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Meridian Mining — Audit Report / Information 2019
Apr 30, 2020
47387_rns_2020-04-29_1504eae0-9f66-4b6b-bb8d-db860da670d3.pdf
Audit Report / Information
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MERIDIAN
MERIDIAN MINING SE
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018
KPMG
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, ON M5H 2S5
Canada
Tel 416-777-8500
Fax 416-777-8818
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Meridian Mining S.E.
Opinion
We have audited the consolidated financial statements of Meridian Mining S.E. (the Entity), which comprise:
- the consolidated statements of financial position as at December 31, 2019 and December 31, 2018
- the consolidated statements of loss and other comprehensive loss for the years then ended
- the consolidated statements of changes in shareholders' equity for the years then ended
- the consolidated statements of cash flows for the years then ended
- and notes to the consolidated financial statements, including a summary of significant accounting policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2019 and December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1 in the financial statements, which indicates that the Entity has incurred losses for the year ended December 31, 2019 of $17,346,659 (2018 - $11,091,042) and as at December 31, 2019 has a working capital deficiency of $25,157,358 (December 31, 2018 - $607,366). The Entity's continuation as a going concern is dependent on its ability to successfully fund its planned activities through operations and/or obtaining additional financing and there is no assurance that adequate financing will be available to meet their planned activities.
As stated in Note 1 to the financial statements, these events or conditions, along with other matters as set forth in Note 1 in the financial statements, indicate that a material uncertainty exists that casts significant doubt on the Entity's ability to continue as a going concern.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP.
KPMG
Our opinion is not modified in respect of this matter.
Other Information
Management is responsible for the other information. Other information comprises:
- the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.
KPMG
We also:
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
-
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
-
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
-
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
-
Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
-
Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
-
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors' report is Daniel Ricica.
Toronto, Canada
April 29, 2020
MERIDIAN MINING SE
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in United States dollars)
| As at December 31, 2019 | As at December 31, 2018 | |
|---|---|---|
| ASSETS | ||
| Current | ||
| Cash | $ 530,322 | $ 201,712 |
| Accounts receivable (Note 4) | 822,246 | 910,626 |
| Prepaid expenses and other assets (Note 5) | 180,439 | 564,619 |
| Inventory (Note 6) | 249,917 | 123,182 |
| 1,782,924 | 1,800,139 | |
| Prepaid expenses and other assets (Note 5) | 122,073 | 790,398 |
| Property, plant and equipment (Note 7) | 455,065 | 9,349,318 |
| Exploration and evaluation assets (Note 8) | 7,700,032 | 7,977,937 |
| Goodwill (Note 9) | - | 932,350 |
| Total assets | $ 10,060,094 | $ 20,850,142 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Current | ||
| Accounts payable and accrued liabilities (Note 10) | $ 1,431,830 | $ 1,703,704 |
| Provisions (Note 11) | 722,353 | 703,801 |
| Loans payable (Note 12) | 24,786,099 | - |
| 26,940,282 | 2,407,505 | |
| Provisions (Note 11) | 189,375 | 189,521 |
| Loans payable (Note 12) | - | 17,712,401 |
| Derivative Liability (Note 13) | - | 30,090 |
| 27,110,657 | 20,339,517 | |
| Equity (Deficit) | ||
| Share capital (Note 13) | 1,775,220 | 1,775,220 |
| Share premium (Note 13) | 58,493,031 | 58,493,031 |
| Reserves (Note 13) | (9,459,919) | (9,226,390) |
| Deficit | (67,877,895) | (50,531,236) |
| Total equity (Deficit) | (17,069,563) | 510,625 |
| Total liabilities and equity | $ 10,060,094 | $ 20,850,142 |
Nature of business and going concern (Note 1)
Commitments and contingencies (Note 21)
Subsequent events (Note 22)
On behalf of the Board on April 29, 2020:
"Charles Riopel" Director "Gilbert Clark" Director
The accompanying notes are an integral part of these consolidated financial statements.
Page | 2
MERIDIAN MINING SE
CONSOLIDATED STATEMENTS OF LOSS AND OTHER COMPREHENSIVE LOSS
(Expressed in United States dollars)
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Revenues | $ 6,262,477 | $ 10,222,287 |
| Cost of sales (Note 15) | (7,493,996) | (11,201,923) |
| (1,231,519) | (979,636) | |
| Operating expenses | ||
| Disposition and impairment of exploration licenses (Note 8) | - | 5,536,182 |
| Exploration and evaluation expenses (Note 16) | 1,144,819 | 1,220,697 |
| General and administration expenses (Note 17) | 1,855,222 | 2,313,002 |
| Community relations | 179,127 | 322,490 |
| Professional fees | 374,543 | 553,727 |
| Share-based payments (Note 13) | 447,890 | - |
| Write-off of tax credits (Note 5) | 946,172 | - |
| Re-commissioning and standby costs | 445,166 | 126,759 |
| Impairment of property, plant and equipment (Note 9) | 8,021,426 | - |
| Impairment of goodwill (Note 9) | 918,344 | - |
| Total operating expenses | (14,332,709) | (10,072,857) |
| Loss from operations | (15,564,228) | (11,052,493) |
| Finance items | ||
| Mark-to-market revaluation of warrants (Note 13) | 30,090 | 1,960,707 |
| Finance income | 25,370 | 5,465 |
| Finance expense (Note 12) | (1,952,870) | (1,483,004) |
| Foreign exchange | 133,979 | (521,717) |
| Total finance expenses | (1,763,431) | (38,549) |
| Loss for the year before taxes | (17,327,659) | (11,091,042) |
| Income tax expense (Note 18) | (19,000) | - |
| Loss for the year | (17,346,659) | (11,091,042) |
| Other comprehensive loss | ||
| Items that may be reclassified to loss | ||
| Foreign currency translation | (681,419) | (3,239,593) |
| Other comprehensive loss, net of taxes | $ (18,028,078) | $ (14,330,635) |
| Basic and diluted loss per common share | $ (0.11) | $ (0.09) |
| Weighted average number of basic and diluted shares outstanding | 163,822,421 | 163,822,421 |
The accompanying notes are an integral part of these consolidated financial statements.
MERIDIAN MINING SE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Loss for the year | $ (17,346,659) | $ (11,091,042) |
| Items not affecting cash: | ||
| Income tax expense | 19,000 | - |
| Accrued finance expense | 1,823,698 | 1,382,930 |
| Depreciation | 915,137 | 1,022,155 |
| Mark-to-market revaluation of warrants | (30,090) | (1,960,707) |
| Gain on sale of property, plant and equipment | - | (6,295) |
| Disposition and impairment of exploration licenses | - | 5,536,182 |
| Share-based payments | 447,890 | - |
| Write-off of tax credits | 946,172 | - |
| Impairment of property, plant and equipment (Note 9) | 8,021,426 | - |
| Impairment of goodwill (Note 9) | 918,344 | - |
| Provisions | 49,516 | (136,666) |
| Unrealized foreign exchange | (320,592) | 415,076 |
| Changes in non-cash working capital items: | ||
| Accounts receivable | 108,052 | (506,331) |
| Prepaid expenses and other assets | 401,795 | 968,740 |
| Inventory | (170,835) | 712,448 |
| Accounts payable and accrued liabilities | (221,271) | (804,574) |
| Tax credits | (277,847) | (134,184) |
| Net cash used in operating activities | (4,716,264) | (4,602,268) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Acquisition of exploration and evaluation assets | (10,296) | - |
| Proceeds from sale of property, plant and equipment | - | 6,295 |
| Additions to property, plant and equipment | (192,374) | (160,275) |
| Net cash used in investing activities | (202,670) | (153,980) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Loan proceeds | 5,250,000 | 3,500,000 |
| Net cash provided by financing activities | 5,250,000 | 3,500,000 |
| Effect of foreign exchange on cash | (2,456) | (135,627) |
| Net change in cash | 328,610 | (1,391,875) |
| Cash, beginning of the year | 201,712 | 1,593,587 |
| Cash, end of the year | $ 530,322 | $ 201,712 |
The accompanying notes are an integral part of these consolidated financial statements.
