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K92 Mining Inc. — Interim / Quarterly Report 2021
Nov 15, 2021
46672_rns_2021-11-15_667728ed-26cf-4fb0-a429-88f8a39eec8a.pdf
Interim / Quarterly Report
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CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Presented in thousands of United States Dollars)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
1
K92 MINING INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Presented in thousands of United States Dollars)
| As at | September 30, 2021 |
December 31, 2020 |
|---|---|---|
| ASSETS Current Cash and cash equivalents Receivables (Note 4) Inventories (Note 5) Income tax prepayment Prepayments Derivative assets (Note 11) Deferred income tax assets Deposits on equipment Property, plant and equipment(Note 7) |
$ 54,604 14,973 22,182 9,095 1,136 449 102,439 11,730 71 117,458 $ 231,698 |
$ 51,495 26,056 21,005 534 1,416 - 100,506 16,375 82 98,552 $ 215,515 |
| LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities (Note 6) Current portion of lease liabilities (Note 10) Current portion of loan (Note 8) Derivative liabilities (Note 11) Lease liabilities(Note 10) Reclamation and closure cost obligations(Note 9) Shareholders' equity Share capital (Note 12) Contributed surplus (Note 12) Accumulated other comprehensive loss Retained earnings |
$ 20,397 1,220 - 220 21,837 413 2,915 25,165 88,667 28,578 (257) 89,545 206,533 $ 231,698 |
$ 23,241 1,235 4,894 280 29,650 1,310 3,040 34,000 83,523 20,160 (257) 78,089 181,515 $ 215,515 |
Approved and authorized by the Audit Committee on November 10, 2021:
“Saurabh Handa” Director “Mark Eaton” 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 September 30, 2021 |
Three months ended September 30, 2020 |
Nine months ended September 30, 2021 |
Nine months ended September 30, 2020 |
|---|---|---|---|---|
| REVENUE(Note 15) COST OF SALES(Note 16) Earnings from mine operations EXPENSES General and administrative (Note 17) Exploration and evaluation expenditures Foreign exchange Share-based payments Earnings from operations OTHER Interest and finance expense (Note 18) Gain (loss) on derivative instruments (Note 11) Income for the period before taxes Income tax expense Income for the period Items that may be reclassified to net income Other comprehensive income Cumulative translation adjustment Comprehensive income for the period |
$ 35,370 (20,132) 15,238 $ (1,011) (3,116) (332) (1,240) $ 9,539 (309) (237) $ 8,993 (4,128) $ 4,865 - $ 4,865 |
$ 35,605 (15,883) 19,722 $ (1,071) (2,439) 168 (1,432) $ 14,948 (529) - $ 14,419 (5,048) $ 9,371 (38) $ 9,333 |
$ 100,401 (61,987) 38,414 $ (3,355) (8,169) (261) (5,028) $ 21,601 (975) 1,170 $ 21,796 (10,340) $ 11,456 - $ 11,456 |
$ 111,095 (49,477) 61,618 $ (2,140) (5,104) (170) (4,726) $ 49,478 (1,660) - $ 47,818 (16,701) $ 31,117 43 $ 31,160 |
| Basic income per common share Diluted income per common share |
$ 0.02 $ 0.02 |
$ 0.04 $ 0.04 |
$ 0.05 $ 0.05 |
$ 0.14 $ 0.14 |
| Weighted average number of common shares outstanding Weighted average number of diluted common shares outstanding |
222,307,911 229,232,669 |
215,859,480 225,070,451 |
220,917,602 227,838,511 |
214,705,107 222,559,324 |
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 September 30, 2021 |
Three months ended September 30, 2020 |
Nine months ended September 30, 2021 |
Nine months ended September 30, 2020 |
|---|---|---|---|---|
| CASH FROM OPERATING ACTIVITIES Income for the period Items not affecting cash: Unrealized foreign exchange loss Interest and finance expenses Derivative instruments (Note 11) Deferred income tax Share-based payments (Note 12) Depreciation and depletion Proceeds (payments) on derivative instruments (Note 11) Changes in non-cash working capital items: Inventories Receivables Income tax prepayment, net payable Prepayments Accounts payable and accrued liabilities Net cash (used in) 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 stock options Principal loan payments (Note 8) Principal lease payments (Note 10) 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 |
