exploration Permit for exploration on the surrounding claims. Reclamation bonding posted by the Company under the Mine Permit and the Exploration Permit totaling $180,000 is held by the Provincial Government.
Royalties and Encumbrances
Equinox Share Pledge Agreement
On May 16, 2019 Bayshore entered into a share pledge agreement with Equinox whereby Bayshore pledged the Elk Mining shares to Equinox as security for amounts owing under the Equinox promissory note, which was issued in connection with Bayshore’s purchase of the Elk Gold Project. If the Company defaults on the payment of the Equinox promissory note, then Equinox may take possession of the Elk Mining shares. The Equinox promissory note is repayable in three annual instalments of $3,000,000 with the first payment having been made on May 17, 2021. The total remaining amount due under the Equinox promissory note may be adjusted such that if the Company pays $5,500,000 prior to May 16, 2022, that will represent full and final payment.
Net Smelter Return (“NSR”) Royalties
Production from the Elk Gold Project is subject to a 2% NSR royalty held by Star Royalties Ltd., who purchased the 2% NSR royalty from Almadex Minerals Limited on September 28, 2021 for total consideration of US$10,630,000. A further 1% NSR royalty is payable to Don Agur on production from the Agur Option block which is outside of any of the identified mineralized zones.
Location of Mineralized Zones
The Elk Project is host to eight known mineralized zones. Following the conclusion and findings of the Phase 2 drill program the Siwash North Zone was expanded and connected to the historically viewed satellite Gold Creek Zone, which enabled the Company to merge the geological models and consolidate the deposits. The map below sets out the names and location of those zones within the Elk Gold Project. The Mineral Resource on the Elk Gold Project is located in the Siwash North Zone, South Zone and Lake Zone:
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Resource Estimation
Following the results of the Phase 2 drill program the Company disclosed an updated resource estimate in a press release dated December 7, 2021, and will file an updated technical report within 45 calendar days of December 7, 2021.
The table below summarizes the updated resource estimate at the Elk Gold Project:
Combined Elk Gold Property Mineral Resource (Pit-Constrained and Underground) Dec 2021
| Classification | Tonnes | AuEq (g/t) | Au Capped g/t | Ag Capped g/t | AuEq (Oz) |
|---|---|---|---|---|---|
| Measured | 169,000 | 10.4 | 10.3 | 10.9 | 56,000 |
| Indicated | 4,190,000 | 5.6 | 5.4 | 11.0 | 750,000 |
| Measured + | 4,359,000 | 5.8 | 5.6 | 11.0 | 806,000 |
| Indicated | |||||
| Inferred | 1,497,000 | 5.4 | 5.3 | 14.4 | 262,000 |
CIM definitions were followed for classification of Mineral Resources. Mineral Resources are not Mineral Reserves and have not demonstrated economic viability. Results are presented in-situ and undiluted.
Mineral resources are reported at a cut-off grade of 0.3 g/t AuEq for pit-constrained resources and 3.0 g/t AuEq for underground resources.
The number of tonnes and metal ounces are rounded to the nearest thousand. The Resource Estimate includes both gold and silver assays. The formula used to combine the metals is: AuEq = ((Au_Cap53.200.96) + (Ag_Cap0.670.86))/(53.20*0.96) The Resource Estimate is effective as of October 21, 2021.
The resource estimate includes resources in three separate zones on the Elk Gold Project: i) the Siwash North, which comprises the majority of the estimate, ii) the Lake Zone and iii) the South Zone.
Mineral Resource Estimate Assumptions
a. Data Verification
The data that forms the basis for the Resource Estimate was verified by the Qualified Person using industry standard methods. Drill hole collar locations were confirmed with independent surveyors’ using high precision GPS equipment. Analytical accuracy and precision are monitored using commercial standards, blanks, re-analysis of both coarse rejects and pulps. A review of all data inputs to the drilling database, both historical and recent, has allowed a sufficient level of confidence to include the drill database in the Resource Estimate
- b. Key Assumptions and Parameters and Methods Used to Estimate Resources
i) Exploration Information
The data from the 47 Phase 2 drill holes were added to the 2021 drill data for an aggregate total of 1,125 holes that intersected the 46 modelled mineralized zones. The assay file contained 23,093 gold and silver assays of which 6,406 were contained within the modelled zones.
ii) Grade Capping - Siwash North
A cumulative frequency curve was generated for both gold and silver assay values to determine whether capping of assay values was appropriate. There is a distinct break in the gold assay cumulative frequency curve at 400 g/t and that value was taken as the capping value. There were 10 gold assay values over 400 g/t. The silver cumulative frequency curve has a break at 450 g/t and that value was taken as the capping value. There are 11 samples in the population which were greater than 450 g/t silver.
iii) Grade Capping - Lake Zone
No grade capping was applied in the Lake Zone for this resource estimate.
iv) Grade Capping - South Zone
In the South Zone, gold grades were capped at 60g/t Au and there is 1 gold assay value over 60 g/t. The silver grades were capped at 160g/t Ag and there are 2 samples in the population which were greater than 160 g/t silver.
