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K92 Mining Inc. — Interim / Quarterly Report 2020
Aug 13, 2020
46672_rns_2020-08-13_25d56e8c-c2b2-4361-b564-f8c925463b7d.pdf
Interim / Quarterly Report
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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Presented in thousands of United States Dollars)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
1
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Presented in thousands of United States Dollars)
| As at | June 30, 2020 | December 31, 2019 |
|---|---|---|
| ASSETS Current Cash and cash equivalents Receivables (Note 5) Inventory (Note 6) Prepayments Deferred income tax assets Deposits on equipment Property, plant and equipment(Note 8) |
$ 34,728 23,800 15,284 2,215 76,027 17,361 93 86,759 $ 180,240 |
$ 21,612 13,064 11,507 1,046 47,229 29,360 317 78,084 $ 154,990 |
| LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities (Note 7) Current portion of lease liabilities Current portion of loan (Note 10) Lease liabilities Loan(Note 10) Reclamation and closure cost obligations(Note 11) Shareholders' equity Share capital (Note 12) Contributed surplus (Note 12) Accumulated other comprehensive loss Retained earnings |
$ 16,662 500 8,389 25,551 730 699 2,510 29,490 78,607 14,884 (542) 57,801 150,750 $ 180,240 |
$ 13,403 390 8,390 22,183 771 4,894 2,452 30,300 77,087 12,128 (580) 36,055 124,690 $ 154,990 |
| ubsequent events(Note 19) Approved and authorized by the Audit Committee on August 12, 2020: “Saurabh Handa” Director “R. Stuart Angus” Director |
| Subsequent events(Note 19) | |||
|---|---|---|---|
| Approved and authorized by the Audit Committee on August 12, 2020: | |||
| _“Saurabh Handa” _ | Director | _“R. Stuart Angus” _ | Director |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Presented in thousands of United States Dollars, except share and per share amounts)
| For the | Three months ended June 30, 2020 |
Three months ended June 30, 2019 |
Six months ended June 30, 2020 |
Six months ended June 30, 2019 |
|---|---|---|---|---|
| REVENUE(Note 15) COST OF SALES(Note 16) Income from mine operations EXPENSES General and administrative (Note 17) Exploration and evaluation expenditures Foreign exchange Share-based payments OTHER Interest and finance expense (Note 18) Fair value loss on gold purchase agreement (Note 9) Amortization of deferred loss (Note 9) Income for the period before taxes Deferred income tax expense Income for the period Other comprehensive income (loss) Items that may be reclassified to net income Cumulative translation adjustment Comprehensive income for the period |
$ 47,857 (18,371) 29,486 $ (574) (844) (576) (1,201) $ 26,291 (714) - - $ 25,577 (8,672) $ 16,905 (148) $ 16,757 |
$ 23,293 (12,509) 10,784 $ (731) (1,365) (170) (718) $ 7,800 (215) 31 (1,427) $ 6,189 (900) $ 5,289 2 $ 5,291 |
$ 75,490 (33,594) 41,896 $ (1,069) (2,665) (338) (3,294) $ 34,530 (1,131) - - $ 33,399 (11,653) $ 21,746 38 $ 21,784 |
$ 47,288 (21,831) 25,457 $ (1,458) (2,562) (212) (988) $ 20,237 (395) (220) (4,205) $ 15,417 (5,028) $ 10,389 47 $ 10,436 |
| Basic earnings per common share Diluted earnings per common share |
$ 0.08 $ 0.08 |
$ 0.03 $ 0.03 |
$ 0.10 $ 0.10 |
$ 0.05 $ 0.05 |
| Weighted average number of common shares outstanding Weighted average number of diluted common shares outstanding |
214,499,470 224,878,561 |
197,325,938 208,214,257 |
214,121,571 224,333,720 |
193,907,400 201,541,919 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Presented in thousands of United States Dollars)
| For the | Three months ended June 30, 2020 |
Three months ended June 30, 2019 |
Six months ended June 30, 2020 |
Six months ended June 30, 2019 |
|---|---|---|---|---|