$ 4,865 (12) (26) 237 1,471 2,719 3,447 (102) 1,304 (2,438) (3,566) 578 (1,521) 6,956 - (9,409) (9,409) 1,130 - (313) 817 (1,636) 5 56,235 $ 54,604 |
$ 9,371 51 14 - 1,522 1,432 2,393 - (3,778) (1,061) (1,544) 1,006 3,430 12,836 - (6,888) (6,888) 2,717 (2,143) (120) 454 6,402 87 34,728 $ 41,217 |
$ 11,456 (323) 230 (1,170) 4,645 10,225 9,773 661 (1,287) 11,102 (8,561) 280 (2,364) 34,667 (71) (29,234) (29,305) 3,337 (5,000) (915) (2,578) 2,784 325 51,495 $ 54,604 |
$ 31,117 733 384 - 13,175 4,726 7,470 - (6,350) (11,901) (1,544) (163) 5,851 43,498 (93) (20,445) (20,538) 3,699 (6,429) (345) (3,075) 19,885 (280) 21,612 $ 41,217 |
| Cash paid for interest Cashpaid for taxes |
$ 387 $ 4,961 |
$ 590 $ 5,046 |
$ 915 $ 11,574 |
$ 1,623 $ 5,046 |
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 (Presented in thousands of United States Dollars, except share and per share amounts)
| Share capital Number Amount |
Share capital Number Amount |
Share capital Number Amount |
Contributed surplus Accumulated other comprehensive loss |
Retained Earnings |
**Total ** | ||
|---|---|---|---|---|---|---|---|
| **Number ** | |||||||
| Balance at December 31, 2019 Exercise of stock options Share-based payments (Note 12) Cumulative translation adjustment Income for the period Balance at September 30, 2020 Exercise of stock options Share-based payments (Note 12) Cumulative translation adjustment Income for the period Balance at December 31, 2020 Exercise of stock options Share-based payments (Note 12) Income for the period Balance atSeptember 30, 2021 |
213,044,687 5,889,770 - - - 218,934,457 280,640 - - - 219,215,097 3,211,400 - - 222,426,497 |
$ | 77,087 5,609 - - - 82,696 827 - - - 83,523 5,144 - - 88,667 |
$ 12,128 $ (580) (1,910) - 4,726 - - 43 - - $ 14,944 $ (537) (274) - 5,490 - - 280 - - $ 20,160 $ (257) (1,807) - 10,225 - - - $ 28,578 $ (257) |
$ 36,055 - - - 31,117 $ 67,172 - - - 10,917 $ 78,089 - - 11,456 $ 89,545 |
$ 124,690 3,699 4,726 43 31,117 $ 164,275 553 5,490 280 10,917 $ 181,515 3,337 10,225 11,456 $ 206,533 |
|
| $ | |||||||
| $ $ |
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 September 30, 2021
(Tabular amounts 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 the Toronto Stock Exchange (“ TSX ”) under the symbol “KNT” and quoted on the OTCQX 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, 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 as issued by the International Accounting Standards Board (IFRS) 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 are presented in United States (“U.S.”) dollars. Financial information for the Company and each of its subsidiaries is measured using its functional currency, being the currency of the primary economic environment in which the entity operates. Effective January 1, 2021, the functional currency for K92 Mining Inc, the parent entity and K92 Mining (Australia) Pty Ltd. changed from Canadian and Australian dollars respectively to the U.S. dollar as a result of the integration of the activities of these entities with that of the Company’s U.S. dollar functional currency operating subsidiary K92 Mining Limited. The change in functional currency was accounted for on a prospective basis, with no impact of this change on prior year comparative information.
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, 2020. 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, 2020.
The significant accounting policy judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty are substantially the same as those that management applied in the consolidated financial statements for the year ended December 31, 2020.
COVID-19 Estimation Uncertainty
In March 2020, the World Health Organization declared a global pandemic related to COVID-19. In response, the Company implemented a comprehensive COVID-19 Management Plan, which addresses issues including occupational health, hygiene and safety, business continuity, travel, supply chain, statutory compliance, communications, testing, risk assessment and contingency planning.
