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Meridian Mining — Interim / Quarterly Report 2022
May 27, 2022
47387_rns_2022-05-26_616c9653-4477-46a9-b8d2-414618d8fe8f.pdf
Interim / Quarterly Report
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MERIDIAN
MINING
MERIDIAN MINING UK SOCIETAS
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
FOR THE THREE MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
MERIDIAN MINING UK Societas
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Expressed in United States dollars)
(Unaudited)
| As at March 31, 2022 | As at December 31, 2021 | |
|---|---|---|
| ASSETS | ||
| Current | ||
| Cash | $ 7,488,732 | $ 9,059,798 |
| Prepaid expenses and other assets | 237,505 | 321,755 |
| 7,726,237 | 9,381,553 | |
| Property, plant and equipment (Note 4) | 905,670 | 748,063 |
| Exploration and evaluation assets (Note 5) | 7,071,364 | 6,057,012 |
| Total assets | $ 15,703,271 | $ 16,186,628 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Current | ||
| Accounts payable and accrued liabilities (Note 6) | $ 1,092,421 | $ 912,953 |
| Provisions (Note 8) | 379,190 | 410,218 |
| Taxes and fees payable (Note 7) | 863,525 | 843,806 |
| 2,335,136 | 2,166,977 | |
| Provisions (Note 8) | 85,601 | 98,860 |
| Taxes and fees payable (Note 7) | 96,383 | 95,652 |
| Warrant Liability (Note 9) | 12,429,735 | 17,540,791 |
| 14,946,855 | 19,902,280 | |
| Equity (Deficit) | ||
| Share capital (Note 9) | 1,905,665 | 1,814,863 |
| Share premium (Note 9) | 41,716,162 | 39,553,231 |
| Reserves (Note 9) | 69,134,953 | 68,908,478 |
| Deficit | (112,000,364) | (113,992,224) |
| Total Equity (Deficit) | 756,416 | (3,715,652) |
| Total liabilities and equity | $ 15,703,271 | $ 16,186,628 |
Nature of business and going concern (Note 1)
Subsequent events (Note 16)
On behalf of the Board on May 26, 2022:
"Charles Riopel" Director "Adrian McArthur" Director
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 2
MERIDIAN MINING UK Societas
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME (LOSS) AND OTHER COMPREHENSIVE INCOME (LOSS)
(Expressed in United States dollars)
(Unaudited)
| Three months ended March 31, | ||
|---|---|---|
| 2022 | 2021 | |
| Operating expenses | ||
| Exploration and evaluation expenses (Note 11) | 1,016,066 | 429,594 |
| General and administration expenses (Note 12) | 653,543 | 388,233 |
| Professional fees | 163,790 | 65,545 |
| Share-based payments (Note 9) | 80,934 | 600,824 |
| Care and maintenance expenses | 14,480 | 31,702 |
| Depreciation | 27,866 | 8,707 |
| Total operating expenses | (1,956,679) | (1,524,605) |
| Loss from operations | (1,956,679) | (1,524,605) |
| Finance items | ||
| Mark-to-market revaluation of warrants (Note 9) | 3,863,166 | (5,785,708) |
| Finance income | 7,385 | - |
| Finance expense | (28,364) | (4,728) |
| Foreign exchange gain (loss) | 106,352 | (3,345) |
| Total finance income (expenses) | 3,948,539 | (5,793,781) |
| Income (loss) for the period | 1,991,860 | (7,318,386) |
| Other comprehensive income (loss) | ||
| Items that may be reclassified to income (loss) | ||
| Foreign currency translation | 929,457 | (482,937) |
| Other comprehensive income (loss), net of taxes | $ 2,921,317 | $ (7,801,323) |
| Basic income (loss) per common share (Note 9) | $ 0.01 | $ (0.07) |
| Diluted income (loss) per common share (Note 9) | $ (0.01) | $ (0.07) |
| Weighted average number of basic shares outstanding | 158,231,367 | 106,291,243 |
| Weighted average number of diluted shares outstanding | 183,653,553 | 106,291,243 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 3
MERIDIAN MINING UK Societas
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Expressed in United States dollars)
(Unaudited)
| Three months ended March 31, | ||
|---|---|---|
| 2022 | 2021 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Income (loss) | $ 1,991,860 | $ (7,318,386) |
| Items not affecting cash: | ||
| Finance expenses | 28,364 | 2,260 |
| Depreciation | 27,866 | 8,707 |