| CASH FROM OPERATING ACTIVITIES Income for the period Items not affecting cash: Unrealized foreign exchange loss Interest and finance expenses Amortization of deferred loss (Note 9) Fair value loss (gain) on gold purchase agreement (Note 9) Deferred income tax Share-based payments (Note 12) Depreciation and depletion (Note 8) Changes in non-cash working capital items: Inventory Receivables CRH financing Prepayments Accounts payable and accrued liabilities Net cash provided by operating activities CASH USED IN INVESTING ACTIVITIES Deposits for equipment Acquisition of property, plant and equipment Net cash used in investing activities CASH FROM FINANCING ACTIVITIES Proceeds on exercise of warrants Proceeds on exercise of stock options Principal loan payments Principal lease payments Net cash (used in) provided by financing activities Change in cash and cash equivalents during the period Effect of foreign exchange on cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end ofperiod |
$ 16,905 (146) 164 - - 8,672 1,201 3,490 (449) (8,051) - (864) 2,247 23,169 136 (7,922) (7,786) - 308 (2,143) (116) (1,951) 13,432 178 21,118 $ 34,728 |
$ 5,289 173 203 1,427 (31) 901 718 1,772 (179) (3,742) (2,506) 599 5,141 9,765 (1,762) (11,345) (13,107) 1,901 1,003 - (191) 2,713 (629) (6) 9,862 $ 9,227 |
$ 21,746 682 370 - - 11,653 3,294 5,077 (2,572) (10,840) - (1,169) 2,421 30,662 (93) (13,557) (13,650) - 982 (4,286) (225) (3,529) 13,483 (367) 21,612 $ 34,728 |
$ 10,389 250 383 4,205 220 5,028 988 3,317 (1,771) (2,207) (7,477) (1,652) 3,878 15,551 (1,762) (14,202) (15,964) 2,039 1,743 - (351) 3,431 3,018 3 6,206 $ 9,227 |
| Cash paid for interest Cashpaid for taxes |
$ 616 $ - |
$ 22 $ - |
$ 1,033 $ - |
$ 64 $ - |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
K92 MINING INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (Presented in thousands of United States Dollars, except share and per share amounts)
| Share capital Number Amount |
Share capital Number Amount |
Preferred shares |
Contributed surplus |
Accumulated other comprehensive loss |
Retained Earnings |
**Total ** | ||
|---|---|---|---|---|---|---|---|---|
| **Number ** | ||||||||
| Balance at December 31, 2018 Conversion of preferred shares Exercise of warrants Exercise of stock options Share-based payments (Note 12) Cumulative translation adjustment Income for the period Balance at June 30, 2019 Private placements Share issuance costs, cash Exercise of warrants Exercise of stock options Share-based payments (Note 12) Cumulative translation adjustment Income for the period Balance at December 31, 2019 Exercise of stock options Share-based payments (Note 12) Cumulative translation adjustment Income for the period Balance at June 30, 2020 |
181,451,219 9,503,662 4,195,956 4,081,600 - - - 199,232,437 10,895,100 - 2,121,450 795,700 - - - 213,044,687 1,610,250 - - - 214,654,937 |
54,433 1,019 2,428 2,520 - - - 60,400 15,672 (1,060) 1,242 833 - - - 77,087 1,520 - - - $ 78,607 |
1,019 (1,019) - - - - - - - - - - - - - - - - - - $ - |
11,141 - (388) (777) 988 - - 10,964 - - (199) (282) 1,645 - - 12,128 (538) 3,294 - - $ 14,884 |
(299) - - - - 46 - (253) - - - - - (327) - (580) - - 38 - $ (542) |
3,512 - - - - - 10,389 13,901 - - - - - - 22,154 36,055 - - - 21,746 $ 57,801 |
69,806 - 2,040 1,743 988 46 10,389 85,012 15,672 (1,060) 1,043 551 1,645 (327) 22,154 124,690 982 3,294 38 21,746 $ 150,750 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
5
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
1. NATURE OF BUSINESS
K92 Mining Inc. (the “ Company ”) was incorporated pursuant to the provisions of the Business Corporations Act (British Columbia) on March 22, 2010. The Company’s shares are listed on Tier 1 of the TSX Venture Exchange (“ TSX-V ”) under the symbol KNT and the OTCQB under the symbol KNTNF. The Company is currently engaged in the exploration, development and mining of mineral deposits in Papua New Guinea, specifically the Kainantu Project.
The Company’s head office, principal, registered and records office is 488 - 1090 West Georgia Street, Vancouver, British Columbia, Canada, V6E 3V7.