6
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts 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 Kainantu Gold Mine has continued to operate through the pandemic; however, COVID-19 has had a significant impact on site operations resulting in decreased production and an increase in costs.
4. RECEIVABLES
| As at | September 30, 2021 |
December 31, 2020 |
|---|---|---|
| Trade receivables GST receivable Other Total |
$ 12,833 2,118 22 $ 14,973 |
$ 24,920 1,088 48 $ 26,056 |
5. INVENTORIES
| As at | September 30, 2021 |
December 31, 2020 |
|---|---|---|
| Mine supplies, consumables and fuel Ore stockpile Gold concentrate Total |
$ 15,582 2,744 3,856 $ 22,182 |
$ 11,477 5,965 3,563 $ 21,005 |
During the nine months ended September 30, 2021, the cost of inventory recognized as an expense in cost of sales amounted to $62.0 million (2020 - $49.5 million).
7
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| As at | September 30, 2021 |
December 31, 2020 |
|---|---|---|
| Trade payables Other accounts payable and trade related accruals Employee accruals Landowners’ compensation accrual Total |
$ 5,605 3,701 4,577 6,514 $ 20,397 |
$ 7,832 5,651 4,713 5,045 $ 23,241 |
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 the 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 September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
7. PROPERTY, PLANT AND EQUIPMENT
| Mineral Properties |
Plant and Equipment |
Mobile Fleet and Vehicles |
Right-of-Use Assets |
Construction in Progress (Expansion)1 |
Construction in Progress (Expansion)1 |
Total | |
|---|---|---|---|---|---|---|---|
| Cost Balance, December 31, 2019 Additions Reclamation and closure cost – change in estimate Transfers from construction in progress Balance, December 31, 2020 Additions Reclamation and closure cost – change in estimate Transfers from construction in progress Balance, September 30, 2021 |
$ 53,171 7,209 397 1,236 62,013 9,646 (268) - $ 71,391 |
$ 11,566 3,287 - 13,958 28,811 2,306 - 2,562 $ 33,679 |
$ 14,628 - - 13,401 28,029 - - 2,782 $ 30,811 |
$ 1,953 2,200 - - 4,153 - - - $ 4,153 |
$ | 10,391 20,019 - (28,595) 1,815 16,885 - (5,344) 13,356 |
$ 91,709 32,715 397 - 124,821 28,837 (268) - $ 153,390 |
| $ | |||||||
| Accumulated depreciation Balance, December 31, 2019 Depreciation for the year Balance, December 31, 2020 Depreciation for the period Balance, September 30, 2021 |
$ 6,370 4,573 10,943 1,694 $ 12,637 |
$ 2,128 1,666 3,794 1,547 $ 5,341 |
$ 4,420 5,548 9,968 5,655 $ 15,623 |
$ 707 857 1,564 767 $ 2,331 |
$ | - - - - - |
$ 13,625 12,644 26,269 9,663 $ 35,932 |
| $ | |||||||
| Carrying amounts As at December 31, 2020 As at September 30,2021 |
$ 51,070 $ 58,754 |
$ 25,017 $ 28,338 |
$ 18,061 $ 15,188 |
$ 2,589 $ 1,822 |
$ $ | 1,815 13,356 |
$ 98,552 $ 117,458 |
1 Construction in Progress at September 30, 2021 consists of $11.5 million in twin incline expansion costs and $1.9 million in other expansion costs (2020 - $1.8 million in twin incline expansion costs).
9
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
7. PROPERTY, PLANT AND EQUIPMENT (cont’d…)
Mining Lease 150 (“ML 150”)
The Company holds the mining rights to ML 150 until June 13, 2024.
8. 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 over 2 years, bearing interest at 10% + 3-month LIBOR per annum. For the nine months ended September 30, 2021, the Company recorded interest on the Loan of $0.1 million to interest and finance expenses.