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v) Vein Modelling
The Resource Estimate is constrained to a vein wireframe model which was developed using LeapfrogTM software by clipping the wireframes to a combination of drill hole composites and lithological units.
vi) Metal Equivalency
The Resource Estimate includes both gold and silver assay values and the combined value is expressed as a gold equivalency. The formula by which the two metals are combined is:
AuEq = ((Au_Cap53.200.96) + (Ag_Cap0.670.86))/(53.20*0.96)
Summary of Preliminary Economic Assessment
In November 2021, the Company filed an amended NI 43-101 compliant independent Technical Report and Preliminary Economic Assessment (“PEA”) for the Elk Gold Project titled “National Instrument 43-101 Technical Report Updated Preliminary Assessment on the Elk Gold Project” prepared by Robert G. Wilson, P.Geo, Greg Mosher, P.Geo, Antonio Loschiavo, P.Eng., and Andre De Ruijter, P. Eng, each an independent "Qualified Person" as defined in NI 43-101, with an effective date of May 14, 2021, a report date of August 26, 2021 and an amended date of November 4, 2021.
The PEA uses the following resource estimate and does not incorporate the updated resource estimate set out above.
The table below summarizes the current resource estimate at the Elk Gold Project used in the PEA:
| Classification | Tonnes | AuEq (g/t) | Au Capped g/t | Ag Capped g/t | AuEq (Oz) |
|---|---|---|---|---|---|
| Measured | 196,000 | 9.9 | 9.8 | 9.9 | 63,000 |
| Indicated | 3,148,000 | 5.8 | 5.7 | 11.2 | 589,000 |
| Measured + | 3,344,000 | 6.1 | 5.9 | 11.1 | 651,000 |
| Indicated | |||||
| Inferred | 1,029,000 | 4.8 | 4.7 | 10.9 | 159,000 |
CIM definitions were followed for classification of Mineral Resources. Mineral Resources are not Mineral Reserves and have not demonstrated economic viability. Results are presented in-situ and undiluted. Mineral resources are reported at a cut-off grade of 0.3 g/t Au for pit-constrained resources and 3.0 g/t for underground resources. The number of tonnes and metal ounces are rounded to the nearest thousand. The Resource Estimate includes both gold and silver assays. The formula used to combine the metals is: AuEq = ((Au_Cap55.810.96) + (Ag_Cap0.760.86))/(55.81*0.96) The Resource Estimate is effective as of May 1, 2021.
The PEA contemplates an initial 19,000 ounce per year mine that ramps up to 65,000 ounces of annual production by Year 4. The pre and post tax net present value (“NPV”) (5% discount) are $395M and $231M, respectively. The PEA contemplates that for the life of mine, the mineralized material from the Elk Gold Project will be mined by the Company’s contract mining partner, Nwhelmen-Lake LP (“Nwhelmen-Lake”) and then delivered to New Gold’s New Afton Mine located approximately 130km from the Elk Gold Project (the “New Afton Mine”).
The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
The mine is scheduled to release 70,000 tonnes per year of plant feed for Years 1 to 3. In Year 4, the mine is planned to expand to 324,000 tonnes per year.
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The tables below further summarize the basis for the PEA and the assumptions and parameters used:
| Base Case: US$1,600/oz long-term gold price and an exchange rate of 1.25 (US$/CAD$) | |
| Gold Price | Long-term US$1,600 |
| Exchange Rate | 1.25 |
| NPV @ 5% Pre-tax | $395 million |
| NPV @ 5% After-tax | $231 million |
| Year 1 owner’s costs | $3.9 million |
| Year 1 capital costs | $9.0 million |
| Sustaining owner’s costs | $12.8 million |
| Sustaining capital costs | $54.5 million |
| After tax payback period | 1 Year |
| All in sustaining costs (AISC) per ounce gold | US$554 / troy ounce |
| PEA life of mine (LOM) | 11 years |
| LOM metal production gold equivalent ounces | 582,080 oz |
| LOM metal recovered gold equivalent ounces | 532,942 oz |
| LOM average gold head grade | 6.98 g/t |
| LOM average silver head grade | 11.73 g/t |
| LOM strip ratio (waste:ore) | 20.2:1 |
Internal rate of return (“IRR”) note: there are relatively insignificant pre-production costs prior to commencement of commercial production on the Elk Gold Project. Initial capital costs of approximately $9.0M are captured in year 1 of operations, which results in a positive year 1 cashflow of $27.2M. Since there is no negative cashflow that precedes the positive cashflow, IRR is not calculable.