| Mark-to-market revaluation of warrants (Note 9) | (3,863,166) | 5,785,708 |
| Share based payments (Note 9) | 80,934 | 600,824 |
| Foreign exchange gain (loss) | 892 | 3,345 |
| Interest paid | (3,571) | - |
| Changes in non-cash working capital items: | ||
| Prepaid expenses and other assets | (72,941) | (53,832) |
| Accounts payable and accrued liabilities | 89,221 | 10,930 |
| Provisions | (128,025) | (41,455) |
| Taxes and fees payable | (14,633) | - |
| Net cash used in operating activities | (1,863,199) | (1,001,899) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Additions to property, plant and equipment | (55,042) | - |
| Net cash provided by (used in) investing activities | (55,042) | - |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Proceeds from exercise of warrants | 183,162 | 635,021 |
| Proceeds from the exercise of agent’s compensation options and agent’s compensation options warrants | 38,764 | 63,759 |
| Net cash provided by financing activities | 221,926 | 698,780 |
| Effect of foreign exchange on cash | 125,249 | 41,028 |
| Net change in cash | (1,571,066) | (262,091) |
| Cash, beginning of the period | 9,059,798 | 4,516,136 |
| Cash, end of the period | $ 7,488,732 | $ 4,254,045 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 4
MERIDIAN MINING UK Societas
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Expressed in United States dollars)
(Unaudited)
| Share Capital | Reserves | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Share Capital | Share Premium | Reserves | Share based payments | Warrant reserve | Other reserves | Accumulated other comprehensive loss | Deficit | Total Equity | |
| Balance, January 1, 2021 | 103,788,425 | 1,184,781 | 12,021,458 | 462,185 | 2,118,521 | 159,449 | 77,273,171 | (13,585,402) | (76,410,144) | 3,224,019 |
| Share-based payments | - | - | - | - | 600,824 | - | - | - | - | 600,824 |
| Exercise of warrants | 7,284,000 | 87,836 | 1,931,772 | - | - | - | - | - | - | 2,019,608 |
| Exercise of agent's compensation options | 1,042,237 | 12,369 | 110,673 | - | - | (59,283) | - | - | - | 63,759 |
| Comprehensive loss for the period | - | - | - | - | - | - | - | (482,937) | (7,318,386) | (7,801,323) |
| Balance, March 31, 2021 | 112,114,662 | $1,284,986 | $14,063,903 | $462,185 | $2,719,345 | $100,166 | $77,273,171 | $(14,068,339) | $(83,728,530) | $(1,893,113) |
| Balance, January 1, 2022 | 157,110,457 | 1,814,863 | 39,553,231 | 462,185 | 5,138,025 | 56,322 | 77,273,171 | (14,021,225) | (113,992,224) | (3,715,652) |
| Debt restructuring transactions, conversion of debt (Note 9) | 5,869,670 | 64,852 | 706,997 | - | - | - | (771,849) | - | - | - |
| Issuance of stock options | - | - | - | - | 80,934 | - | - | - | - | 80,934 |
| Warrant Exercise | 1,948,273 | 21,653 | 1,409,400 | - | - | - | - | - | - | 1,431,053 |
| Compensation option exercise | 77,600 | 867 | 23,416 | - | - | (12,067) | - | - | - | 12,216 |
| Compensation option warrant exercise | 301,100 | 3,430 | 23,118 | - | - | - | - | - | - | 26,548 |
| Comprehensive income for the period | - | - | - | - | - | - | - | 929,457 | 1,991,860 | 2,921,317 |
| Balance, March 31, 2022 | 165,307,100 | $1,905,665 | $41,716,162 | $462,185 | $5,218,959 | $44,255 | $76,501,322 | $(13,091,768) | $(112,000,364) | $756,416 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
- NATURE OF BUSINESS AND GOING CONCERN
Meridian Mining UK Societas (the “Company” or “Meridian”) was formed in Amsterdam, Netherlands on December 16, 2013. Effective August 15, 2017, the Company transferred its official seat from the Netherlands to London, United Kingdom. Effective April 4, 2022, the Company’s shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol MNO. The Company is currently engaged in the exploration and development of mineral deposits in Brazil, through its subsidiaries, Meridian Mineração Jaburi S.A. (“Jaburi”) and Rio Cabaçal Mineração Ltda (“Rio Cabaçal”). The Company’s head office is located at 6th Floor, 65 Gresham Street, London, EC2V 7NQ, United Kingdom.