2. BASIS OF PREPARATION
Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting . These condensed interim consolidated financial statements are compliant with IAS 34 and do not include all of the information required for full annual financial statements.
Basis of Presentation
These condensed interim consolidated financial statements of the Company are presented in United States dollars, which is the functional currency of K92 Mining Ltd. and K92 Holdings International Limited. The parent company, K92 Mining Inc., has a functional currency of the Canadian Dollar (CAD) and K92 Mining (Australia) Pty Ltd. has a functional currency of the Australian Dollar (AUD).
3. SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies are the same as those applied in the Company’s annual consolidated financial statements for the year-ended December 31, 2019. These condensed interim consolidated financial statements should be read in conjunction with the Company’s most recent annual consolidated financial statements for the year ended December 31, 2019.
COVID-19 Estimation Uncertainty
Since March 2020, several measures have been implemented in Canada, Australia, Papua New Guinea and the rest of the world in response to the impact of the coronavirus (“COVID-19”) pandemic. While the global impact of COVID19 is expected to be temporary, the current circumstances are dynamic and the impacts of COVID-19 on the Company’s business operations, including the impact on our future production, cannot be reasonably estimated at this time.
While the Company’s mining operations continue to operate, if the COVID-19 situation were to deteriorate, it could have an adverse impact on our business, results of operations, financial position and cash flows.
6
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
3. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
COVID-19 Estimation Uncertainty (cont’d…)
The Company has initiated a COVID-19 Management Plan at the Kainantu mine site, which addresses immediate issues including occupational health, hygiene and safety, business continuity, travel, supply chain, statutory compliance, communications, testing, risk assessment and contingency planning.
In line with other mining operations in the country, the Company intends to maintain normal operations at the Kainantu mine and associated facilities, and has received exemptions from the PNG Government to allow for the movement of PNG Nationals within PNG and of Expatriate workers from Australia. After the Government of Papua New Guinea lifted the state of emergency, the Company has experienced a significant improvement in the movement of personnel, and our twin incline and surface exploration activities have resumed.
4. ACQUISITION OF BARRICK (KAINANTU) LIMITED
Through its wholly owned subsidiary, K92 Holdings (PNG) Limited (“ K92PNG ”), on June 11, 2014, K92 International Holdings Limited (“ K92 Intl ”) entered into a Share Sale Agreement (“ SSA ”) with Barrick (Niugini) Limited (“ Barrick ”), Mt Apex Investment Holdings Limited (“ Apex ”), and Otterburn Resource Corp., whereby K92PNG agreed to acquire all of the outstanding shares of Barrick’s wholly owned Papua New Guinea subsidiary, Barrick (Kainantu) Limited (“ Kainantu ”), that holds certain assets and mineral rights and interests in Papua New Guinea.
As consideration, K92PNG paid $2.0 million and upon achievement of certain milestones, a contingent payment of up to $60.0 million. On July 17, 2019, the Company entered into an amendment agreement with Barrick Gold Corporation revising the contingent payment to a fixed payment of $12.5 million paid on August 23, 2019 and capitalized as part of additions to Mineral Properties (Note 8). The Company paid $0.3 million (AUD$0.4 million) in agent fees in connection with the amendment agreement, capitalized as part of additions to Mineral Properties (Note 8).
Pursuant to the PNG Mining Act, a 2% net smelter returns royalty, and a 0.50% levy on gross mine revenues are payable.
5. RECEIVABLES
| AS AT | June 30, 2020 |
December 31, 2019 |
|---|---|---|
| Accounts receivable GST receivable Other Total |
$ 19,316 4,427 57 $ 23,800 |
$ 10,054 2,913 97 $ 13,064 |
7
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
6. INVENTORY
| AS AT | June 30, 2020 |
December 31, 2019 |
|---|---|---|
| Mine supplies, consumables and fuel Ore stockpile Gold concentrate Total |
$ 10,030 3,140 2,114 $ 15,284 |
$ 6,592 1,983 2,932 $ 11,507 |
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| AS AT | June 30, 2020 |
December 31, 2019 |
|---|---|---|
| Trade payables Accruals and provisions Landowners accrual Total |
$ 5,590 6,983 4,089 $ 16,662 |
$ 3,259 6,488 3,656 $ 13,403 |
Landowners’ compensation
The Company has obligations to compensate landowners annually who are affected by the operations of the Kainantu mine. These compensations are governed by the Papua New Guinean Mining Act 1992 and a land and environment compensation agreement (“ CA ”) for Mining Lease 150 (“ ML 150 ”) that the prior owner of the Kainantu mine entered into with the Billmoia Landowners Association Incorporation (“ BLA ”) and certain landowners / clans listed in the agreement. The actual recipients of the compensation determined under the CA and landowners’ share of sales royalty cannot be paid as required under the CA until the legitimate landowners are identified by the Papua New Guinean Land Titles Commission (“ LTC ”) and so compensation payments have been accrued but not paid.