| Additional PEA Assumptions and Parameters: | |
| Gold Recovery | 92% |
| Silver Recovery | 70% |
| Gold Payable | 96% |
| Silver Payable | 90% |
| Gold TC/RC | $6.00/oz |
| Silver TC/RC | $0.50/oz |
| NSR Royalty | 2% |
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PEA Sensitivities
The table below sets out a sensitivity analysis showing the effect the price of gold has on the Elk Gold Project’s NPV. The bold line shows the PEA’s base case.
| Gold Price (US$) | Pre-tax NPV (5%) ($M) |
Post-tax NPV (5%) ($M) |
| 2200 | 644.6 | 379.3 |
| 2000 | 561.5 | 329.9 |
| 1800 | 478.2 | 280.3 |
| 1600 | 395.4 | 231.0 |
| 1400 | 311.9 | 181.3 |
| 1200 | 228.7 | 131.2 |
For information on the data verification and key assumptions and parameters used to estimate the mineral resources and the PEA, please see the PEA a copy of which is available at www.sedar.com.
Phase 2 Exploration
In November 2021, the Company completed its Phase 2 exploration program (“Phase 2”). Phase 2 included approximately 13,900m of drilling and the relogging of high interest historical core. Phase 2 drilling targeted extensions of the highgrade mineralization the Company consistently encountered during Phase 1 in the Siwash North Zone. The Company also successfully drilled certain satellite zones, including the South Zone, Lake Zone, Gold Creek Zone and the Elusive Zone, which is located approximately 10km from the Siwash North Zone where historic high-grade soil geochemical samples indicate promising new potential at the Elk Gold Project. Based on the results of the Phase 2 exploration program, the Company increased the resource estimate at Siwash North, connected the geological model of the Gold Creek Zone to Siwash North and delineated maiden resources at the South Zone and Lake Zone. The Company is awaiting assay results for drilling at the Elusive Zone.
Phase 3 Exploration
With the conclusion of Phase 2 drilling, the Company and HEG Exploration Services Inc. have immediately transitioned into the Elk Gold Project’s Phase 3 exploration program (“Phase 3”), with the first holes of the campaign already being completed in the Siwash North Zone. Currently, the program is forecasted to include 2 drill rigs performing 10,000 total meters and will also feature 5,000 meters of historical core relogging.
Mining
Development and construction activities commenced at the Elk Gold Project in July 2021 and in November 2021, the Company mined its first mineralized material from the 1100 vein. Mined mineralized material is being stockpiled on the Elk Gold Project’s ore stockpile pad in preparation for crushing, sampling and assaying prior to being delivered to New Afton per the terms of the Ore Purchase Agreement.
Indigenous Community Engagement
On June 3, 2021 the Company announced that it successfully executed three memorandums of understanding with surrounding Indigenous communities, establishing a process for ongoing engagement towards social and economic collaboration.
While the Provincial Review and the corresponding Mine Review Committee process have come to a close following the issuance of the amended Mine Permit, the Company is aware and acknowledges each respective Indigenous Nation’s decision-making process will continue independently from the Province of British Columbia.
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Over the past 18 months, the Company has made a concerted effort to build strong relationships with communities that are affected by the development of the Elk Gold Project. The Company looks forward to continued collaboration with all Indigenous Nations that have interests in the Elk Gold Project. The Company also wishes to communicate that there is no time limit on direct engagement and consultation between the Company and each respective Indigenous Nation.
One of the conditions in the Company’s Mine Permit is the establishment of the Elk Gold Life of Mine Committee made up of representatives of Indigenous communities around the Elk Gold Project and certain Provincial Agencies. The Company is in dialogue with both the Province and the affected Indigenous communities and expects to formalize the committee in the first fiscal quarter of 2022.
