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Midnight Sun Mining Corp. — Management Reports 2022
Apr 30, 2022
46158_rns_2022-04-29_3269d85b-b100-47e2-aa99-7c4b88541af3.pdf
Management Reports
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MIDNIGHT SUN MINING CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2021
As at April 29, 2022
MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
1. INTRODUCTION
The following management’s discussion and analysis (“MD&A”) of Midnight Sun Mining Corp. has been prepared as of April 29, 2022. This MD&A should be read in conjunction with the audited consolidated financial statements (“Financial Statements”) of Midnight Sun Mining Corp. and the notes thereto for the year ended December 31, 2021, which have been prepared using accounting policies consistent with International Financial Reporting Standards (“IFRS”). The Financial Statements have been prepared using the accrual basis of accounting except for cash flow information. All figures are expressed in Canadian dollars unless otherwise indicated.
Management is responsible for the preparation and integrity of the Financial Statements, including the maintenance of appropriate information systems, procedures and internal controls. Management is also responsible for ensuring that information disclosed externally, including the financial statements and MD&A, is complete and reliable.
Description of Business
Midnight Sun Mining Corp. (the “Company” or “Midnight Sun”) was incorporated on April 11, 2007 pursuant to the Business Corporations Act of British Columbia. The Company’s principal business activity is acquiring, exploring and evaluating mineral properties and joint venturing or developing these properties further or disposing of them when the evaluation is complete. At December 31, 2021, the Company was in the exploration stage of activity on its jointly held exploration licenses in Zambia, and the Financial Statements include the accounts of its subsidiaries Midnight Sun Mining Zambia Limited (“MSM Zambia”), a company incorporated on October 29, 2013 under the laws of Zambia as well as Midnight Sun One Co. and Midnight Sun Two Co., two companies incorporated in 2018 under the laws of the British Virgin Islands. The Company has consolidated the operations of MSM Zambia since its incorporation.
2. HIGHLIGHTS & SUBSEQUENT EVENTS
Corporate and Financial Highlights for the Fiscal Year Ended December 31, 2021
-
Subsequent to the year ended December 31, 2021, the Company entered into an agreement with Red Sea Resources, whereby it increased the amount advanced to $1,268,099 and renegotiated the instrument as a convertible debenture, maturing on January 11, 2023 and convertible at $0.15 per common share. The convertible debenture includes interest of $63,030 owing at the time of repayment.
-
Subsequent to the year ended December 31, 2021, the Company announced uplisting it’s common shares to trade on the OTCQB under the symbol “MDNGF”. The uplisting is expected to provide greater liquidity and a better trading experience to the U.S shareholders. Trading on the OTCQB began on February 9[th] , 2022.
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During the year ended December 31, 2021, the Company received aggregate proceeds of $112,750 and $531,167 from option and warrant exercises respectively.
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During the year ended December 31, 2021, the Company issued loans to officers of the Company in the amount of $173,333. The loans are unsecured, bear interest at 3% per annum, and mature on February 9, 2022. Subsequent to the year ended December 31, 2021, the maturity of these loans was extended to December 31, 2022. All other terms remain the same.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
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During the year ended December 31, 2021, the Company closed a non-brokered private placement by issuing 5,619,714 units at a price of $0.35 per unit for gross proceeds of $1,966,900. Each unit consist of one common share and one common share purchase warrant, with each whole warrant entitling the holder to acquire one additional common share at a price of $0.50 for a period of two years from closing. In connection with the offering, the Company paid finders’ fees of $61,887 in cash and issued 176,820 finders warrants with the same terms as the unit warrants.
-
During the year ended December 31, 2021, the Rio Tinto Mining and Exploration Limited continued their 2021 exploration campaign on Midnight Sun’s Solwezi Licenses in Zambia. Rio Tinto is in Stage 1 of the Earn-In and Joint Venture Agreement. The initial 2021 program budget is US $3,200,000 and is expected to be completed before the end of the fourth quarter. For more information on the exploration activities of Solwezi Copper project, please refer to the news releases dated April 19, 2021 and September 13, 2021.
-
During the year ended December 31, 2021, the Company granted an aggregate of 550,000 stock options to various consultants and officers with an exercise price of $0.31. 200,000 of the options expire on April 28, 2026 and 350,000 expire on April 28, 2022.