Going Concern
These condensed consolidated interim 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 had an income of $1,991,860 during the three-month period ended March 31, 2022 (2021 – loss of $7,318,386). The Company has a working capital of $5,391,101 as at March 31, 2022 (December 31, 2021 - $7,214,576).
To continue as a going concern, the Company will need to 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 successes. There can be no assurance that these initiatives will be successful, or sufficient financing 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.
- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance and basis of presentation
These condensed consolidated interim 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”). The accounting policies applied in these condensed consolidated interim financial statements are consistent with those disclosed in Note 2 of the Company’s audited consolidated financial statements for the year ended December 31, 2021.
The condensed consolidated interim financial statements and accompanying notes as at and for the three-month period ended March 31, 2022 were authorized for issue by the Company’s Board of Directors on May 26, 2022.
Page | 6
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
Basis of presentation
These unaudited condensed consolidated interim 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 (“US”) dollars, which is the functional currency of the Company. References to “$”, “US$”, or “dollars” are to US dollars, references to “C$” are to Canadian dollars, and references to “R$” are to Brazilian Reals.
Principles of consolidation
The condensed consolidated interim 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.
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
The preparation of condensed interim consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these condensed consolidated interim financial statements, are described in Note 3 of the Company’s audited consolidated financial statements for the year ended December 31, 2021.
4. PROPERTY, PLANT AND EQUIPMENT
| Cost: | Land | Vehicles, machinery and equipment | Office furniture and other | Total |
|---|---|---|---|---|
| Balance, December 31, 2021 | $ 67,750 | $ 911,106 | $ 95,276 | $ 1,074,132 |
| Additions | 29,036 | 26,006 | 55,042 | |
| Currency adjustment | 11,571 | 158,457 | 18,829 | 188,857 |
| Balance, March 31, 2022 | $ 79,321 | $ 1,098,599 | $ 140,111 | $ 1,318,031 |
| Accumulated depreciation: | Land | Vehicles, machinery and equipment | Office furniture and other | Total |
| --- | --- | --- | --- | --- |
| Balance, December 31, 2021 | $ - | $ (257,597) | $ (68,472) | $ (326,069) |
| Additions | - | (21,128) | (6,738) | (27,866) |
| Currency adjustment | - | (46,067) | (12,359) | (58,426) |
| Balance, March 31, 2022 | $ - | $ (324,792) | $ (87,569) | $ (412,361) |
| Net book value: | Land | Vehicles, machinery and equipment | Office furniture and other | Total |
| --- | --- | --- | --- | --- |
| December 31, 2021 | $ 67,750 | $ 653,509 | $ 26,804 | $ 748,063 |
| March 31, 2022 | $ 79,321 | $ 773,807 | $ 52,542 | $ 905,670 |
Page | 7
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
5. EXPLORATION AND EVALUATION ASSETS
Summary of exploration and evaluation assets:
| Balance as at January 1, 2021 | $ 6,008,048 |
|---|---|
| Additions: | |
| Option payment – Cabaçal project | 275,000 |
| Option payment – Mirante da Serra project | 13,913 |
| Acquisition of new areas – Cabaçal project | 149,753 |
| Acquisition of new areas – Espigão project | 10,435 |
| Foreign currency adjustment | (400,137) |
| Balance as at December 31, 2021 | $ 6,057,012 |
| Foreign currency adjustment | 1,014,352 |
| Balance as at March 31, 2022 | $7,071,364 |
During the three-month period ended March 31, 2022, the change in the balance of exploration and evaluation asset was driven by effect of foreign currency translation.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| March 31, 2022 | December 31, 2021 | |
|---|---|---|
| Current: | ||
| Accounts payable and accrued liabilities | $ 825,407 | $ 612,795 |