MERIDIAN MINING SE
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Expressed in United States dollars)
| Share Capital | Reserves | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Shares | Share Capital | Share Premium | Reserves | Share based payments | Warrant reserve | Accumulated other comprehensive loss | Deficit | Total Equity | |
| Balance, December 31, 2017 | 163,822,421 | $ 1,775,220 | $ 58,493,031 | $ 462,185 | $ 1,641,992 | $ 13,447 | $ (8,104,421) | $ (39,440,194) | $ 14,841,260 |
| Comprehensive loss for the year | – | – | – | – | – | – | (3,239,593) | (11,091,042) | (14,330,635) |
| Balance, December 31, 2018 | 163,822,421 | 1,775,220 | 58,493,031 | 462,185 | 1,641,992 | 13,447 | (11,344,014) | (50,531,236) | 510,625 |
| Issuance of stock options | – | – | – | – | 447,890 | – | – | – | 447,890 |
| Comprehensive loss for the year | – | – | – | – | – | – | (681,419) | (17,346,659) | (18,028,078) |
| Balance, December 31, 2019 | 163,822,421 | $ 1,775,220 | $ 58,493,031 | $ 462,185 | $ 2,089,882 | $ 13,447 | $ (12,025,433) | $ (67,877,895) | $ (17,069,563) |
The accompanying notes are an integral part of these consolidated financial statements.
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
1. NATURE OF BUSINESS AND GOING CONCERN
Meridian Mining SE (the “Company” or “Meridian”) was formed in Amsterdam, Netherlands on December 16, 2013. The Company’s shares are listed on the TSX Venture Exchange (“TSX-V”) under the symbol MNO. The Company is currently engaged in the exploration, development and exploitation of mineral deposits in Brazil, through its subsidiary, Meridian Mineração Jaburi S.A. (“Jaburi”). The Company’s head office is located at 6th Floor, 65 Gresham Street, London, SW1E 5RS, United Kingdom.
During 2019, the Company put the Espigão d’Oeste Manganese operation in Rondônia, Brazil, on temporary care and maintenance (“C&M”), due to the continued depressed world manganese ore prices and refocused on the advancement of the exploration on the Espigão polymetallic and Mirante da Serra manganese exploration projects.
Going Concern
These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future. The Company incurred a loss of $17,346,659 during the year ended December 31, 2019 (2018 $11,091,042). The Company has a working capital deficiency of $25,157,358 at December 31, 2019 (2018 $607,366).
The Company has historically relied upon capital contributions and debt facilities provided by its shareholders, to maintain an adequate level of cash to satisfy its capital and operating requirements and expects to continue to depend heavily upon its majority shareholder for financing. The Company does not have any other sources of funding.
To continue as a going concern, the Company must generate sufficient operating cash flows to fund its capital and operating requirements or secure new funding. The ability of the Company to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions and exploration success and on the willingness and ability of its majority shareholder to continue providing financing. There can be no assurance that these initiatives will be successful, or sufficient financing, including financing from its majority shareholder, will be available. These material uncertainties cast significant doubt as to the ability of the Company to meet its business plan and obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.
These financial statements do not include adjustments to the recoverability and classifications of recorded assets and liabilities and related expenses that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
The recoverability of the amounts shown for mineral properties is dependent on the existence and economic extraction of resources, the capacity to obtain financing to complete the development of such resources, the ability to obtain the necessary licenses and permits and meet the Company’s obligations under various agreements, stability or increases in future commodity prices, and the success of future operations or dispositions of the mineral properties.
On March 11, 2020, the World Health Organization (WHO) officially declared COVID-19 a pandemic, as a result, governments worldwide, including the Canadian, Brazilian and UK governments, enacted extraordinary acts and measures to limit spread of the virus. These measures included effective social distancing through a combination of national and local quarantines, implementation of travel bans and self-imposed quarantine periods. In this scenario an economic slowdown is expected globally. Governments and central banks have reacted with significant monetary and fiscal policy responses to stabilize economic conditions but the success of these interventions is not currently determinable since large-scale quarantines, travel restrictions, and social-distancing measures drive a sharp fall in consumer and business spending, producing a recession. The current challenging economic situation may lead to adverse changes in cash flows, working capital levels and/or debt balances, which may also have a direct impact on the Company’s operating results and financial position in the future. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are uncertain at this moment.
Page | 6
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance and basis of presentation
These consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).
Basis of presentation
The consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments classified as financial instruments at fair value through profit or loss, which are stated at fair value. The financial statements of the Company are presented in United States dollars, which is the functional currency of the Company.
The preparation of these financial statements required management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities and revenues and expenses of the Company’s subsidiaries. Subsidiaries are all entities controlled by the Company. Control exists when the Company is exposed, or has rights, to variable returns from its involvement with an investee and has the ability to affect those returns through its power over the investee. Subsidiaries are included in the consolidated financial statements from the date control is obtained until the date control ceases. All intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains and losses have been eliminated on consolidation.
These consolidated financial statements include the following 100% held entities as December 31, 2019 and December 31, 2018:
| Name of subsidiary: | Jurisdiction of Incorporation | Functional Currency |
|---|---|---|
| Ferrometals BV (i) | Netherlands | USD |
| Ferrometals Management Services Canada Inc | Canada | USD |
| Ferrometals Serviços do Brasil Ltda | Brazil | BRL |
| Meridian Mineração Jaburi S.A. | Brazil | BRL |
| Cancana Resources Corp (“Cancana”). | Canada | CAD |
(i) During the year ended December 31, 2019 the Company was dissolved (effective date as December 30, 2019)
Accounting policies of subsidiaries are updated where necessary to ensure consistency with the policies adopted by the consolidated group. Acquisitions of subsidiaries under common control before and after the transaction are recorded at historical carrying value. Subsidiaries under common control are consolidated from the date of acquisition by the ultimate controlling entity.
Foreign currency translation
The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The presentation currency of these consolidated financial statements is the United States dollar, which is also the functional currency of the Company.
Transactions in foreign currencies are translated to the functional currency of the entity at the exchange rate in existence at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the period end date exchange rates.
Page | 7
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
The results and financial position of entities in the group that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- Assets and liabilities, including goodwill, for each statement of financial position presented are translated at the closing rate of the period reported;
- Income and expenses for each statement of loss and comprehensive loss presented are translated at average exchange rates for the period; and
- All resulting exchange differences are recognized in accumulated other comprehensive loss which is included in the reserves on the consolidated statement of financial position.
Revenue recognition
Revenue is recognized when a customer obtains control of the promised asset and the Company satisfies its performance obligation. Revenue is allocated to each performance obligation. The Company considers the terms of the contract in determining the transaction price. The transaction price is based upon the amount the Company expects to be entitled to in exchange for the transferring of promised goods. The Company earns revenue from customers related to the sale of manganese ore.
Control is achieved when a product is delivered to the customer, we have a present right to payment for the product, significant risks and rewards of ownership have transferred to the customer according to contract terms and there is no unfulfilled obligation that could affect the customer's acceptance of the product. In general, control over manganese ore from export sales is transferred to the customer and revenue is recognized when the material is assayed and loaded at the Brazilian port and for local sales, control over the manganese ore is transferred when the ore is loaded onto trucks at the stockpile warehouse.