Contract Summaries
Ore Purchase Agreement
On January 26, 2021, the Company entered into an Ore Purchase Agreement (“OPA”) with New Gold to purchase ore produced from the Elk Gold Project. The Company will deliver ore to New Gold’s New Afton Mine located 130km from the Elk Gold Project in Kamloops BC. Under the terms of the OPA, the Company will deliver 70,000 tonnes of ore per annum or approximately 200 tonnes per day. The OPA has a term of three years and is effective upon the first delivery of ore to the New Afton Mine. In June 2021, the Company announced that it signed a letter of intent with New Gold to increase its tonnage delivered to New Afton from 70,000 to 350,000 tonnes per annum beginning in year four of production. The increase in tonnage delivered is subject to both the Company and New Gold obtaining the necessary regulatory approvals.
The ore will be sampled and weighed at the Elk Gold Project site to determine the contained ounces of gold and silver being delivered to the New Afton Mine. Following delivery of the ore, New Gold will pay the Company at the end of each calendar month based on the value of the gold and silver in the ore, net of the agreed metallurgical recovery and concentrate selling costs.
Prior to the first delivery of ore, the parties must settle on a sampling procedure for tracking the tonnes and grade delivered, GMTN must receive an amendment to its Mine Permit (received October 2021) and New Gold must obtain a permit amendment to allow for the processing of ore from the Elk Gold Project .
Mining Contract
On January 19, 2021, the Company entered into a mining contract (“Mining Contract”) with Nhwelmen-Lake for contract mining services at the Elk Gold Project. Nhwelmen-Lake is a majority owned, First Nations mining contractor.
Pursuant to the terms of the Mining Contract, Nhwelmen-Lake will be paid a fixed price per tonne mined over the first three years which is determined based on the planned production rate, mined volumes, haulage distances and equipment productivity. The scope of the Mining Contract includes mining of ore at a rate of 70,000 tonnes per annum (200 tonnes per day), waste mining, drilling, blasting, hauling, site supervision, supply of operating personnel, road maintenance, dust suppression as well as all the site preparation activities required prior to commencing mine operations, including topsoil stockpiling, and preparing surface water management structures. Nhwelmen-Lake will also provide the haulage of plant feed material from the mine to the toll milling location.
The Mining Contract is for the life of mine while the price schedule carries a three-year term. The obligations of the Company under the Mining Contract begin upon the Company delivering a notice of commencement to Nhwelmen- Lake.
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ELK NORTH CLAIMS
On October 7, 2020, the Company staked the following claims located next to the Elk Gold Project as set out in the table below:
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The Company is currently evaluating the best strategy to explore and develop these separate claims.
EXPLORATION AND EVALUATION ASSET
The following is a description of the Company’s exploration and evaluation asset and related expenditures incurred in the nine-month period ended October 31, 2021:
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Share-based payments of $376,927 were reclassified to mineral property under property and equipment.
The remaining exploration and evaluation assets balance as at October 31, 2021 relates to ongoing exploration programs outside of the mine development zone.
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PROPERTY AND EQUIPMENT
Effective June 1, 2021, the Company commenced capitalization of all direct costs related to the development of the Elk Gold Project, as management determined that the technical feasibility and commercial viability of the project had been established. Accordingly, the Company reclassified capitalized costs associated with the Elk Gold Project from exploration and evaluation assets to mineral property within property and equipment. Capitalized mineral property costs will be carried at cost until the Elk Gold Project is placed in commercial production, sold, abandoned, or determined by management to be impaired in value. Costs related to development work are capitalized in property and equipment as mine construction work-in-progress.
The Company incurred $4,749,868 on mine development activities in the nine-month period ended October 31, 2021.