| Payroll liabilities | 206,094 | 146,130 |
| Other liabilities | 60,920 | 154,028 |
| Total | $ 1,092,421 | $ 912,953 |
7. TAXES AND FEES PAYABLE
| March 31, 2022 | December 31, 2021 | |
|---|---|---|
| Current: | ||
| Taxes and fees payable (i) | $ 79,498 | $ 73,711 |
| Withholding taxes and other taxes related to debt restructuring | 736,172 | 704,990 |
| Other | 47,855 | 65,105 |
| $ 863,525 | $ 843,806 | |
| Non-Current: | ||
| Taxes and fees payable (i) | 96,383 | 95,652 |
| Total | $ 959,908 | $ 939,458 |
(i) Restructuring of Brazilian taxes and fees liabilities
During the year ended December 31, 2020, the Company enrolled in an instalment payment program on certain unpaid taxes and fees related to the year ended December 31, 2019. Under the program the Company will pay the outstanding taxes and fees, plus accrued penalties and interests, in equal instalments over a period of 36 to 60 months.
Page | 8
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
The status of each instalment program can be summarized as follow:
a) Brazilian social security taxes. The total taxes payable of $141,810 will be repaid in equal monthly instalments over 35 months, adjusted for inflation.
b) Brazilian ANM fees. The total fees payable of $34,071 will be repaid in equal monthly instalments over 10 months, adjusted for inflation.
As a result, the Company classified as long-term liabilities the amount of $96,383.
8. PROVISIONS
| Environmental provision (i) | Other provisions (ii) | Total | |
|---|---|---|---|
| Balance, January 1, 2022 | $ 268,334 | $ 240,744 | $ 509,078 |
| Spent during the period | (76,034) | (44,990) | (121,024) |
| Accretion | 1,544 | - | 1,544 |
| Foreign currency adjustment | 38,502 | 36,691 | 75,193 |
| Balance, March 31, 2022 | $ 232,346 | $ 232,445 | $ 464,791 |
| Represented by: | |||
| Current portion | $ 146,745 | $ 232,445 | $ 379,190 |
| Long-term portion | $ 85,601 | $ - | $ 85,601 |
(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 are included in care and maintenance expenses 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 7.92% (2021 - 7.92%) and are expected to be incurred up to the end of 2023.
(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 condensed consolidated interim financial statements on the date such charges occur. As at March 31, 2022, the Company has recognized a provision of $232,445 (December 31, 2021 - $240,744) representing management's best estimates of expenditures required to settle 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.
9. SHAREHOLDERS' EQUITY
Authorized Capital
As at March 31, 2022 the Company had authorized unlimited number of common shares with a par value of €0.01.
Issued Capital
The Company has 165,307,100 (2021 - 157,110,457) issued and fully paid common shares.
Page | 9
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
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
During the three-month period ended March 31, 2022:
The Company issued 1,948,273 common shares for cash proceeds of $183,162 pursuant to the exercise of warrants.
The Company issued 378,700 common shares for cash proceeds of $38,764 pursuant to the exercise of agent’s compensation units and agent’s compensation options warrants; the Company reallocated $12,067 of warrant reserve to share capital and share premium in connection with the exercise of these agent’s compensation units.
The Company issued 5,869,670 common shares on March 29, 2022 to Sentient Global Resources Fund IV L.P. (“SGRFIV”) settling the Consolidated Facility agreement balance of C$14,674,177 before its maturity. During the year ended December 31, 2020, the Company concluded the debt restructure transaction with SGRFIV which resulted in the reclassification of the balance outstanding of the Consolidated Facility agreement to other reserves in equity. Upon issuance of the common shares on March 29, 2022, the Company reclassified the amount of $771,849 equivalent of the fair market of the Consolidated Facility agreement on December 21,2020 from other reserves to share capital and share premium.