Production costs
Production costs consists of costs of conversion including the costs of extraction, conversion, direct labor and production overheads included in the measurement of inventory sold during the period. Period costs, such as standby and re-commissioning costs, are not allocated to inventory but charged directly to operating expenses.
Goodwill
Business acquisitions are accounted for using the acquisition method whereby acquired assets and liabilities are recorded at fair value as of the date of acquisition with the excess of the acquisition amount over such fair value being recorded as goodwill and allocated to cash generating units ("CGU") that are expected to benefit from the synergies of the combination.. CGUs are the smallest identifiable group of assets, liabilities and associated goodwill that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The Company evaluates, on at least an annual basis, the carrying amount of a CGU to which goodwill is allocated, for potential impairment.
Financial instruments
Financial assets
The Company classifies its financial assets in the following categories: at fair value through profit and loss ("FVTPL"), at fair value through other comprehensive income (FVTOCl"), or at amortized cost. The determination of the classification of financial assets is made at initial recognition.
The Company's accounting policy for each of the categories is as follows:
Financial assets at FVTPL: Financial assets carried at FVTPL are initially recorded at fair value and transaction costs
Page | 8
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
are expensed in the statement of (loss) income. Realized and unrealized gains and losses arising from changes in the fair value of financial assets held at FVTPL are included in the statement of (loss) income in the period.
Financial assets at FVTOCI: Financial assets carried at FVTOCI are recorded at fair value and transaction costs are expensed in the statement (loss) income. Realized and unrealized gains and losses arising from changes in fair value of the financial assets held at FVTOCI are included in other comprehensive (loss) income in the period.
Financial assets at amortized cost: A financial asset is measured at amortized cost if the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and the asset’s contractual cash flows are comprised solely of payments of principal and interest. They are classified as current assets or non-current assets based on their maturity date and are initially recognized at fair value and subsequently carried at amortized cost less any impairment.
Impairment of financial assets at amortized cost: The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.
The following table shows the classification of the Company’s financial assets:
| Financial asset | Classification |
|---|---|
| Cash | Amortized cost |
| Accounts receivable | Amortized cost |
Financial liabilities
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. The Company's accounting policy for each category is as follows:
Fair value through profit or loss – This category comprises derivatives or liabilities acquired or incurred principally for the purpose of selling or repurchasing in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of loss and other comprehensive loss.
Amortized Cost - This category includes accounts payable and accrued liabilities, provisions and loans payable, all of which are recognized at amortized cost using the effective interest method.
Transaction costs in respect of financial instruments at fair value through profit or loss are recognized in the statement of operations and comprehensive loss immediately, while transaction costs associated with all other financial instruments are included in the initial measurement of the financial instrument.
The following table shows the classification of the Company’s financial liabilities:
| Financial liability | Classification |
|---|---|
| Accounts payable and accrued liabilities | Amortized cost |
| Loans payable | Amortized cost |
| Derivative liability | FVTPL |
Exploration and evaluation assets
Pre-exploration costs are expensed as incurred. Costs directly related to the acquisition of exploration and evaluation assets are capitalized provided that the legal rights to explore the mineral properties are acquired or obtained. Exploration and evaluation expenditures are expensed as incurred. When the technical feasibility and commercial viability of a mineral resource have been demonstrated and a development decision by the board has been made, the capitalized costs of the related property are transferred to mining development costs and any subsequent expenditures are capitalized as mine development costs.
Page | 9
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
The amounts shown for mineral properties do not necessarily represent present or future values. Their recoverability is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof.
The carrying values of capitalized amounts are reviewed when indicators of impairment are present. If it is determined that capitalized exploration and evaluation costs are not recoverable, or the property is abandoned or management has determined an impairment in value, the property is written down to its recoverable amount.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, labor and other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs.
Property, plant and equipment, other than mine assets not related to future environmental provisions, is depreciated on a straight-line basis. Mine assets, are depreciated on a units of production basis, using management's best estimates of resources related to the specific mine asset.
| Vehicles | 5 years |
|---|---|
| Machinery and Equipment | 10 years |
| Office furniture, communication and computer equipment | 10 years |
| Buildings | 10 years |
| Mine Assets | Units of Production |
Depreciation commences when the asset is available for its intended use. The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposals are determined by comparing proceeds with carrying amounts.
Impairment of long-lived assets
Goodwill is tested annually for impairment. Additionally, at the end of each reporting period the Company's assets are reviewed to determine whether there is any indication that the carrying values of the assets may not be recoverable. If such an indication of impairment exists, an impairment loss is calculated as the amount by which the carrying amount of the CGU exceeds its recoverable amount. The recoverable amount is the higher of its fair value less costs of disposal, or, value in use (the discounted presented value of future cash flows). For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separate identifiable cash flows (cash generating units). Any prior impairment loss (excluding impairment losses related to goodwill) would be reversed in future periods if the conditions that gave rise to the original impairment no longer apply. The impairment reversal would be limited to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined net of depreciation had no impairment loss been recognized for the asset in prior years.
Provisions
Provisions for legal claims and constructive obligations are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as finance expense.
Page | 10
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
Environmental provisions
Mining, processing, development and exploration activities are subject to various laws and regulations governing the protection of the environment. An environmental provision is recognized in the period when a legal or constructive obligation originates. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability where the impact of discounting is material. A corresponding increase to the carrying value of the related property is recorded and depreciated on the same basis as the related asset. The majority of the restoration and rehabilitation activities of the Company include the restoration and re-vegetation of extraction areas; as extraction sites are short-term in nature, these related costs are allocated to inventory in the period recognized. Where appropriate, the provision is accreted over time to its expected future settlement value.
Environmental provisions are reviewed at every reporting period. The liability is adjusted for changes in estimates in costs and timing of work to be performed. Changes in the discount rate and inflation rates are recognized each reporting period, with the changes recognized as additions to or reductions from the liability and a corresponding addition to or reduction from property, plant and equipment or profit and loss where the changes relate to closed mine sites. Changes in estimates of environmental provisions also include changes due to movement in the exchange rates. Any reduction to the asset may not exceed the carrying value of that asset.
Share-based payments
The Company accounts for stock options granted to directors, officers, employees and non-employees at fair value. The fair value of the options at the date of the grant is determined using the Black-Scholes option pricing model and share-based compensation is accrued and charged to operations, with an offsetting credit to share-based payment reserve, over the vesting periods using a graded vesting model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.
When the stock options are exercised, the applicable amounts of equity reserves are transferred to share capital.
Current and deferred income taxes
Income tax expense comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity. Current tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is recorded for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for relating to goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable loss, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered the deferred tax asset is not set up.
New and revised standards and interpretations
The accounting policies applied in preparation of these consolidated financial statements are consistent with those applied and disclosed in the Company's audited consolidated financial statements for the year ended December 31, 2018, except for the following:
Page | 11
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
IFRIC 23 – Uncertainty over Income Tax Treatments
On January 1, 2019, the Company adopted IFRIC 23 – Uncertainty over Income Tax Treatments (IFRIC 23). IFRIC 23 is to be applied when there is uncertainty over income tax treatment under IAS 12. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
IFRS 16 - Leases
On January 1, 2019, the Company adopted IFRS 16 – Leases (“IFRS 16”) which replaced IAS 17 – Leases and IFRIC 4 – Determining Whether an Arrangement Contains a Lease.