| Mine | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| construction - | |||||||||||
| work-in- | Mineral | Leased | Other | ||||||||
| progress | property | Vehicle | equipment | Total | |||||||
| Cost | |||||||||||
| Balance January 31, 2021 | $ | - | $ | - | $ | - | $ | 111,278 | $ | 111,278 | |
| Additions | 4,749,868 | - | 45,550 | 87,801 | 4,883,219 | ||||||
| Transfer from exploration and evaluation asset |
- | 12,288,108 | - | - | 12,288,108 | ||||||
| Exploration tax credits | - | (320,132) | - | - | (320,132) | ||||||
| Reclamation costs | - | 53,513 | - | - | 53,513 | ||||||
| Balance October 31, 2021 | $ | 4,749,868 | $ | 12,021,489 | $ | 45,550 | $ | 199,079 | $ | 17,015,986 | |
| Accumulated depreciation | |||||||||||
| Balance January 31, 2021 | $ | - | $ | - | $ | - | $ | 38,020 | $ | 38,020 | |
| Depreciation | - | - | 949 | 20,752 | 21,701 | ||||||
| Balance October 31, 2021 | $ | - | $ | - | $ | 949 | $ | 58,772 | $ | 59,721 | |
| Net book value | |||||||||||
| Balance January 31, 2021 | $ | - | $ | - | $ | - | $ | 73,258 | $ | 73,258 | |
| Balance October 31, 2021 | $ | 4,749,868 | $ | 12,021,489 | $ | 44,601 | $ | 140,307 | $ | 16,956,265 |
During the nine-month period ended October 31, 2021, the Company recorded $320,132 in BC Mineral Exploration Tax Credits (“BCMETC”) as a reduction to the mineral property, bringing the total BCMETC receivable to $378,983. An additional $488,121 of BCMETC was recorded subsequent to October 31, 2021.
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FINANCIAL PERFORMANCE
Summary of Quarterly Results
The following table summarizes the financial results of operations for the eight most recent fiscal quarters:
| October 31, | July 31, |
April 30, |
January 31, | October 31, | July 31, | April 30, | January 31, | |
|---|---|---|---|---|---|---|---|---|
| 2021 | 2021 |
2021 |
2021 | 2020 | 2020 | 2020 | 2020 | |
| (Q3) | (Q2) | (Q1) | (Q4) | (Q3) | (Q2) | (Q1) | (Q4) | |
| $ | $ | $ | $ | $ | $ | $ | $ | |
| Total operating | ||||||||
| expenses | 2,463,793 | 4,714,932 | 2,511,504 | 750,974 | 158,155 | 237,290 | 635,702 | 92,184 |
| Other items | 206,861 | 143,510 | 300,890 | 5,097,005 | 286,352 | 275,051 | 256,901 | 294,356 |
| Net loss and | ||||||||
| comprehensive | ||||||||
| loss | (2,670,654) | (4,858,442) | (2,812,394) | (5,847,979) | (444,507) | (512,341) | (892,603) | (386,540) |
| Basic and | ||||||||
| diluted loss | ||||||||
| per common | ||||||||
| share | (0.04) | (0.08) | (0.05) | (0.08) | (0.02) | (0.02) | (0.03) | (0.01) |
RESULTS OF OPERATIONS
The following table summarizes the financial results of operations for the three and nine-month periods ended October 31, 2020 & 2021:
==> picture [492 x 250] intentionally omitted <==
On December 23, 2020, the Company completed the RTO.
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Nine-month period ended October 31, 2021
For the nine-month period ended October 31, 2021, the net loss was $10,341,490 compared to $1,849,451 for the ninemonth period ended October 31, 2020. On December 23, 2020, the Company completed the RTO.
Major variances are as follows:
-
i) An increase in share-based payments of $4,213,985 for the nine-month period ended October 31, 2021 primarily related to the vesting of restricted share units, performance share units and stock options as a result of increased activity in the Company.
-
ii) An increase in management, director and consulting fees of $1,383,409 mainly due to increased management fees for services provided by the officers of the Company, higher consulting fees for corporate advisory services postclosing of the RTO transaction and increased activity in the Company.
-
iii) An increase in marketing expenses of $2,788,662 for the nine-month period ended October 31, 2021 primarily related to various digital marketing and advertising campaigns to provide public awareness of the Company and attract new investors.
-
iv) An increase in regulatory and transfer agent fees of $73,818 primarily related to the various share issuances during the nine-month period ended October 31, 2021.
-
v) An increase in investor relations of $126,084 for the nine-month period ended October 31, 2021 primarily related to new contracts entered into by the Company for investor relation communications.
-
vi) A $76,173 recovery of flow-through share premium for the Company’s exploration activities during the nine-month period ended October 31, 2021.
-
vii) A decrease in interest expense and finance costs of $91,460 primarily related to reduced accretion on the promissory note dated May 16, 2019 with Equinox due to a reduction of the loan principal from the first installment being paid on May 17, 2021.
Three-month period ended October 31, 2021
For the three-month period ended October 31, 2021, the net loss was $2,670,654 compared to $444,507 for the three-month period ended October 31, 2020. On December 23, 2020, the Company completed the RTO.
Major variances are as follows:
-
i) An increase in share-based payments of $1,182,090 for the quarter ended October 31, 2021 primarily related to the vesting of restricted share units, performance share units and stock options as a result of increased activity in the Company.