3. EXPLORATION AND EVALUATION ASSETS
60% Option Agreement
Pursuant to an option agreement (the “Option”) dated July 30, 2013, the Company acquired a 60% interest in two mineral prospecting licenses 21509-HQ-LEL and 12124-HQ-LPL, the Solwezi Licenses, which are held by subsidiary of Kam Chuen, Zambian Highlight Mining Investment Limited (“ZHMIL”). To earn the 60% interest in the Solwezi Licences Midnight Sun issued a total of 15,333,333 common shares (issued - valued at $4,106,667) to Kam Chuen and incurred a total of $3,666,667 in qualifying expenditures on the Solwezi Licenses. The Company received the 60% interest in ZHLMIL during the year ended December 31, 2019.
Under the Option, Midnight Sun was the operator responsible for managing all exploration and administration of the Solwezi Licenses and the Company has continued in this role since earning the 60% interest.
Solwezi Licenses - Zambia
The Solwezi Licenses cover a total area of 506 square kilometres in the Zambian Copperbelt and are located approximately 15 kilometres from the producing Kansanshi copper/gold mine and roughly 450 kilometres northwest of the Zambian capital of Lusaka.
On March 1, 2017, the Acting Chief Registrar of Mining Rights issued the license 21509-HQ-LEL which will be in effect for a period of 4 years with the option for future renewals providing the license is maintained in accordance with the contained terms and the Mines and Minerals Development Act, 2015. On February 28, 2021, license 21509-HQ-LEL was renewed for a further 3 year period. In doing so, the Company was required to relinquish 50% of the license area. The relinquished 50% has been granted to Rio Tinto Exploration Zambia Limited as license 28816-HQ-LEL and is held on behalf of the Company as per the terms of the Earn-In and Joint Venture Agreement between Rio Tinto and Midnight Sun.
On November 30, 2018, the Zambian Mining Cadastre issued a renewal of prospecting license 12124-HQ-
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
LPL as large-scale exploration license, 12124-HQ-LEL, having an expiration date of December 23, 2021. This renewal was the final renewal period available to ZHLMIL. In accordance with the Mines and Minerals Development Act, 2015, for a period of 12 months, ZHLMIL is precluded from owning the same license area which expired. In order to preserve the license area, Rio Tinto formed a new corporation, Solwezi Metals Exploration Ltd., to apply for a new License over the same area. The relationship between Solwezi Metals Exploration Ltd. and Midnight Sun is governed by the terms of the Earn-In and Joint Venture Agreement between Rio Tinto and Midnight Sun. Solwezi Metals Exploration Ltd.’s application was accepted by the Zambian Mining Cadastre on November 23, 2021 and has since been validated and is currently pending final approval at the next Mining Licenses Committee meeting. There is no guarantee a new license will be granted to the Company or an affiliated entity.
Subsequent to the issuance of the shares, in response to a complaint lodged by the non-controlling shareholders, the Patents and Companies Registration Agency (“PACRA”) reversed the Company’s additional holding of 20.65%. The Company believes that this reversal was not in compliance with the laws of Zambia or ZHLMIL’s articles of association and disputed the action made by PACRA. Following a ruling in the Company’s favour, PACRA returned the shares to the Company on June 17, 2021. On the acquisition of the additional 20.65% interest in the ZHMIL, the Company recognized a decrease to the noncontrolling interest of $1,587,043 with a corresponding reduction in deficit.
- Exploration Property Expenditures
As at December 31, 2021, the Company had funded the following expenditures on the Solwezi Licenses:
| Site and project expenditures | 31-Dec-20 | Additions | 31-Dec-21 | |
|---|---|---|---|---|
| Acquisition costs Assays Diamond drilling Field expenses General & administration Geological consulting License Travel and accommodation Total operations funded |
$ $ | 10,276,568$ 326,119 3,043,326 1,212,272 767,726 1,151,557 260,469 709,705 17,747,742$ |
(315,220) - - - 103,692 36,049 - - |
$ 9,961,348 326,119 3,043,326 1,212,272 871,418 1,187,606 260,469 709,705 |
| (175,479) | $ 17,572,263 |
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
The following table presents the Company’s mineral properties on a property-by-property basis for the two most recent financial years.
| Solwezi | **Total ** | |||||||
|---|---|---|---|---|---|---|---|---|
| Balance, December 31, 2019 | ~~$~~ | 18,790,702 |
$ 18,790,702 |
|||||
| Exploration expenditures Optionpaymentsreceived |
255,540 (1,298,500) |
255,540 (1,298,500) |
||||||
| Total change during year | (1,042,960) | (1,042,960) | ||||||
| Balance, December 31, 2020 | $ | 17,747,742 | 17,747,742 | |||||
| Exploration expenditures Option payments received |
139,741 (315,220) |
139,741 (315,220) |
||||||
| Totaladditions during period | (175,479) | (175,479) | ||||||
| Balance, December 31, 2021 | $ | 17,572,263 | $ 17,572,263 |
Exploration Property – Activities
The main deposit types being targeted by exploration on the Solwezi Licenses are; Stratiform-type deposits, a common model for many copper deposits within the Zambian Copperbelt, and Hydrothermal-type copper mineralization as found at the nearby Kansanshi Mine.