The Company applied IFRS 16 using the modified retrospective method. Under this method, financial information will not be restated and will continue to be reported under the accounting standards in effect for those periods. The lease liabilities will be measured at the present value of the remaining lease payments, discounted using the Company’s estimated incremental borrowing rate as at January 1, 2019, the date of initial application, resulting in no adjustment to the opening balance of deficit. The associated right-of-use assets will be measured at the lease liabilities amount, plus prepaid lease payments made by the Company. The Company has implemented the following accounting policies permitted under the new standard:
- leases of low dollar value will continue to be expensed as incurred;
- the Company will not apply any grandfathering practical expedients;
- the Company will maintain lease agreements under same conditions for short-term leases.
On initial adoption as at January 1, 2019 and as at December 31, 2019, the Company did not recognize any right-of-use assets as it only had short-term leases that would not be captured under IFRS 16.
- SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
The preparation of these consolidated financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Certain estimates, such as those related to the recoverability of property, plant and equipment, and exploration and evaluation assets, deferred tax assets and liabilities, depreciation and remaining useful life of assets, and disclosure of contingencies depend on subjective or complex judgments about matters that may be uncertain. Changes in those estimates could materially impact these consolidated financial statements.
Material sources of estimation uncertainty include:
Estimated Mineral Production
The Company’s mine assets are depleted and amortized on a units of production basis, using the expected amount of future production. The Company does not have a National Instrument 43-101 compliant resource estimate and accordingly uses expected forecasts based on available geological and technical data as a basis for the expected amount of production. Changes to these estimates, which can be significant, could be caused by a variety of factors, including future production differing from current forecasts, development of mineral resources or factors that impact the expected life of the mining operation.
Page | 12
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
Deferred taxes
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets.
The Company’s operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with tax authorities in various jurisdictions and resolution of disputes arising from tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues based on its estimate of whether, and the extent to which, additional taxes will be due. The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the tax liabilities. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If the estimate of tax liabilities proves to be greater than the ultimate assessment, a tax benefit would result.
Impairment of property, plant and equipment, and goodwill
The Company considers both external and internal sources of information in assessing whether there are any indications that its cash generating unit (“CGU”) including property, plant and equipment, and goodwill is impaired. External sources of information the Company considers include changes in the market, and the economic and legal environment in which the Company operates and affect the recoverable amount of mining interests and goodwill. Internal sources of information the Company considers include the manner in which mining properties, plant, and equipment are being used or are expected to be used and indications of economic performance of the assets.
In determining the recoverable amounts of the Company’s property, plant and equipment, and goodwill, the Company makes estimates of the discounted future after-tax cash flows expected to be derived from the Company’s mining properties, costs to sell the assets and the appropriate discount rate. The projected cash flows are significantly affected by changes in assumptions related to future metal prices, changes in the amount of future production, and exploration potential, production cost estimates, future capital expenditures, discount rates and exchange rates.
Access to estimated future production and exploration potential of the Company’s property, plant and equipment is a key assumption in determining their recoverable amounts. The ability to maintain existing or obtain necessary mining concessions, surface rights title, and water concessions is integral to the access of the production areas and exploration potential.
If the Company determines there has been an impairment because its prior estimates of discounted future cash flows have proven to be inaccurate, due to reductions in manganese prices or demand, increases in the costs of production, reductions in the amounts of production, or other factors, the Company would be required to write-down the recorded value of its property, plant and equipment or goodwill in profit and loss.
Share based compensation and mark-to-market revaluation of warrants
The Company utilizes the Black-Scholes Option Pricing Model (“Black-Scholes”) to estimate the fair value of stock options granted to directors, officers, employees, and consultants and for the mark-to-market revaluation of share purchase warrants. The use of Black-Scholes requires management to make various estimates and assumptions that impact the value assigned to the stock options including the forecast future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options. Any changes in these assumptions could have a material impact on the share-based compensation calculation value, however the most significant estimate is the volatility. Expected future volatility can be difficult to estimate as the Company has had limited history and historical volatility is not necessarily indicative of future volatility.
Page | 13
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
Critical management judgments:
Mineral Production, depreciation and depletion
The Company’s mine assets are depleted and amortized on a units of production basis, using the expected amount of future production. Changes to these estimates, which can be significant, could be caused by a variety of factors, including future production differing from current forecasts, expansion of mineral resources through exploration activities, difference between estimated and actual cost of mining and other factors impacting production or the expected life of mine assets. The Company does not have a National Instrument 43-101 compliant resource estimate and accordingly uses expected forecasts based on available geological and technical data as a basis for the expected amount of production.
Recoverability of exploration and evaluation assets
The Company capitalizes the acquisition costs related to its exploration and evaluation assets. This policy requires management to make certain estimates and assumptions as to future events and circumstances. Any such estimates and assumptions may change as new information becomes available. If, after having capitalized the costs, a judgment is made that recovery of the costs is unlikely, the relevant capitalized amount will be written off to profit and loss.
The recoverability of amounts shown for exploration and evaluation assets is dependent on the existence of economically recoverable reserves, the ability to obtain financing to complete the development of such reserves and meet obligations under various agreements, and the success of future operations or dispositions. If a project does not prove viable, all unrecoverable costs associated with the project net of any related existing impairment provisions are written off.
4. ACCOUNTS RECEIVABLE
During 2019, the Company entered into sales agreements with local and international customers. Subsequent to year end one international customer renegotiated payment terms after delivery, such that the balance is now due in 2020.
5. PREPAID EXPENSES AND OTHER ASSETS
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Current: | ||
| Tax credits | $ 69,325 | $ 364,484 |
| Prepaid expenses and advances | 111,114 | 200,135 |
| Total | $ 180,439 | $ 564,619 |
| Non-current: | ||
| Tax credits | $ 122,073 | $ 790,398 |
| Total | $ 302,512 | $ 1,355,017 |
The Company is required to pay certain taxes in Brazil that are based on purchases of consumables and property, plant and equipment. These taxes are recoverable from the Brazilian tax authorities through various methods, including as a cash refund or as a credit against current taxes payable. During the year the Company put the plant into care and maintenance and as such, the recovery and timing of such recovery of tax credits is uncertain, therefore the Company wrote-off tax credits of $946,172.
Page | 14
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
6. INVENTORY
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Stockpiled ore | $ 235,698 | $ 108,443 |
| Consumables and stores | 14,219 | 14,739 |
| Total | $ 249,917 | $ 123,182 |
During the year ended December 31, 2019, $4,667,694 (December 31, 2018 - $6,029,481) of costs were expensed that were directly attributable to the costs incurred during the production of inventory. Inventory impairment recorded as at December 31, 2019 was $65,178 (2018 - $nil). The inventory was written down by to the net realizable value by comparing the average production cost per tonne with the expected sales price less costs to sell.