-
ii) An increase in management, director and consulting fees of $464,188 mainly due to increased management fees for services provided by the officers of the Company, higher consulting fees for corporate advisory services post-closing of the RTO transaction and increased activity in the Company.
-
iii) An increase in marketing expenses of $535,085 for the quarter ended October 31, 2021 primarily related to various digital marketing and advertising campaigns to provide public awareness of the Company and attract new investors.
-
iv) An increase in investor relations of $72,262 for the quarter ended October 31, 2021 primarily related to new contracts entered into by the Company for investor relation communications.
-
v) A decrease in interest expense and finance costs of $79,582 primarily related to reduced accretion on the promissory note dated May 16, 2019 with Equinox due to a reduction of the loan principal from the first installment being paid on May 17, 2021.
LIQUIDITY AND CAPITAL RESOURCES
As at October 31, 2021, the Company had a cash balance of $9,791,936 (January 31, 2021 – $2,691,382) and working capital of $5,019,644 (January 31, 2021 – deficit of $1,088,426).
During the nine-month period ended October 31, 2021, the Company incurred a net loss of $10,341,490 and has cumulative losses of $19,489,432 since inception.
On February 23, 2021, the company closed its brokered private placement of units by issuing 10,310,000 units consisting of one common share and one-half of a share purchase warrant for gross proceeds of $10,000,700.
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On May 17, 2021, the Company paid the first installment payment of $3,000,000 due to Equinox.
On June 24, 2021, the Company closed a bought deal private placement by issuing 4,255,190 HD Units for a price of $2.10 and 1,326,450 FT Units for a price of $2.31 for gross proceeds of $11,999,999.
During the nine-month period ended October 31, 2021, 2,351,178 warrants were exercised for gross proceeds of $2,669,208 and 409,258 stock options were exercised for gross proceeds of $310,133.
Subsequent to October 31, 2021, the Company issued 222,222 common shares from warrant exercises for gross proceeds of $246,666.
The following table summarizes cash inflows and outflows for the periods shown:
| of $246,666. The following table summarizes cash inflows and |
outflows for the periods shown: | |
|---|---|---|
| Nine months | Nine months |
|
| ended | ended |
|
| October 31, | October 31, | |
| 2021 | 2020 | |
| Cash flow provided by (used in): | ||
| Operating activities | $ (6,049,039) | $ (796,102) |
| Investing activities | (7,402,343) | (494,028) |
| Financing activities | 20,551,936 | 1,204,486 |
| Increase in cash | $ 7,100,554 | $(85,644) |
Cash flows used in operating activities can vary significantly from period to period as a result of the Company’s working capital requirements, which are dependent on the level of operations and increased spending typically results during periods of expansion.
Cash flows used in investing activities can vary depending on the nature of the transactions occurring during a period. During the nine-month period ended October 31, 2021, most investing activities related to exploration and evaluation expenditures and mineral property expenditures.
Cash flows provided by financing activities for the nine-month period ended October 31, 2021 resulted from the issuance of shares from private placements and exercises of warrants and options partially offset by the partial repayment of Equinox promissory note.
RELATED PARTY TRANSACTIONS
Transactions
The Company has identified the CEO (Mr. Kevin Smith), President (Mr. Ronald Woo), CFO (Mr. Braydon Hobbs), COO (Mr. Grant Carlson) and General Counsel and Corporate Secretary (Mr. Alex Bayer) and the Company’s directors as its key management personnel. During the three and nine-month periods ended October 31, 2021 and 2020, the following amounts were incurred for key management personnel of the Company:
| Three Months Ended October 31, 2021 Three Months Ended October 31, 2020 Nine Months Ended October 31, 2021 Nine Months Ended October 31, 2020 |
|
|---|---|
| Management, director and consulting fees | $ 405,010 $ 6,000 $ 913,476 $ 12,217 1,212,269 25,441 2,401,049 225,064 |
| Share-based payments | |
| Total compensation | $1,617,279 $31,441 $3,314,525 $237,281 |
Included in the management, director and consulting fees for the nine-month period ended October 31, 2021 was 230,000 bonus shares issued to officers of the Company with a fair value of $289,800.
During the nine-month period ended October 31, 2021, the Company converted 155,000 of vested restricted share units and 865,500 of vested performance share units and issued them to the directors and officers of the Company.