The loan was designated a financial liability at amortized cost and recorded net of transaction costs. Transaction costs were 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 Company settled the Loan on February 3, 2021 and has no continuing obligations under the Loan agreement.
| September | 30, | December 31, | |||
|---|---|---|---|---|---|
| Loan | 2021 | 2020 | |||
| Loan, beginning of year | $ | 4,894 |
$ | 13,284 |
|
| Principal payments | (5,000) | (8,571) | |||
| Amortization of transaction costs | 106 | 181 | |||
| Balance, end of period | $ | - | $ | 4,894 |
|
| Loan, current portion | $ | - | $ | 4,894 |
|
| Loan, non-current portion | $ | - | $ | - |
9. 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.
| September 30, 2021 December 31, 2020 |
|
|---|---|
| Balance, beginning of year Change in estimate Accretion Balance, end ofperiod |
$ 3,040 $ 2,452 (268) 397 143 191 |
| $2,915 $ 3,040 |
10
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
9. 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 7.07% (December 31, 2020 – 6.26%).
Annually, 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 $6.4 million, with first expenditures anticipated in 2030. 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.
10. LEASE LIABILITIES
The Company leases many assets including mining equipment and buildings. The assets associated with the lease liabilities are included as Right-of-Use assets within property, plant and equipment (Note 7). During the nine months ended September 30, 2021, the Company incurred $0.2 million (2020 - $0.2 million) related to interest and finance expenses on the lease liabilities.
The following table summarizes the Company’s lease activity and the carrying amounts of the lease liabilities at the present value of the remaining lease payments that are recognized in the statement of financial position:
| Lease Liabilities | September 30, | December 31, | ||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Lease liabilities, beginning of year | $ | 2,545 |
$ | 1,161 |
| Additions | - | 2,200 | ||
| Payments | (1,090) | (1,003) | ||
| Interest expense | 175 | 227 | ||
| Adjustment on currency translation | 3 | (40) | ||
| Balance, end of period | $ | 1,633 |
$ | 2,545 |
| Lease liabilities, current portion | $ | 1,220 |
$ | 1,235 |
| Lease liabilities, non-current portion | $ | 413 |
$ | 1,310 |
The Company’s undiscounted lease liabilities at September 30, 2021 are summarized as follows:
| Within 1 Year | 2-3 Years | Total | ||||
|---|---|---|---|---|---|---|
| Future lease payments | $ | 1,333 |
$ | 429 | $ | 1,762 |
| Future finance charges | (113) | (16) | (129) | |||
| Totaldiscountedleaseliabilities | $ | 1,220 | $ | 413 | $ | 1,633 |
11
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
11. DERIVATIVE INSTRUMENTS
The Company entered into zero-cost collar contracts during the period whereby it purchases gold put option contracts and sells gold call option contracts with equal and offsetting values at the inception of each contract.
The details of the open commodity contracts as at September 30, 2021 were as follows:
| Quantity | Strike Price | Settlement Term2 | Settlement Date | |
|---|---|---|---|---|
| Contracts Outstanding | (ounces) | ($/ounce) | ||
| Gold call contracts – sold | 5,142 | $1,878 | October 2021 | January 5, 2022 |
| Gold put contracts – purchased | 5,142 | $1,678 | October 2021 | January 5, 2022 |
| Gold call contracts – sold | 4,515 | $1,902 | November 2021 | January 31, 2022 |
| Gold put contracts – purchased | 4,515 | $1,700 | November 2021 | January 31, 2022 |
| Gold call contracts – sold | 5,716 | $1,881 | December 2021 | February 28, 2022 |
| Gold put contracts – purchased | 5,716 | $1,685 | December 2021 | February 28, 2022 |
| Gold call contracts – sold | 5,380 | $1,850 | January 2022 | March 31, 2022 |
| Gold put contracts–purchased | 5,380 | $1,658 | January 2022 | March 31, 2022 |
The realized and unrealized gains (losses) on the commodity contracts were as follows:
| Three months | Three months | Nine months | Nine months | |||
|---|---|---|---|---|---|---|
| ended | ended | ended | ended | |||
| September 30, | September 30, | September 30, | September 30, | |||
| For the | 2021 | 2020 | 2021 | 2020 | ||
| Realized gains | $ | (102) $ |
- |
$ 661 | $ | - |
| Unrealized (losses) gains | (135) | - | 509 | - | ||
| Total | $ | (237) $ | - | $1,170 | $ | - |
The fair value of the commodity contracts are presented on the statement of financial position as follows:
| September 30, | December 31, | |||
|---|---|---|---|---|
| As at | 2021 | 2020 | ||
| Derivative assets | $ | 449 |
$ | - |
| Derivative liabilities | $ | (220) |
$ | (280) |
Fair value for derivative financial instruments are determined using valuation techniques, using assumptions based on market conditions existing at the statement of financial position date.