8
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
8. PROPERTY, PLANT AND EQUIPMENT
| Mineral Properties |
Plant and Equipment |
Mobile Fleet and Vehicles |
Right-of-use assets |
Construction in Progress (Expansion)1 |
Total | |
|---|---|---|---|---|---|---|
| Cost Balance, December 31, 2018 Change in new standard at January 1, 2019 Additions Acquisition costs2 Transfers from construction in progress Balance, December 31, 2019 Additions Transfers from construction in progress Balance, June 30, 2020 |
$ 30,688 - 6,693 15,790 - 53,171 2,960 - $ 56,131 |
$ 7,926 - 813 - 2,827 11,566 865 3,011 $ 15,442 |
$ 6,566 - 1,081 - 6,981 14,628 - 6,027 $ 20,655 |
$ 1,514 439 - - - 1,953 323 - $ 2,276 |
$ - - 20,199 - (9,808) 10,391 10,809 (9,038) $ 12,162 |
$ 46,694 439 28,786 15,790 - 91,709 14,957 - $ 106,666 |
| Accumulated depreciation Balance, December 31, 2018 Depreciation for the year Balance, December 31, 2019 Depreciation for the period Balance, June 30, 2020 |
$ 1,826 4,544 6,370 3,390 $ 9,760 |
$ 945 1,183 2,128 689 $ 2,817 |
$ 1,647 2,773 4,420 1,929 $ 6,349 |
$ 242 465 707 274 $ 981 |
$ - - - - $ - |
$ 4,660 8,965 13,625 6,282 $ 19,907 |
| Carrying amounts As at December 31, 2019 As at June 30,2020 |
$ 46,801 $ 46,371 |
$ 9,438 $ 12,625 |
$ 10,208 $ 14,306 |
$ 1,246 $ 1,295 |
$ 10,391 $ 12,162 |
$ 78,084 $ 86,759 |
1 Construction in Progress at June 30, 2020 consists of $5.7 million in stage 2 expansion costs, $1.5 million in twin incline expansion costs and $5.0 million in other expansion costs.
2 Acquisition costs during the year ended December 31, 2019 consists of $12.5 million paid to Barrick (Note 4), $0.3 million in agent fees related to the amending agreement with Barrick (Note 4) and a $3.0 million payment to extinguish the NSR on the Kora and Irumafimpa deposits.
9
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020 (Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
8. PROPERTY, PLANT AND EQUIPMENT (cont’d…)
Mineral properties
The Company holds the mining rights to ML 150 until June 13, 2024. The Company’s flagship Kianantu Mine is located on ML 150. The Company also holds or has applied for renewal of Exploration Licenses (“EL”) 470, 693, and 1341, located adjacent to ML 150.
9. CRH FINANCING
Gold prepayment agreement
On February 4, 2016, amended May 25, 2018, the Company entered into financing agreements with CRH Funding II Pte. Ltd. (“ CRH ”), an affiliate of Cartesian Royalty Holdings and Cartesian Capital Group, consisting of a gold prepayment investment and an equity investment. Upon signing, the Company drew down the first tranche under the gold prepayment agreement (the “ GPA ”), which as per the GPA was used for Kainantu project related expenditures.
Under the GPA, CRH provided the Company with $4.8 million in exchange for a percentage of gold produced at the Irumafimpa and Kora deposits over a 36-month period, subject to a minimum of 18,000 ounces of gold and a maximum of 20,000 ounces of gold.