7. PROPERTY, PLANT AND EQUIPMENT
| Cost: | Mine assets | Land and buildings | Vehicles, machinery and equipment | Plant | Office furniture and other | Assets under construction | Total |
|---|---|---|---|---|---|---|---|
| Balance, December 31, 2017 | $ 8,000,647 | $ 747,788 | $ 2,590,213 | $ - | $ 268,251 | $ 3,833,202 | $ 15,440,101 |
| Additions | 1,911 | - | 4,737 | - | 63,587 | 90,040 | 160,275 |
| Disposals | - | - | - | - | (132,164) | - | (132,164) |
| Transfers | - | 28,167 | - | 3,581,406 | - | (3,609,573) | - |
| Transfer tax credits | - | - | - | - | - | (370,360) | (370,360) |
| Currency adjustment | (1,170,412) | (111,205) | (379,193) | (605,660) | (34,804) | 95,840 | (2,205,434) |
| Balance, December 30, 2018 | 6,832,146 | 664,750 | 2,215,757 | 2,975,746 | 164,870 | 39,149 | 12,892,418 |
| Additions | 6,669 | - | 9,510 | - | 30,270 | 145,925 | 192,374 |
| Transfers | - | - | 160,353 | - | - | (160,353) | - |
| Impairment (Note 9) | (6,736,112) | (558,944) | (1,088,100) | (2,931,014) | - | (24,132) | (11,338,302) |
| Currency adjustment | (102,703) | (11,958) | (59,242) | (44,732) | (6,431) | (589) | (225,655) |
| Balance, December 31, 2019 | $ - | $ 93,848 | $ 1,238,278 | $ - | $ 188,709 | $ - | $ 1,520,835 |
1) At December 31, 2019, Land and building consists principally of land
| Accumulated depreciation: | Mine assets | Land and buildings | Vehicles, machinery and equipment | Plant | Office furniture and other | Assets under construction | Total |
|---|---|---|---|---|---|---|---|
| Balance, December 31, 2017 | $ (1,653,125) | $ (180,128) | $ (1,183,115) | $ - | $ (158,692) | $ - | $ (3,175,060) |
| Additions | (325,779) | (53,856) | (270,746) | (291,123) | (80,651) | - | (1,022,155) |
| Disposals | 132,164 | - | 132,164 | ||||
| Currency adjustment | 262,862 | 29,828 | 190,554 | 18,822 | 19,885 | - | 521,951 |
| Balance, December 30, 2018 | (1,716,042) | (204,156) | (1,263,307) | (272,301) | (87,294) | - | (3,543,100) |
| Additions | (285,247) | (50,391) | (238,688) | (293,101) | (47,710) | - | (915,137) |
| Impairment (Note 9) | 1,975,493 | 251,478 | 528,596 | 561,309 | 3,316,876 | ||
| Currency adjustment | 25,796 | 3,069 | 38,578 | 4,093 | 4,055 | - | 75,591 |
| Balance, December 31, 2019 | $ - | $ - | $ (934,821) | $ - | $ (130,949) | $ - | $ (1,065,770) |
| Net book value: | Mine assets | Land and buildings | Vehicles, machinery and equipment | Plant | Office furniture and other | Assets under construction | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| December 30, 2018 | $ 5,116,104 | $ 460,594 | $ 952,450 | $ 2,703,445 | $ 77,576 | $ 39,149 | $ 9,349,318 |
| December 31, 2019 | $ - | $ 93,848 | $ 303,457 | $ - | $ 57,760 | $ - | $ 455,065 |
Page | 15
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
8. EXPLORATION AND EVALUATION ASSETS
Summary of exploration and evaluation assets:
| Balance as at January 1, 2018 | $ 15,375,386 |
|---|---|
| Impaired – Bom Futuro Project | (133,438) |
| Disposals – Exploration licenses | (5,402,744) |
| Foreign currency adjustment | (1,861,267) |
| Balance as at December 31, 2018 | 7,977,937 |
| Option payment – Mirante da Serra | 10,296 |
| Foreign currency adjustment | (288,201) |
| Balance as at December 31, 2019 | $ 7,700,032 |
Title to mineral property interests
Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral claims. Title to mineral properties is also subject to the laws and regulations in Brazil, which can be subject to change and may impact the Company's title to its mineral properties. Jaburi has investigated title to all of its mineral properties and, to the best of its knowledge, title to all of its interests are in good standing. However, this should not be construed as a guarantee of title. The concessions may be subject to prior claims, agreements or transfers and rights of ownership may be affected by undetected defects.
Jaburi Claims
Prior to 2016, the Company acquired 100% interest in certain exploration claims via a combination of business acquisitions, asset acquisitions and staking. The claims are contiguous to the Company's manganese mine assets in Rondônia, Brazil.
Disposal of exploration licenses
In December 2018 the Company abandoned two exploration licenses due to unfavourable exploration results. The licenses were part of the Cancana acquisition and all related acquisition costs, totalling $5,402,744, were written off.
Mirante da Serra, Rondônia
On July 24, 2019 the Company entered into an option agreement to acquire a 100-per-cent interest in the Mirante da Serra manganese project, in Rondônia, Brazil. Following a sequential process related to project and administrative milestone achievements, the Company may at its election, acquire the project for a cumulative consideration of 1,140,000 Brazilian real (approximately $300,000 (U.S.)). The Company is required to make staged payments as follows:
- 40,000 Brazilian reals upon signing (paid – $10,296);
- 75,000 Brazilian reals upon approval of the final report by the Brazilian National Mining Agency (“ANM”) and title transfer to Meridian;
- 125,000 Brazilian reals on the Meridian board of directors' approval of a positive PEA (Plano de Aproveitamento Econômico (“PAE”) or Economic Mining Plan);
- 150,000 Brazilian reals following the ANM (Agência Nacional de Mineração) approval of PAE;
- 250,000 Brazilian real one-year anniversary of ANM approval;
- 500,000 Brazilian reals upon grant and publication of a valid mining licence (Lavra);
Page | 16
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
The project is subject to a 0.5% NSR, which the Company may purchase back for one million Brazilian real.
Bom Futuro - Property Option Agreement
During the year ended December 31, 2016 the Company’s subsidiary, Jaburi, entered into a Definitive Investment Agreement (the “Investment Agreement”) with Cooperativa de Garimpeiros de Santa Cruz Ltda, (“Coopersanta”) and Cooperativa Metalúrgica de Rondônia Ltda, (“Coopermetal”) (together the “Cooperatives”), whereby Jaburi could earn an interest in up to three components of the Cooperatives tin operation.
Disposal of acquisition costs – Bom Futuro Project
During the year ended December 31, 2018 the Company wrote off the capitalized acquisition costs of $133,438 due to a delay in development on the project.
9. GOODWILL AND IMPAIRMENT
Goodwill was acquired pursuant to the acquisition of Jaburi. Management has allocated goodwill to its manganese operations which is considered a single CGU.
| Balance as at January 1, 2018 | $ 1,092,098 |
|---|---|
| Foreign currency adjustment | (159,748) |
| Balance as at December 31, 2018 | 932,350 |
| Foreign currency adjustment | (14,006) |
| Impairment adjustment | (918,344) |
| Balance as at December 31, 2019 | $ - |
For the purposes of assessing impairment, the Company’s assets are grouped and reviewed for impairment at the CGU level. In accordance with its accounting policy, the Company reviews and tests the carrying amounts of goodwill each year and when an indicator is considered to exist.
As a result of decreasing manganese prices during 2019, the Company’s manganese operation was operating at a significant loss culminating in the Company putting the plant into care and maintenance during December 2019.
During the fourth quarter of 2019, the carrying value of the net assets in its manganese operation CGU were written down to its net realizable value. The manganese operation CGU included the goodwill acquired pursuant to the acquisition of Jaburi and the Company’s property, plant and equipment (note 7).
The impairment test was performed effective December 31, 2019, and used the Fair Value Less Costs of Disposal (“FVLCD”) methodology. Specifically, the net asset value (“NAV”) of the Manganese Operation CGU was determined. As the operation was in care and maintenance with no forecasted operations there were no operating cash inflows and therefore the value in use (“VIU”) approximated the fair value less cost of disposal. The operating assets recoverable amount, FVLCD, was assessed at the individual asset level, with certain assets having a recoverable amount.
The impairment test concluded that based on the current manganese prices it is unlikely that it will restart the mine and as a result the recoverable amount of the manganese operation CGU was lower than the carrying value as at December 31, 2019. As a result, the Company recorded an impairment charge of $8,939,770 in the Statement of Loss, including the write-down of goodwill of $918,344 and plant and equipment of $8,021,426.