2 The gold call and put contracts will be settled based on the monthly average of the London Bullion Market Association’s PM fixing price.
12
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
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 September 30, 2021, the Company had 222,426,497 common shares issued and outstanding.
Share issuances
Except on the exercise of share options, no shares were issued during the nine months ended September 30, 2021 (December 31, 2020 – Nil).
Stock options
Stock option transactions are summarized as follows:
| Number Weighted Average ExercisePrice (CAD) |
Number Weighted Average ExercisePrice (CAD) |
|
|---|---|---|
| Outstanding, December 31, 2019 Granted Exercised Forfeited Outstanding, December 31, 2020 Granted Exercised Forfeited Outstanding, September 30, 2021 |
15,960,100 6,604,000 (6,170,410) (407,800) 15,985,890 2,420,000 (3,211,400) (628,700) 14,565,790 |
$ 1.01 5.64 0.92 2.50 $ 2.91 8.02 1.29 3.75 $ 4.08 |
| Numbercurrently exercisable | 11,913,290 | $ 3.33 |
The following incentive stock options were outstanding at September 30, 2021:
| 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 5.00 – 9.99 |
2,240,000 4,286,750 245,000 1,644,240 110,200 6,039,600 14,565,790 |
2,240,000 0.73 1.40 4,286,750 1.55 2.03 245,000 2.17 3.14 1,644,240 3.85 3.34 110,200 4.00 3.73 3,387,100 7.27 4.22 11,913,290 4.08 3.02 |
13
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts 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
The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for riskfree interest rates, dividend yields, expected volatility, 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.
During the nine months ended September 30, 2021, the Company granted 2,420,000 stock options (2020 – 3,154,000). The following presents the weighted average assumptions used in the valuation of stock options:
| September 30, 2021 | December 31, 2020 | |
|---|---|---|
| Weighted average exercise price (CAD$) | $ 8.02 | $ 5.64 |
| Weighted average fair value (CAD$) | $ 3.88 | $ 2.80 |
| Risk-free interest rate | 0.93% | 0.70% |
| Expected life of options | 4.0 years | 4.0 years |
| Annualized volatility | 63.45% | 66.13% |
| Dividend rate | 0.00% | 0.00% |
| Forfeiturerate | 1.26% | 1.26% |
The weighted average share price at the time of exercise for the nine months ended September 30, 2021 was CAD$8.16 (2020 – CAD$6.33).
During the nine months ended September 30, 2021, the Company recorded total stock-based compensation expense of $10.2 million (2020 – $4.7 million) including the amounts allocated to inventory during the period.
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 judgment 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 quoted 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 levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and recognized at fair value were categorized as follows:
| As at September 30, 2021 |
As at September 30, 2021 |
December 31, 2020 | December 31, 2020 |
|---|---|---|---|
| Level 1 | Level 2 | Level 1 | Level 2 |
| Trade receivables (Note 4) $ - $ 12,833 Derivative assets (Note 11) - 449 Derivative liabilities (Note 11) - (220) $ - $13,062 |
$ - - - $- |
$ 24,920 - (280) |
|
$24,640 |
14
K92 MINING INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont’d…)
The fair value of the Company’s trade receivables, derivative assets and derivative liabilities were determined using observable market prices and market-derived inputs. There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2021.
As at September 30, 2021 and December 31, 2020, the carrying amounts of cash and cash equivalents, receivables, and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.