The Company completed the deliveries of the required gold ounces during the year ended December 31, 2019 and as a result the balance of the CRH financing liability at June 30, 2020 and December 31, 2019 is $Nil:
| December | 31, | |
|---|---|---|
| CRH Financing Liability | 2019 | |
| CRH liability, beginning of year | $ 12,816 | |
| Add: | ||
| Fair value adjustment | 1,022 | |
| Delivery of gold ounces or cash equivalent during the year | (14,169) | |
| Interest | 331 | |
| Capitalized interest | - | |
| Balance, end of period | - | |
| Less: | ||
| Deferred loss, beginning of year | 7,484 | |
| Amortization of deferred loss based on delivered ounces | (7,484) | |
| - | ||
| Balance, end ofperiod | $ | - |
CRH was entitled to representation on the board of directors of the Company so long as CRH maintained at least a 5% equity ownership in the Company. As of June 30, 2020, the GPA no longer remains outstanding and CRH has less than a 5% equity ownership interest in the Company.
10
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
10. LOAN
On July 1, 2019, the Company and Trafigura Pvt. Ltd. (“ Trafigura ”) entered into a loan agreement pursuant to which Trafigura provided a $15.0 million loan (the “ Loan ”) to the Company to be repaid in monthly instalments of $0.7 million over 2 years, bearing interest at 10% + 3-month LIBOR per annum. For the six months ended June 30, 2020, the Company has recorded $0.7 million in interest and finance expenses on the Loan.
The loan has been designated as a financial liability at amortized cost and is recorded net of transaction costs. Transaction costs are amortized over the 2-year loan life using an effective interest rate of 13.13%. Transaction costs associated with the loan were $0.4 million.
The loan agreement provides that in certain circumstances of default, Trafigura may accelerate repayment of the loan. Subject to a grace period, if the Loan is not then repaid, Trafigura may convert all or any portion of the Loan into common shares of the Company at a conversion price equal to US$1.3794 per share (the “ Conversion Rights ”). The Company is not in default of the loan agreement as at June 30, 2020.
| June 30, | December | 31, | |||
|---|---|---|---|---|---|
| Loan | 2020 | 2019 | |||
| Loan, beginning of year | $ | 13,284 | $ | - | |
| Loan proceeds, net of transaction costs | - | 14,631 | |||
| Principal payments | (4,286) | (1,428) | |||
| Amortization of transaction costs | 90 | 81 | |||
| Balance, end of period | $ | 9,088 | $ | 13,284 |
|
| Loan, current portion | $ | 8,389 | $ | 8,390 | |
| Loan, non-current portion | $ | 699 | $ | 4,894 |
Subsequent to June 30, 2020, the Company paid $1.6 million of principal and accrued interest to Trafigura as repayment of the Loan.
11. RECLAMATION AND CLOSURE COST OBLIGATIONS
When the Company exhausts or abandons a mining property or an exploration site, it is required to undertake certain reclamation and closure procedures under the terms of the legislation enacted by the Government of Papua New Guinea.
| June 30, 2020 December 31, 2019 |
|
|---|---|
| Balance, beginning of year Foreign exchange movement Change in estimates Accretion Balance, end ofperiod |
$ 2,452 $ 1,891 (38) (2) - 398 96 165 |
| $2,510 $2,452 |
11
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
11. RECLAMATION AND CLOSURE COST OBLIGATIONS (cont’d…)
The provision has been measured as the present value of the estimated future rehabilitation costs using an estimated mine life of 12 years. The estimated cash-flows used to measure the provision were discounted to a present value using a risk-free discount rate of 7.35% (December 31, 2019 – 7.35%).
Periodically the Company reviews the estimate of future costs of required reclamation and closure work. The current total estimate for all properties anticipates undiscounted future cash outflows to meet required legislative standards for reclamation and closure work in the amount of $6.3 million, with first expenditures anticipated in 2031. These future cash outflows have been discounted at the risk-free interest rate considered applicable in Papua New Guinea where the Company’s properties are located.
12. SHARE CAPITAL AND RESERVES
Authorized share capital
The Company’s authorized share capital consists of an unlimited number of common shares without par value.
Issued share capital
As at June 30, 2020, the Company had 214,654,937 common shares issued and outstanding.
Share issuances
Except on the exercise of share options, no shares were issued during the six months ended June 30, 2020.