Page | 17
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Trade payables | $ 697,019 | $ 1,114,435 |
| Payroll liabilities | 454,375 | 530,653 |
| Taxes and fees payable | 245,872 | 58,616 |
| Other liabilities | 34,564 | - |
| Total | $ 1,431,830 | $ 1,703,704 |
11. PROVISIONS
| Environmental provision (i) | Other provisions (ii) | Total | |
|---|---|---|---|
| Balance, January 1, 2018 | $ 640,390 | $ 558,255 | $ 1,198,645 |
| Spent during the year | (31,884) | - | (31,884) |
| Accretion | 17,984 | - | 17,984 |
| Accrued during the year | 19,127 | - | 19,127 |
| Change in estimate | - | (134,879) | (134,879) |
| Foreign currency adjustment | (94,012) | (81,659) | (175,671) |
| Balance, December 31, 2018 | 551,605 | 341,717 | 893,322 |
| Spent during the year | (47,290) | - | (47,290) |
| Accretion | 15,078 | - | 15,078 |
| Accrued during the year | 36,582 | 45,608 | 82,190 |
| Foreign currency adjustment | (19,529) | (12,043) | (31,572) |
| Balance, December 31, 2019 | $ 536,446 | $ 375,282 | $ 911,728 |
| Represented by: | |||
| Long-term portion | $ 189,375 | $ - | $ 189,375 |
| Current portion | $ 347,071 | $ 375,282 | $ 722,353 |
(i) Environmental provision
Pursuant to Jaburi's operations in Brazil, the Company is required to rehabilitate its plant and colluvial mining sites, as well as remove all plant and equipment. A provision has been recognized for the requirements to rehabilitate these sites environmentally and decommission the plant and equipment. Environmental liabilities required to rehabilitate sites are considered short term in nature and is included in production costs in the period recognized. Long term environmental liabilities related to decommissioning the plants are recorded at the present value of the estimated costs, assuming risk-free discount rates of $6.5\%$ (2018 - 7.25%) and are expected to be incurred in 2022.
(ii) Other provisions
Various legal and regulatory matters are outstanding from time to time due to the nature of the Company's operations. In the event that management's estimate of the future resolution of these matters changes, the Company will recognize the effects of the changes in its consolidated financial statements on the date such charges occur. As at December 31, 2019, the Company has recognized a provision of $375,282 (2018 -$ 341,717) representing management's best estimates of expenditures required to settlement present obligations. The ultimate outcome or actual cost of settlement may vary materially from management estimates due to the inherent uncertainty regarding the Company's estimates.
Page | 18
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
12. LOANS PAYABLES
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Balance, beginning of year | $ 17,712,401 | $ 12,829,471 |
| Borrowings ((v), (vi)) | 5,250,000 | 3,500,000 |
| Interest expense | 1,823,698 | 1,382,930 |
| Balance, end of year | $ 24,786,099 | $ 17,712,401 |
| Represented by: | ||
| Current | $ 24,786,099 | $ - |
| Non-current | - | 17,712,401 |
| Total | $ 24,786,099 | $ 17,712,401 |
(i) In October 2016, the Company entered into a non-arm’s length loan agreement with Sentient Global Resources Fund IV LP for $7,000,000, available in tranches, which was amended and increased to $7,500,000 in August 2017, and to $8,500,000 in December 2017. The loan bears interest at a rate of 10% per annum and is for a term of 1.5 years. On December 31, 2018 the Company negotiated an extension of the maturity date to March 31, 2020.
(ii) In October 2017, the Company entered into a $1,000,000 non-arm’s length unsecured short-term loan facility with The Sentient Group Limited. The loan bears interest at 10% per annum. On September 30, 2018 the Company negotiated an extension of the maturity date to March 31, 2020.
(iii) In December 2017, the Company entered into a non-arm’s length loan agreement with Sentient Global Resources Fund IV LP for $1,500,000. The loan bears interest at a rate of 10% per annum. On September 30, 2018 the Company negotiated an extension of the maturity date to March 31, 2020.
(iv) In 2016, prior to the closing of the share exchange the outstanding loan balance of $1,000,000 which Cancana had borrowed from Ferrometals BV was restructured such that Sentient Global Resources Fund IV LP became the counterparty of the loan facility. The interest rate was amended to 10% effective January 1, 2017. On September 30, 2018 the Company negotiated an extension of the maturity date to March 31, 2020.
(v) In June 2018, the Company entered into a $2,000,000 unsecured loan facility with Sentient Global Resources Fund IV LP. The loan bears interest at 10% per annum and was due to mature on September 30, 2019 but was subsequently extended to March 31, 2020.
(vi) In August 2018, the Company entered into a $1,500,000 unsecured loan facility with Sentient Global Resources Fund IV LP. The Company entered into agreements to increase the facility from $1,500,000 to $3,000,000 on January 24, 2019, from $3,000,000 to $4,500,000 on April 18, 2019 from $4,500,000 to $5,200,000 on August 28, 2019 and from $5,200,000 to $6,750,000 on December 4, 2019. The loan bears interest at 10% per annum and is due on March 31, 2020.
Subsequent to year end the Company has negotiated a stand-still and conversion agreements with Sentient Global Resources Fund IV LP and The Sentient Group Limited. Please refer to note 23.
13. SHAREHOLDERS’ EQUITY
Authorized Capital
As at December 31, 2019 the Company had authorized capital of €5,000,000 and is authorized to issue 500,000,000 common shares with a par value of €0.01.
Issued Capital
The Company has 163,822,421 (2018 - 163,822,421) issued and fully paid shares.
Page | 19
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
Share capital
Share capital comprises the amount subscribed for at the par value.
Share premium
Share premium comprises the amount subscribed for share capital in excess of par value.
Shares issued
The Company did not complete any share transactions during the year ended December 31, 2019 or during the year ended December 31, 2018.
Reserves - Stock options and warrants
Stock option and share purchase warrant transactions are summarized as follows:
| Warrants | Stock Options | |||||
|---|---|---|---|---|---|---|
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||
| Outstanding December 31, 2017 | 12,794,500 | CAD$ | 0.65 | 8,456,116 | CAD$ | 0.44 |
| Expired / cancelled | - | - | (7,406,116) | 0.44 | ||
| Outstanding December 31, 2018 | 12,794,500 | 0.65 | 1,050,000 | 0.44 | ||
| Expired / cancelled | (12,794,500) | - | (30,000) | 0.44 | ||
| Granted | - | - | 15,200,000 | 0.07 | ||
| Outstanding December 31, 2019 | - | CAD$ | - | 16,220,000 | CAD$ | 0.094 |
| Number currently exercisable | - | CAD$ | - | 16,220,000 | CAD$ | 0.094 |
As at December 31, 2019 the following incentive stock options were outstanding:
| Number of Shares | Exercise Price (CAD) | Expiry Date | Remaining Contractual Life (years) | |
|---|---|---|---|---|
| Stock options | 1,050,000 | $ 0.44 | May 17, 2022 | 2,38 |
| 15,170,000 | 0.07 | October 22, 2024 | 4,81 |
The Company has a stock option plan under which it is authorized to grant options to directors, employees and consultants to acquire up to 10% of the issued and outstanding common shares. The exercise price of each option is based on the market price of the Company's shares for a period preceding the date of grant. The options can be granted for a maximum term of 10 years and vest as determined by the board of directors.
During the year ended December 31, 2019, the Company granted 15,200,000 (December 31, 2018 – nil) options that vested immediately with a weighted-average fair value of CAD$0.03 per option to directors, employees and consultants. Total share-based payments recognized in the statement of operations for the year ended December 31, 2019 was $447,890 (December 31, 2018 – $nil) for incentive options granted and vested.