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During the three and nine-month periods ended October 31, 2021 and 2020, included in management, director and consulting fees disclosed above are fees capitalized to the following:
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During the three and nine-month periods ended October 31, 2021 and 2020, included in share-based payments disclosed above are fees capitalized to the following:
| above are fees capitalized to the following: | |
|---|---|
| Three Months Ended October 31, 2021 Three Months Ended October 31, 2020 Nine Months Ended October 31, 2021 Nine Months Ended October 31, 2020 |
|
| Exploration and evaluation asset Mineral property |
$ 18,936 $ - $ 18,936 $ - - - 376,927 - 77,673 -241,623 - |
| Mine construction-work-in-progress | |
| $96,609 $-$637,486 $- |
Balances
The following amounts due to related parties are unpaid director and management fees and expense reimbursements included in trade payables and accrued liabilities. These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
| terms of repayment. | ||
|---|---|---|
| October 31, | January 31, |
|
| Relatedpartyliabilities: | 2021 | 2021 |
| CEO(1) | $ 201,642 | $ 21,364 |
| President(2) | 92,333 | 17,333 |
| COO(3) | 96,451 | 36,275 |
| CFO(2) | 59,000 | 14,000 |
| General Counsel and Corporate Secretary(1) | 202,394 | 70,591 |
| Director(4) | 9,000 | 9,000 |
| Former director of subsidiary(4) | 6,217 | 6,217 |
| $667,037 | $174,780 |
(1) Related party liabilities include management fees and expense reimbursements.
(2) Related party liabilities include management and director fees.
(3) Related party liabilities include management and director fees and expense reimbursements.
(4) Related party liabilities for director fees.
COMMITMENTS
On January 26, 2021, the Company entered into an OPA with New Gold for a three-year term. Under the terms of the OPA, GMTN will deliver 70,000 tonnes of ore per annum, approximately 200 tonnes per day, to the mill located at New Gold’s New Afton Mine situated 130km from the Elk Gold Project, in Kamloops British Columbia.
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The OPA is effective upon the first delivery of ore to the New Afton Mine. Prior to the first delivery of ore, the parties must settle on a sampling procedure for tracking the tonnes and grade delivered, GMTN must receive an amendment to its Mine Permit (received October 2021) and New Gold must obtain a permit amendment to allow for the processing of ore from the Elk Gold Project.
FINANCIAL INSTRUMENT RISK
The following table summarizes the classifications of the Company’s financial instruments under IFRS 9:
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The carrying values of cash, receivables, excluding GST receivables, accounts payable and accrued liabilities and short-term loans approximate their fair value because of the relatively short-term nature of the instruments and are measured and reported at amortized cost. The lease payable, promissory note and reclamation deposits are measured and reported at amortized cost using the effective interest rate method. These estimates are subjective and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumption could significantly affect the estimates.
There are three levels of the fair value hierarchy as follows:
-
Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
-
Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
-
Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is summarized as follows:
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash held in bank accounts. The majority of cash is deposited in bank accounts at a major bank in Canada. As most of the Company’s cash is held by one bank there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company aims to have sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from its ability to raise equity capital or borrowing sufficient funds and its holdings of cash.
Historically, the Company’s principal source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to necessary levels of equity funding.
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The following sets forth details of the payment profile of financial liabilities based on their undiscounted cash flows:
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Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to significant interest rate risks.
Foreign exchange risk
The Company’s functional and reporting currency is the Canadian dollar and major purchases are transacted in Canadian dollars. As a result, the Company’s exposure to foreign currency risk is minimal.
RISK AND UNCERTAINTIES
For a complete list of the risks and uncertainties facing the Company, please see the Annual Information Form for the year ended January 31, 2021, a copy of which was filed on November 4, 2021 and available at www.sedar.com.
MANAGEMENT’S RESPONSIBILITY FOR THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The information provided in this MD&A as referenced from the Company’s condensed interim consolidated financial statements for the referenced reporting period is the sole responsibility of management. In the preparation of the information along with related and accompanying statements and estimates contained herein, management uses careful judgement in assessing the values (or future values) of certain assets or liabilities. It is the opinion of management that such estimates are fair and accurate as presented.