During the year ended December 31, 2019, the Company:
-
a) Issued 9,503,662 common shares of the Company upon the conversion of the 5,000,000 preferred shares by the preferred shareholders.
-
b) Completed a private placement by issuing 9,474,000 common shares at a price of CAD$1.90 per common share for gross proceeds of CAD$18.0 million ($13.6 million). As part of the financing, the Company issued 1,421,100 agent options to the underwriters which were then exercised providing an additional CAD$2.7 million ($2.0 million) or CAD$20.7 million ($15.7 million) in aggregate. The Company paid $1.0 million in cash commissions and $37 thousand in other costs related to the financing.
12
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
12. SHARE CAPITAL AND RESERVES (cont’d…)
Stock options and warrants
Stock option and warrant transactions are summarized as follows:
| Warrants Number Weighted Average Exercise Price(CAD) |
Warrants Number Weighted Average Exercise Price(CAD) |
Warrants Number Weighted Average Exercise Price(CAD) |
Stock options | Stock options | |||
|---|---|---|---|---|---|---|---|
| Number | Number Weighted Average Exercise Price(CAD) |
||||||
| Outstanding, December 31, 2018 Granted / Issued Exercised Forfeited Expired Outstanding, December 31, 2019 Granted / Issued Exercised Forfeited Outstanding, June 30, 2020 |
6,318,256 - (6,317,406) - (850) - - - - - |
$ 0.65 - 0.65 - 0.65 $ - - - - $ - |
16,384,100 4,805,000 (4,877,300) (351,700) - 15,960,100 2,604,000 (1,610,250) (139,800) 16,814,050 |
$ 0.67 1.77 0.63 1.01 - $ 1.01 3.87 0.83 3.57 $ 1.44 |
|||
| Numbercurrently exercisable | - | $- | 14,379,670 | $ 1.13 |
Stock options outstanding
The following incentive stock options were outstanding at June 30, 2020:
| Range of exercise prices (in$CAD) Number of outstanding options |
Range of exercise prices (in$CAD) Number of outstanding options |
Number of options exercisable Weighted-average exercise price (in $CAD) Weighted- average years to expiry |
|---|---|---|
| 0.45 – 0.99 1.00 – 1.99 2.00 – 2.99 3.00 – 3.99 4.00 – 4.99 |
8,341,800 5,713,250 275,000 2,164,000 320,000 16,814,050 |
8,341,800 0.62 2.00 5,054,866 1.55 3.32 183,333 2.16 4.37 721,332 3.85 4.59 106,666 4.00 4.98 14,407,997 1.44 2.88 |
Share-based payments
The Company has a stock option plan under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, expected share price volatility factors, forfeiture rate, and expected life of the options. Under the plan the exercise price of each option equals the market price of the Company’s stock as calculated on the date of grant.
13
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
12. SHARE CAPITAL AND RESERVES (cont’d…)
Share-based payments (cont’d…)
The following weighted average assumptions were used for the valuation of stock options:
| June 30, 2020 | December 31, 2019 | |
|---|---|---|
| Risk-free interest rate | 0.83% | 1.51% |
| Expected life of options | 4.0 years | 4.0 years |
| Annualized volatility | 67.64% | 62.96% |
| Dividend rate | 0.00% | 0.00% |
| Forfeiturerate | 1.29% | 1.29% |
The weighted average fair value of the options granted during the six months ended June 30, 2020 was CAD$1.99 (2019 - CAD$0.84).
During the six months ended June 30, 2020, the Company recorded stock-based compensation expense of $3.3 million (2019 – $1.0 million).
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial assets and liabilities are classified in the fair value hierarchy according to the lowest level of input that is significant to the fair value measurement. Assessment of the significance of a particular input to the fair value measurement requires judgement and may affect placement within the fair value hierarchy levels. The hierarchy is as follows:
-
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2: inputs other than quotes prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
-
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of cash, other receivables, and trade and other payables approximate their fair values due to the short-term nature of these instruments. The amortized cost of the loan approximates its fair value due to the nature of the instrument.
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
14
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
14. SEGMENTED INFORMATION
Operating segments are components of an entity that engage in business activities from which they incur expenses and whose operating results are regularly reviewed by a chief operating decision maker to make resource allocation decisions and to assess performance. The Chief Executive Officer is responsible for allocating resources and reviewing operating results of each operating segment on a periodic basis.