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. 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 operating and development of gold mining activities at the Kainantu Project in Papua New Guinea. The Corporate & Other segment includes the Company’s head office function in Canada.
| Kainantu | Corporate | |||||
|---|---|---|---|---|---|---|
| Nine months ended September 30, 2021 | Project | & Other | Total | |||
| Net income (loss) | $ | 18,445 | $ | (6,989) |
$ | 11,456 |
| Capital expenditures | $ | 28,837 | $ | - |
$ | 28,837 |
| Three months ended September 30, 2021 | ||||||
| Net income (loss) | $ | 7,464 | $ | (2,599) |
$ | 4,865 |
| Capital expenditures | $ | 9,257 | $ | - |
$ | 9,257 |
| As at September 30, 2021 | ||||||
| Property, plant and equipment | $ | 116,280 | $ | 1,178 |
$ | 117,458 |
| Total assets | $ | 189,852 | $ | 41,846 |
$ | 231,698 |
| Total liabilities | $ | 24,328 | $ | 837 |
$ | 25,165 |
15
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
14. SEGMENTED INFORMATION (cont’d…)
| Kainantu | Corporate | |||||
|---|---|---|---|---|---|---|
| Nine months ended September 30, 2020 | Project | & Other | Total | |||
| Net income (loss) | $ | 39,425 | $ | (8,308) |
$ | 31,117 |
| Capital expenditures | $ | 21,451 | $ | - |
$ | 21,451 |
| Three months ended September 30, 2020 | ||||||
| Net income (loss) | $ | 12,087 | $ | (2,716) |
$ | 9,371 |
| Capital expenditures | $ | 6,494 | $ | - |
$ | 6,494 |
| As at December 31, 2020 | ||||||
| Property, plant and equipment | $ | 97,258 | $ | 1,294 |
$ | 98,552 |
| Total assets | $ | 168,427 | $ | 47,088 |
$ | 215,515 |
| Total liabilities | $ | 28,193 | $ | 5,807 | $ | 34,000 |
15. REVENUE
| For the | Three months ended September 30, 2021 |
Three months ended September 30, 2020 |
Nine months ended September 30, 2021 |
Nine months ended September 30, 2020 |
|---|---|---|---|---|
| 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 |
$ 37,004 2,992 229 (1,388) 38,837 (3,467) $ 35,370 |
$ 34,973 1,021 20 (1,035) 34,979 626 $ 35,605 |
$ 108,192 7,035 320 (3,701) |
$ 107,419 2,335 73 (3,209) |
111,846 (11,445) |
106,618 4,477 $ 111,095 |
|||
$ 100,401 |
16
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts in thousands of United States Dollars, except share and per share amounts, unless otherwise noted)
16. COST OF SALES
| For the Three months ended September 30, 2021 Three months ended September 30, 2020 |
For the Three months ended September 30, 2021 Three months ended September 30, 2020 |
Nine months ended September 30, 2021 Nine months ended September 30, 2020 |
Nine months ended September 30, 2021 Nine months ended September 30, 2020 |
|---|---|---|---|
| Direct mining and milling $ 3,720 $ Maintenance 2,356 Other site costs 6,059 Net smelter royalties 800 Change in inventories 2,366 15,301 Non-cash costs Depreciation and depletion 3,352 Share-based payments 1,479 Total $ 20,132 $ |
4,586 3,482 7,028 920 (2,835) 13,181 2,702 - 15,883 |
$ 13,964 $ 8,531 19,338 2,666 2,928 47,427 9,363 5,197 $ 61,987 $ |
13,905 10,334 17,126 2,396 (3,175) |
40,586 8,891 - 49,477 |
17. GENERAL AND ADMINISTRATIVE
| For the Three months ended September 30, 2021 Three months ended September 30, 2020 Nine months ended September 30, 2021 |
Nine months ended September 30, 2020 |
|---|---|
| Management, consulting and wages $ 632 $ 521 $ 2,239 Professional fees 85 379 209 Office, filing and administrative 84 50 353 Recovery of accrued expenditures - - - Travel 33 5 74 Investor relations 152 91 403 Depreciation 25 25 77 Total $ 1,011 $ 1,071 $ 3,355 |
$ 1,394 633 196 (518) 93 265 77 $ 2,140 |
17
K92 MINING INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021
(Tabular amounts 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 September 30, 2021 |
For the Three months ended September 30, 2021 |
Three months ended September 30, 2020 Nine months ended September 30, 2021 |
Nine months ended September 30, 2020 |
|---|---|---|---|
| Interest and amortization of transaction costs on loan $ Other interest and finance expense Accretion of reclamation and closure cost obligations Total $ |
- 262 47 309 |
$ 249 $ 147 232 685 48 143 $ 529 $ 975 |
$ 966 550 144 $ 1,660 |
18