During the three-month period ended March 31, 2021:
The Company issued 7,284,000 common shares for cash proceeds of $635,021 pursuant to the exercise of warrants.
The Company issued 1,042,237 common shares for cash proceeds of $63,759 pursuant to the exercise of agent’s compensation units and agent’s compensation options warrants; the Company reallocated $59,283 of warrant reserve to share capital and share premium in connection with the exercise of these agent’s compensation units.
Page | 10
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
Reserves - Stock options and warrants
Stock option and share purchase warrant transactions are summarized as follows:
| Warrants | Stock Options | |||
|---|---|---|---|---|
| Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |
| Outstanding December 31, 2020 | 57,489,916 | C$ 0.15 | 7,074,666 | C$ 0.09 |
| Granted | - | - | 3,335,000 | 0.45 |
| Exercised | (7,284,000) | 0.12 | - | - |
| Outstanding March 31, 2021 | 50,205,916 | C$ 0.15 | 10,409,666 | C$ 0.21 |
| Outstanding December 31, 2021 | 22,044,851 | C$ 0.17 | 14,702,096 | C$ 0.09 |
| Granted | - | - | 175,000 | 1.10 |
| Exercised | (1,948,273) | 0.12 | - | - |
| Outstanding March 31, 2022 | 20,096,578 | C$ 0.17 | 14,877,096 | C$ 0.49 |
| Number currently exercisable | 20,096,578 | C$ 0.17 | 14,577,096 | C$ 0.47 |
As at March 31, 2022 the following incentive stock options, share purchase warrants and agent's compensation options were outstanding:
| Number of options and warrants outstanding | Exercise Price (C$) | Expiry Date | Remaining Contractual Life (years) | |
|---|---|---|---|---|
| Stock options | 397,732 | 0.44 | May 17, 2022 | 0.13 |
| 6,291,631 | 0.07 | October 22, 2024 | 2.56 | |
| 248,016 | 0.10 | June 2, 2025 | 3.17 | |
| 3,305,000 | 0.45 | February 26, 2026 | 3.91 | |
| 4,459,717 | 1.10 | October 27,2026 | 4.58 | |
| 100,000 | 1.10 | February 6, 2027 | 4.85 | |
| 75,000 | 1.10 | February 24,2027 | 4.90 | |
| Warrants | 13,779,828 | 0.11 | July 15, 2022 | 0.29 |
| 6,316,750 | 0.30 | December 21, 2022 | 0.73 | |
| Agent's compensation options | 226,710 (1) | 0.075 | July 15, 2022 | 0.29 |
| 117,426 (2) | 0.20 | December 21, 2022 | 0.73 | |
| Agent's compensation options warrants | 331,255 (3) | 0.11 | July 15, 2022 | 0.29 |
| 41,350 (3) | 0.30 | December 21, 2022 | 0.73 |
(1) Each agent's compensation units are exercisable into one unit at a price of C$0.075. Each unit comprises one common share and one share purchase warrant. Each share purchase warrant is exercisable into an additional common share at a price of C$0.11.
(2) Each agent's compensation units are exercisable into one unit at a price of C$0.20. Each unit comprises one common share and one-half share purchase warrant. Each share purchase warrant is exercisable into an additional common share at a price of C$0.30.
(3) These are underlying warrants issued upon exercise of the Agent's compensation options
Page | 11
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
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.
On February 6, 2022, the Company granted 100,000 stock options to a consultant that vested immediately with an exercise price of C$1.10 per common share for a term of five years, until February 6, 2027.
On February 24, 2022, the Company granted 75,000 stock options to the Company's Corporate Secretary that vested immediately with an exercise price of C$1.10 per common share for a term of five years, until February 24, 2027.
The following weighted average assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted during the three-month period ended March 31, 2022 and March 31, 2021:
| Options granted in 2022 | Options granted in 2021 | |
|---|---|---|
| Risk-free interest rate | 1.71% | 0.88% |
| Expected life of options | 5 years | 5 years |
| Expected annualized volatility | 88.03% | 93.91% |
| Dividend yield | 0.0% | 0.0% |
| Forfeiture rate | 0.0% | 0.0% |
Warrants – Derivative Liability
The Company's detachable warrants related to the units issued in the July 15, 2020 and December 21, 2020 private placements have an exercise price denominated in foreign currency (Canadian dollars) and are classified and accounted for as a derivative liability at fair value with changes in fair value included in profit or loss.