USE OF ACCOUNTING ESTIMATES, JUDGMENTS AND ASSUMPTIONS
Information about judgments and estimates in applying accounting policies that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are included in Note 3 to the Company’s January 31, 2021 consolidated annual financial statements. There were no material changes to the significant accounting judgments and estimates from January 31, 2021, except as noted below:
Determination of technical feasibility and commercial viability of the Elk Gold Property
The application of the Company’s accounting policy for mineral property development costs requires judgment to determine when technical feasibility and commercial viability of the Elk Gold Property was demonstrable. The Company considered the positive National Instrument (“NI”) 43-101 compliant Preliminary Economic Assessment, the receipt of key environmental mine permits and the completion of the financing to fund development as key indicators confirming that technical feasibility and commercial viability of the Elk Gold Property had been established. Accordingly, effective June 1, 2021, the Company commenced capitalization of all direct costs related to the development of the Elk Gold Property, and reclassified capitalized costs from exploration and evaluation assets to property and equipment and tested for impairment. No impairment was recognized after management concluded that the forecast discounted cash flows valuation of the Elk Gold Property, based on the NI 43-101 compliant Preliminary Economic Assessment, exceeded the carrying value of the project of $12.3 million as at the date of the final investment decision.
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RECENT ACCOUNTING PRONOUNCEMENTS
There have been no recent IFRS accounting pronouncements with respect to new standards, interpretations and amendments during the nine-month period ended October 31, 2021, as compared to the recent accounting pronouncements described under Note 2 in the Company’s annual audited consolidated financial statements for the year ended January 31, 2021, which are of potential significance to the Company, except as noted below:
Amendments to IAS 12 – Income Taxes
In May 2021, the IASB issued amendments to IAS 12, Income Taxes (IAS 12). The amendments will require companies to recognize deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The proposed amendments will typically apply to transactions such as leases for the lessee and decommissioning and restoration obligations related to assets in operation. An entity is required to apply these amendments for annual reporting periods beginning on or after January 1, 2023. Early application is permitted. The amendments are applied to transactions that occur on or after the beginning of the earliest comparative period presented. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
OTHER INFORMATION
Additional information on the Company is available on SEDAR at www.sedar.com.
QUALIFIED PERSON AND INFORMATION CONCERNING ESTIMATES OF MINERAL PROJECTS
All of the scientific and technical information contained in this news release has been reviewed and/or approved by Mr. Grant Carlson, P. Eng., a "Qualified Person" within the meaning of National Instrument 43-101 - Standards of Disclosure for Minerals Projects and the Chief Operating Officer of the Company.
USE OF PROCEEDS TABLE
The table below sets out the disclosure the Company has previously made about use of proceeds (other than working capital) from previous financings and any variations:
| Financing | Disclosed Use | Actual Use | Variation |
|---|---|---|---|
| June 2020 - $200,000 IPO financing |
Identification and evaluation of a qualified transaction |
Same as disclosed use | No variation |
| July 2020 - $520,000 private placement |
Identification and evaluation of a qualified transaction |
Same as disclosed use | No variation |
| December 2020 - $4,666,890 financing concurrent with Qualified Transaction |
Exploration at the Siwash North Zone and Lake Zone of the Elk Gold Project and general working capital. |
Exploration at the Siwash North Zone and general working capital |
The Company elected to focus all exploration on the Siwash North Zone in order to expand the resource. |
| February 2021 - $10,000,700 private placement |
Advancement of the Elk Gold Project |
Same as disclosed use | No variation |
| June 2021 - $11,999,999 bought deal private placement |
Advancement of the Elk Gold Project (for funds from flow through portion, Canadian Exploration Expenses). |
Anticipated to be as disclosed. |
No variation |
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SHARE CAPITAL AND OUTSTANDING SHARE DATA
Common shares, stock options, restricted share units, performance share units and share purchase warrants issued and outstanding as at the period-end are described in detail in Note 14 of the condensed interim consolidated financial statements for the three and nine-month periods ended October 31, 2021, which as of December 15, 2021 are as follows:
Issued and outstanding
Number of shares 69,982,150
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| Restricted Share | Performance Share | |
|---|---|---|
| Units | Units | |
| As at October 31, 2021 | 392,500 |
879,500 |
| Converted | - |
(110,000) |
| 392,500 |
769,500 |
| Number of outstanding | Exercise |
Expiry |
|---|---|---|
| warrants | price($) | date |
| 34,726 | 0.10 |
June 22, 2022 |
| 192,806 | 0.90 |
December 23, 2022 |
| 1,175,146 | 1.20 |
December 23, 2023 |
| 270,626 | 0.97 |
February 23, 2023 |
| 4,271,387 | 1.25 |
February 23, 2024 |
| 2,790,820 | 3.15 |
June 24, 2023 |
| 320,612 | 2.10 |
June 24, 2023 |
| 9,056,123 |
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