Page | 20
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
The following weighted average assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted during the year:
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Risk-free interest rate | 1.53% | - |
| Expected life of options | 5 years | - |
| Expected annualized volatility | 65.11% | - |
| Dividend yield | 0.0% | - |
| Forfeiture rate | 0.0% | - |
Warrants – Derivative Liability
The Company's warrants, which were attached to the units issued in the May 16, 2017, private placement were denominated in Canadian dollars and were classified and accounted for as a derivative liability at fair value with changes in fair value included in profit or loss. The Company issued 12,734,500 warrants and initially allocated $763,269 to the warrant derivative liability. During the period ended December 31, 2019 all warrants expired, resulting in a fair value of $nil as at December, 2019 and a derivative gain of $30,090 (2018 – gain of $1,960,707) from the mark-to-market of the warrant derivative liability.
14. RELATED PARTIES
a) Key management compensation
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Salaries, consulting and directors’ fees | $ 582,478 | $ 728,731 |
| Share-based compensation | 359,491 | - |
The Company had the following transactions with entities related by way of common directors and/or management:
a) Professional fees of $34,328 (2018 - $25,989) paid to Trustmoore (Netherlands) BV, a company which a director of a dissolved subsidiary is an employee of.
On October 2019, the Company granted 12,200,000 options with a weighted-average fair value of CAD$0.07 per option to directors.
As at December 31, 2019 the Company had the following balances due to/from entities related by way of common directors and/or management. These amounts, unless otherwise noted, were unsecured and non-interest bearing.
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Accounts payable and accrued liabilities | $ 44,479 | $ 56,392 |
| Prepaid expenses and other assets | - | 15,234 |
15. COST OF SALES
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Inventory costs | $ 4,667,694 | $ 6,029,481 |
| Royalties and taxes | 906,042 | 1,134,105 |
| Depreciation and depletion | 915,137 | 1,022,174 |
| Export costs and freight expenses | 1,005,123 | 3,016,163 |
| Total | $ 7,493,996 | $ 11,201,923 |
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MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
16. EXPLORATION AND EVALUATION EXPENSES
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Assays | $ 1,117 | $ 11,733 |
| Consulting – geological and other | 149,249 | 161,749 |
| Equipment and maintenance | 81,048 | 73,337 |
| Fees and licenses | 212,869 | 195,293 |
| Field expenditures and road construction | 34,270 | 24,824 |
| Other | 69,583 | 40,292 |
| Payroll | 503,969 | 616,793 |
| Professional fees | 2,473 | 187 |
| Room and boarding | 90,241 | 96,489 |
| Total | $ 1,144,819 | $ 1,220,697 |
17. GENERAL AND ADMINISTRATION EXPENSES
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Consulting | $ 169,512 | $ 166,157 |
| Investor relations and shareholder communication | 13,111 | 11,947 |
| Insurance | 127,377 | 137,009 |
| Management and director fees (Note 13) | 419,043 | 620,714 |
| Office and miscellaneous | 166,853 | 180,003 |
| Payroll | 527,734 | 621,005 |
| Rent | 74,024 | 157,900 |
| Subscriptions and licenses | 120,706 | 62,548 |
| Telephone and information technology | 114,813 | 241,941 |
| Travel | 95,929 | 170,910 |
| Other | 26,120 | (57,132) |
| Total | $ 1,855,222 | $ 2,313,002 |
18. INCOME TAXES
A reconciliation of income taxes (recovery) at statutory rates with the reported taxes for the years ended December 31, 2019 and 2018 is as follows:
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Loss before income taxes | $ (17,327,659) | $ (11,091,042) |
| Statutory tax rate: | 19% | 19% |
| Expected income tax (recovery) | (3,292,000) | (2,107,000) |
| Foreign tax rate differential | (2,247,000) | (1,253,000) |
| Statutory permanent differences | 545,000 | 1,544,000 |
| Losses and deductible temporary differences not recognized | 5,013,000 | 1,816,000 |
| Income tax (recovery), net | $ 19,000 | $ - |
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MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
The significant components of deferred tax assets and liabilities as at year-end are as follows:
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Exploration and evaluation assets | $ (563,000) | $ (583,000) |
| Property, plant and equipment and other | - | (1,399,000) |
| Loss carryforwards | 563,000 | 1,982,000 |
| Net deferred tax assets (liabilities) | $ - | $ - |
The significant components of the Company's deductible temporary differences, and unused tax losses that have not been recognized on the statement of financial position are as follows:
| December 31, 2019 | December 31, 2018 | |
|---|---|---|
| Temporary differences: | ||
| Environmental provision | $ 536,000 | $ 362,000 |
| Loss carry forwards | 27,077,000 | 26,085,000 |
| Provisions | 1,899,000 | - |
| Property, Plant & Equipment | 4,352,000 | - |
Loss carryforwards consist of Canadian tax losses of $5,240,000, which expire between 2027 and 2038, and Brazilian tax losses of $23,492,000, which have no expiry date. The ability of the Company to access unrecognized tax losses and other deductions in Canada has been restricted as a result of the 2016 acquisition of control of Cancana. Tax attributes are subject to review, and potential adjustment, by tax authorities.
19. CAPITAL MANAGEMENT
The capital structure of the Company consists of deficit attributable to common shareholders totaling $(17,069,563) (2018 - equity of $510,625), comprising of share capital of $1,775,220 (2018 - $1,775,220), share premium of $58,493,031 (2018 - $58,493,031), reserves of ($9,459,919) (2018 - ($9,226,390)), and deficit totaling $67,877,895 (2018 - ($50,531,236)). The Company's objectives when managing capital are to: (i) preserve capital, (ii) obtain the best available net return, and (iii) maintain liquidity.
The Company manages the capital structure and makes adjustments to it in light of changes in economic condition and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and investments.
The Company's policy is to invest its excess cash in highly liquid, fully guaranteed, bank sponsored instruments. The Company is not subject to externally imposed capital requirements and does not have exposure to asset-backed commercial paper or similar products.
20. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Financial instruments
The Company is required to disclose the fair value of each class of financial assets and liabilities in the financial statements. 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.
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MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
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 value of receivables and advances, accounts payable and accrued liabilities, and loan payable approximates fair value due to the short-term nature of the financial instruments. Cash is carried at its fair value using level 1 inputs.
Risk management
The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include, credit risk, currency risk, interest rate risk and liquidity risk. Where material, these risks are reviewed and monitored by the Board of Directors.
Credit risk
Financial instruments that potentially subject the Company to credit risk consist of cash and receivables. The Company deposits cash with high credit quality financial institutions as determined by rating agencies, Receivables and advances are mostly due from suppliers and contractors. Trade receivables are due from well-known customers, and the carrying amount of the financial assets represents the maximum credit exposure.
Currency risk
The international nature of the Company's operations results in foreign exchange risk. The Company's operating costs are primarily in US dollars, Canadian dollars, Brazilian reals and Euro, while revenues are received in either US dollars or Brazilian real. Hence, any fluctuation of the US dollar in relation to these currencies may affect the profitability of the Company and the value of the Company's assets and liabilities.
As at December 31, 2019 the Company is exposed to foreign exchange risk through the following financial assets and liabilities denominated in currencies other than the function currency of the applicable company:
| US dollar | Canadian dollar | Euro | |
|---|---|---|---|
| Cash | $ 486,743 | $ 34,973 | - |
| Accounts receivable | 16,469 | 1,423 | - |
| Total Assets | 503,212 | 36,396 | - |
| Accounts payable and accrued liabilities | (188,653) | (36,349) | (1,178) |
| Net Assets | $ 314,559 | $ 47 | (1,178) |
Based on the above net exposures as at December 31, 2019, a 10% appreciation in the US dollar against the Brazilian Real would not result in a significant impact to the Company's earnings before taxes. A 10% appreciation in the Canadian dollar against the US dollar would result in an approximate $2,000 decrease to the Company's earnings before income taxes. A 10% appreciation in the Euro against the US dollar would not result in a significant impact to the Company's earnings before income taxes.