During the three-month period ended March 31, 2022, there was a derivative gain of $3,863,166 from the mark-to-market measurement of the warrant derivative liability. The weighted average assumptions used in the Black-Scholes pricing model to calculate the fair value of the warrants were: an expected life of 0.32 year; annualized volatility of 70.75%; a risk free interest rate of 2.27%; and zero expected dividend yield.
During the three-month period ended March 31, 2021, there was a derivative loss of $5,785,708 from the mark-to-market measurement of the warrant derivative liability. The weighted average assumptions used in the Black-Scholes pricing model to calculate the fair value of the warrants were: an expected life of 0.90 year; annualized volatility of 82.01%; a risk free interest rate of 0.22%; and zero expected dividend yield.
Page | 12
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
Earnings (loss) per share:
The following table sets forth the computation of basic and diluted earnings (loss) per share:
| Three months ended | ||
|---|---|---|
| March 31, 2022 | March 31, 2021 | |
| Numerator | ||
| Income (loss) for the period | $ 1,991,860 | $ (7,318,386) |
| Effect of dilutive securities | (3,863,166) | - |
| $ (1,871,306) | $ (7,318,386) | |
| Denominator | ||
| For basic – weighted average number of shares outstanding | 158,231,367 | 106,291,243 |
| Effect of dilutive securities | 25,422,186 | - |
| For diluted – adjusted weighted average number of the shares outstanding | 183,653,553 | 106,291,243 |
| Earnings (loss) Per Share | ||
| Basic | 0.01 | (0.07) |
| Diluted | (0.01) | (0.07) |
For the three months ended March 31, 2022, 4,634,717 stock options were not included in the calculation of diluted earnings per share as they are out of the money (March 31, 2021 - 10,409,666 stock options, 50,205,916 warrants and 2,193,285 compensation options and compensation option warrants).
10. RELATED PARTIES
a) Key management compensation
| March 31, 2022 | March 31, 2021 | |
|---|---|---|
| Salaries, consulting and directors’ fees | $ 247,747 | $ 168,246 |
| Stock options | - | 369,322 |
| $ 247,747 | $ 537,568 |
b) Other related party transactions
As at March 31, 2022 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.
| March 31, 2022 | December 31, 2021 | |
|---|---|---|
| Accounts payable and accrued liabilities | $ 58,537 | $ 59,450 |
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
- EXPLORATION AND EVALUATION EXPENSES
| March 31, 2022 | March 31, 2021 | |
|---|---|---|
| Assays | $ 57,050 | $ 15,262 |
| Consulting – geological and other | 60,496 | 101,259 |
| Drilling | 292,197 | 57,837 |
| Equipment rental | 80,853 | - |
| Environmental studies | 64,995 | - |
| Fees and licenses | 1,898 | 31,984 |
| Field expenditures | 125,798 | 66,925 |
| Vehicle rental | 40,249 | 11,468 |
| Other | 19,964 | 19,338 |
| Payroll | 226,555 | 89,842 |
| Room and boarding | 46,011 | 19,350 |
| Survey | - | 16,329 |
| Total | $ 1,016,066 | $ 429,594 |
- GENERAL AND ADMINISTRATION EXPENSES
| March 31, 2022 | March 31, 2021 | |
|---|---|---|
| Investor relations and shareholder communication | $ 57,075 | $ 102,923 |
| Insurance | 51,811 | 32,867 |
| Management and director fees (Note 10) | 205,861 | 98,960 |
| Office and miscellaneous | 66,694 | 17,318 |
| Payroll | 157,771 | 77,058 |
| Telephone and information technology | 16,996 | 18,631 |
| Subscription & licence | 26,815 | 1,861 |
| Travel | 45,672 | - |
| Other | 24,848 | 38,615 |
| Total | $ 653,543 | $ 388,233 |
- CAPITAL MANAGEMENT
The capital structure of the Company consists of equity totaling $756,416 (2021 – deficit of $3,715,652). 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 as a result 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.