The Company’s only operating segment is the mining operation in Papua New Guinea. The Company’s development activities are all located in Papua New Guinea, with its head office function in Canada. All of the Company’s capital assets, including property, plant and equipment are located in Papua New Guinea.
| Six months ended June 30, 2020 Papua New Guinea |
Canada Total |
|---|---|
| NetIncome (loss) $27,338 |
$ (5,592) $21,746 |
| Six months ended June 30, 2019 Papua New Guinea |
Canada Total |
| Net Income (loss) $ 17,498 |
$ (7,109) $ 10,389 |
15. REVENUE
| For the | Three months ended June 30, 2020 Three months ended June 30, 2019 |
Three months ended June 30, 2020 Three months ended June 30, 2019 |
Six months ended June 30, 2020 Six months ended June 30, 2019 |
Six months ended June 30, 2020 Six months ended June 30, 2019 |
|---|---|---|---|---|
| Gold in concentrate Copper in concentrate Silver in concentrate Treatment and refining charges Revenue from contracts with customers Gain (loss) on receivables at fair value Total |
$ 44,286 935 41 (1,312) 43,950 3,907 $ 47,857 |
$ 23,680 491 20 (320) 23,871 (578) |
$ 72,446 1,314 53 (2,174) 71,639 3,851 $ 75,490 |
$ 46,654 1,069 39 (578) 47,184 104 $ 47,288 |
$ 23,293 |
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K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
16. COST OF SALES
| For the Three months ended June 30, 2020 Three months ended June 30, 20193 Six months ended June 30, 2020 Six months ended June 30, 20193 |
For the Three months ended June 30, 2020 Three months ended June 30, 20193 Six months ended June 30, 2020 Six months ended June 30, 20193 |
For the Three months ended June 30, 2020 Three months ended June 30, 20193 Six months ended June 30, 2020 Six months ended June 30, 20193 |
For the Three months ended June 30, 2020 Three months ended June 30, 20193 Six months ended June 30, 2020 Six months ended June 30, 20193 |
For the Three months ended June 30, 2020 Three months ended June 30, 20193 Six months ended June 30, 2020 Six months ended June 30, 20193 |
|---|---|---|---|---|
| Direct mining and milling $ Maintenance Other site costs Net smelter royalties Depreciation and depletion Change in inventories Total $ |
4,323 $ 3,704 4,810 614 3,408 1,512 18,371 $ |
2,635 $ 1,734 5,324 29 1,801 986 12,509 $ |
9,319 $ 6,853 10,097 1,476 6,189 (340) 33,594 $ |
5,587 3,862 8,551 691 3,317 (177) 21,831 |
17. GENERAL AND ADMINISTRATIVE
| For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
|---|---|---|---|
| Management, consulting and wages $ Professional fees Office, filing and administrative Recovery of accrued expenditures Travel Investor relations Depreciation Total $ |
333 $ 205 29 (103) - 84 26 574 $ |
330 $ 872 $ 105 254 75 147 - (518) 84 88 137 174 - 52 731 $ 1,069 $ |
521 248 266 - 156 267 - 1,458 |
3 Certain prior year amounts have been reclassified for consistency with the current year presentation. The reclassification has no effect on the total reported amount of cost of sales.
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K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS June 30, 2020
(Presented in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
18. INTEREST AND FINANCE EXPENSE
| For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
For the Three months ended June 30, 2020 Three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019 |
|---|---|---|---|
| Interest and amortization of transaction costs on loan $ Other interest and finance expense Accretion of reclamation and closure cost obligations4 Total $ |
316 $ - $ 350 173 48 42 714 $ 215 $ |
717 $ 318 96 1,131 $ |
- 312 83 395 |
19. SUBSEQUENT EVENTS
Subsequent to June 30, 2020, the Company:
a) Received CAD$18.0 thousand from the exercise of 13,400 stock options;
b) Paid $1.6 million of principal and accrued interest to Trafigura as repayment of the Loan (Note 10); and
c) Paid $5.1 million in advance tax payments to the Papua New Guinea government.
4 Accretion has been reclassified to interest and finance expenses for the period ending June 30, 2020. The prior period accretion amounts have also been reclassified for consistency with the current year presentation. The reclassification has no effect on total reported income.
17