The Company does not use derivative instruments to reduce its exposure to foreign currency risk nor has it entered into foreign exchange contracts to hedge against gains or losses from foreign exchange.
Page | 24
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
Interest rate risk
The Company’s financial assets exposed to interest rate risk consist of cash balances. None of the Company’s debt is subject to floating interest rates. The Company does not believe its interest rate risk is significant.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with its financial liabilities.
The Company has historically relied upon capital contributions and related party debt financing and maintaining an adequate level of cash to satisfy its capital requirements and will continue to depend heavily upon these financing activities. All of the Company’s accounts payable and accrued liabilities are subject to normal trade terms. The Company is exposed to risk that it will encounter difficulty in satisfying liabilities on maturity.
There can be no assurance the Company will be able to obtain required financing in the future on acceptable terms. The Company will need additional capital in the future to finance ongoing exploration of its properties, such capital is expected to be derived from the completion of equity financings. The Company has limited financial resources, has minimal source of operating income and has no assurance that additional funding will be available to it for future exploration and development of its projects, although the Company has been successful in the past in financing its activities through the previously mentioned financing activities.
The ability of the Company to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions and the willingness of its parent company to continue to lend as well as exploration success. In recent years, the securities markets have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that continual fluctuations in price will not occur. Any quoted market for the common shares may be subject to market trends generally, notwithstanding any potential success of the Company in creating revenue, cash flows or earnings.
The Company cannot estimate the extent of COVID-19 pandemic outbreak, subsequent to December 31, 2019, and its potential impact on the ability to obtain financing and maintain necessary liquidity.
As at December 31, 2019, the Company’s liabilities that have contractual maturities are as follows:
| December 31, 2019 | 1 Year | 2 Years | Total | |
|---|---|---|---|---|
| Accounts payable and accrued liabilities | $ 1,431,830 | - | $ - | $ 1,431,830 |
| Provisions | 722,353 | - | 189,375 | 911,728 |
| Loans Payable | 24,786,099 | - | - | 24,786,099 |
| $ 26,940,282 | - | $ 189,375 | $ 27,129,657 |
The fair value of the Company’s loans payable is approximated by the carrying values as the contractual interest rates are comparable to current market interest rates.
- SEGMENTED INFORMATION
The Company’s sole operation is the Jaburi mine in Rondônia, Brazil. Accordingly, the chief decision makers consider Meridian to currently have one segment and, therefore, segmented information is not presented.
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MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
22. COMMITMENTS AND CONTINGENCIES
A significant portion of the Company’s operations are located in Brazil. From time to time various legal, labour, environmental and tax matters are outstanding due to the nature of both current and historical operations. The Company has taken and continues to take all necessary and available steps to comply with relevant laws and regulations, however there is no assurance such steps will be successful.
Royalties
The Company pays royalties to landowners as well as the Brazilian government. Royalties to landowners are determined based on individual negotiated agreements, usually at a rate of 1.5% of net sales proceeds on the sale of manganese oxide material, while royalties of approximately 3% of sale proceeds on the sale of manganese oxide material are paid to the Brazilian government,
Buffer Zone
The Company has been advised that due to certain Jaburi tenements being in close proximity to indigenous title land, Jaburi could be affected by a civil public action between two Brazilian government departments.
Jaburi currently owns several tenements, which border the Povo Cinta Larga indigenous land. Due to illegal diamond mining activities by third parties within the Povo Cinta Larga indigenous land and surrounding areas, the Brazilian Federal Prosecutor’s Office (the “FPO”) has filed a civil public action against the ANM. The FPO is requesting the ANM to withdraw all existent research applications and mining authorizations within the indigenous land of Povo Cinta Larga and surrounding area adjacent to the indigenous land (buffer zone). The ANM has filed appeals to block the FPO civil public action and the final ruling is pending.
If there is an eventual imposition of a buffer zone, this would have a material impact on Jaburi’s tenements as some of Jaburi’s tenements straddle or are wholly within the proposed buffer zone.
Jaburi has retained legal counsel to represent them in this issue who are filing various legal actions to defend their interests. At this point in time, management has determined it is more likely than not that there will be no amount owing, and therefore no liability has been accrued.
23. SUBSEQUENT EVENTS
- On April 27, 2020, the Company executed the definitive agreements with the Company’s debt holders Sentient Global Resource Fund IV L.P. (“SGRFIV”), Sentient Executive GP IV Limited (“SEGPIV”), collectively with SGRFIV (“Sentient”), as follows:
Debt Conversion Agreement between Meridian and Sentient
- $10,500,000 (CAD $14,896,350) will be converted to common shares at a share price of CAD $2.50, subject to the following terms:
- Company will need to complete an Equity Raise of CAD $2,500,000 at a subscription price of not less than CAD $0.05 per share;
- Equity Raise is required to close by July 30, 2020 (“Closing Date”)
- SGRFIV will not dispose any of the shares subscribed under this agreement for a period of 12 months from the Equity Raise Closing Date, subject to certain exceptions
- In the event the Company completes a sale transaction within three years for an aggregate amount of at least $50,000,000, Sentient is entitled to a cash payment of up to $17,500,000, subject to reduction in certain situations including the sale of shares by Sentient.
Page | 26
MERIDIAN MINING SE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
Consolidated Facility Agreement between Meridian and Sentient
- Consolidation of $10,343,397 (CAD $14,674,177), including principal and interest, into a Consolidated Facility Agreement with a maturity date at March 31, 2022 at 0% interest.
- The Company has the option to convert the outstanding amount into common shares of the Company at a fixed conversion price of CAD $2.50 per share at any time:
- the Company has raised in excess of CAD $7,093,500 of equity proceeds since the Closing Date defined in the Debt Conversion Agreement mentioned above; or
- the second anniversary of the date of execution of the Debt Conversion Agreement listed above
- The Consolidated Facility Agreement will be secured against certain inter-company loans between Meridian and its subsidiary Jaburi and all the shares of Jaburi.
Royalty Purchase and Debt Settlement Agreement and Net Smelter Royalty Agreement between Cancana and Sentient
- Conversion of $3,166,027 (CAD $4,491,643) loan into a 2% net smelter returns royalty (“Royalty”) over the following projects:
- 2% on Espigão polymetallic;
- 2% Mirante da Serra manganese;
- 2% Ariquemes tin; and
- 100% of the royalty on each project can be bought back for $2,000,000 for each project or $6,000,000 for all 3 projects.
- Certain conditions and restrictions apply to be followed by Jaburi and Cancana regarding the title maintenance and assignment of the projects contemplated in the Royalty Agreement
The issuance of the common shares, the Debt Conversion Agreement, Consolidated Facility Agreement and Royalty agreements are subject to the approval of the TSX Venture Exchange.
- On April 28, 2020, the Company executed the debt restructure agreement with The Sentient Group (“TSG”), as follows:
- $1,249,863 (CAD $1,773,181) will be converted to common shares at the same subscription price of the Equity Raise described below. The conversion is subject to the following terms:
- Company will need to complete an Equity Raise of CAD $2,500,000 at a subscription price of not less than CAD $0.05 per share;
- Equity Raise is required to close by July 30, 2020
- Common shares issued will have restricted trading options.
The issuance of the common shares is subject to the approval of the TSX Venture Exchange.
Page | 27