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.
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MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
14. 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.
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 and accounts payable approximate fair value due to the short-term nature of the financial instruments. Cash is carried at its fair value using level 1 inputs. Warrants derivative liability and financial liability were measured at fair value based on Level 2 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. The Company deposits cash with high credit quality financial institutions as determined by rating agencies.
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. 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.
The Company is exposed to foreign exchange risk through the following financial assets and liabilities denominated in currencies other than the functional currency of the applicable company:
| As at March 31, 2022 | US dollar | Canadian dollar | Brazilian Real |
|---|---|---|---|
| Cash | $ 8,510 | $ 7,067,838 | $ 412,383 |
| Prepaid expenses and other assets | 160,202 | 17,676 | 59,628 |
| Total Assets | 168,712 | 7,085,514 | 472,011 |
| Accounts payable and accrued liabilities | (299,004) | (22,502) | (770,915) |
| Net Assets | $ (130,292) | $ 7,063,012 | $ (298,904) |
MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
| As at December 31, 2021 | US dollar | Canadian dollar | Brazilian real |
|---|---|---|---|
| Cash | $ 22,785 | $ 8,830,498 | $ 206,515 |
| Prepaid expenses and other assets | 210,487 | 16,635 | 94,633 |
| Total Assets | 233,272 | 8,847,133 | 301,148 |
| Accounts payable and accrued liabilities | (348,103) | (14,510) | (550,341) |
| Net Assets | $ (114,831) | $ 8,832,623 | $ (249,193) |
As at March 31, 2022, fluctuations of +/- 10% in the US dollar, relative to those foreign currencies, would impact the Company's consolidated income for the three-month period ended March 31, 2022 by approximately $676 thousand. In addition, such fluctuations would impact the Company's consolidated total assets, consolidated total liabilities and consolidated total equity by approximately $756 thousand, $80 thousand and $676 thousand, respectively, as at March 31, 2022.
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.
Interest rate risk
The Company's financial assets exposed to interest rate risk consist of cash balances. 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 that are settled by delivering cash or another financial assets.
The Company has historically relied upon capital contributions, related party debt financing and equity financings to maintain an adequate level of cash to satisfy its capital requirements and will continue to depend heavily upon equity financings. 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 no 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 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, and its potential impact on the ability to obtain financing and maintain necessary liquidity.
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MERIDIAN MINING UK Societas
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Expressed in United States dollars)
(Unaudited)
As at March 31, 2022, the Company’s liabilities that have contractual maturities are as follows:
| March 31, 2022 | 1 Year | 2 Years | Total | |
|---|---|---|---|---|
| Accounts payable and accrued liabilities | $ 1,092,421 | $ 1,092,421 | $ - | $ 1,092,421 |
| Taxes and fees payable | 959,908 | 908,952 | 50,956 | 959,908 |
| Provisions | 464,791 | 464,791 | - | 464,791 |
| $ 2,517,120 | $ 2,466,164 | $ 50,956 | $ 2,517,120 |
15. SEGMENTED INFORMATION
The Company operates in one operating segment, being the acquisition, exploration and development of exploration and evaluation properties in Brazil. Accordingly, the chief decision makers consider Meridian to currently have one segment and, therefore, segmented information is not presented.
16. SUBSEQUENT EVENTS
a) Warrants, stock options, and agent’s compensation options and warrants exercises
Subsequent the period ended March 31, 2022, the Company issued 3,112,985 common shares and received gross proceeds totaling $466,433 related to share purchase warrants, stock options, agent’s compensation options and agent’s compensation options warrants.
b) Shares issued to HM Revenue & Customs (“HMRC” United Kingdom tax authority)
On April 5, 2022, the Company issued 509,795 common shares to HMRC as payment of the withholding taxes obligation related to the Consolidated Facility agreement with SGRFIV settled during the period ended March 31, 2022 (Note 9).
c) Stock option grant
On May 17, 2022, the Company granted 390,000 stock options to a consultant that vested immediately with an exercise price of C$0.95 per common share for a term of five years, until May 17, 2027.
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