During the year ended December 31, 2020, the Company’s Earn-In partner Rio Tinto commenced its initial work program on the Solwezi Project.
Rio Tinto’s 2020 exploration work focused on strengthening their geological understanding of the Solwezi Licences. Emphasis was placed on identifying and modelling the geology of the Kazhiba Dome which underlies the 22 Zone, where an overturned Upper Plate and upright facing Lower Plate are separated by a mafic breccia. This geology appears similar to what is observed at the Kansanshi Mine. The work completed during this program included:
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The reanalysis of previous air core drill samples over the Kazhiba Dome and adjacent areas;
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129 air core drill holes drilled on a 500 metre x 500 metre grid over the entire Kazhiba Dome;
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Six stratigraphic diamond holes, totalling 2,060 metres, designed to test the Lower Plate of the Kazhiba Dome for mineralisation;
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The air core programme which included 29 air core holes tracking an audio-frequency magnetotelluric geophysical line towards Basement and tested a mineral occurrence at the Gameno (formerly Kifubwe) Prospect;
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The reanalysis of previous soil samples; and
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A 250 metre x 250 metre infill geochemical soil sampling grid.
Rio Tinto’s 2021 exploration program has been completed and the Company is expecting complete results and interpretation by late May.
Richard Mazur, P.Geo., Director of the Company, a Qualified Person under NI 43-101, has reviewed the information contained herein.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
4. SELECTED ANNUAL INFORMATION
The following table summarizes selected financial information for the Company for each of its most recently completed financial years. The information set forth below should be read in conjunction with the Financial Statements. All information was prepared in accordance with IFRS.
| Year ended Dec 31, 2021 |
Year ended Dec 31, 2020 |
Year ended Dec 31, 2019 |
|
|---|---|---|---|
| $ | $ | $ | |
| Total revenue Net income (loss) Basic and fully diluted income (loss) per share Total assets Total non-current liabilities Dividends declared |
Nil (1,902,114) (0.02) 20,775,858 58,056 Nil |
Nil (759,134) (0.01) 20,041,987 40,000 Nil |
Nil (356,998) (0.00) 18,935,012 17,256 Nil |
Factors which have caused period to period variations in total asset include the availability of equity funding, which is directly linked to exploration activities and payments under the Option. The Company incurred $139,741 in property expenditures during the year ended December 31, 2021 and $255,540 during the year ended December 31, 2020.
The net loss for the year ended December 31, 2021 of $1,902,114 was primarily comprised of accounting and audit fees of $80,324 (2020 - $57,637), consulting fees of $67,126 (2020 - $74,324), wages and benefits of $324,919 (2020 - $321,607), office and miscellaneous of $97,810 ($65,051), legal fees of $142,725 (2020 - $69,866), share-based payments of $81,601 (2020 - $330,413) and allowance for doubtful accounts of $962,248 (2020 - $nil).
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
5. SUMMARY OF QUARTERLY RESULTS
The tables below present’s selected financial data for the Company’s eight most recently completed quarters, all information was prepared in accordance with IFRS.
| Dec 31 Sept 30 |
June 30 | Mar 31 | |
|---|---|---|---|
| 2021 2021 |
2021 | 2021 | |
| $ $ |
$ | $ | |
| Financial results Net loss for period Basic & diluted loss per share Exploration expenditures |
1,198,191 178,408 0.01 0.00 46,473 29,502 |
340,837 0.00 31,347 |
184,678 0.00 32,419 |
| Statement of Financial Position Cash Exploration & evaluation assets Total assets Shareholders’ equity |
2,564,905 2,495,656 17,572,263 17,841,010 20,775,858 21,905,166 20,545,847 21,742,595 |
1,030,954 17,811,508 20,156,877 19,982,745 |
721,620 17,780,161 19,740,873 19,622,585 |
| Dec 31 Sept 30 |
June 30 | March 31 | |
| 2020 2020 |
2020 | 2020 | |
| $ $ |
$ | $ | |
| Financial results Net loss for period Basic & diluted loss per share Explorationexpenditures |
108,015 167,978 0.00 0.00 20,203 97,621 |
402,451 0.00 126,388 |
80,690 0.00 11,328 |
| Statement of Financial Position Cash Exploration & evaluation assets Total assets Shareholders’ equity |
1,061,964 129,341 17,747,742 19,026,039 19,776,987 19,281,883 19,535,914 19,066,289 |
277,330 18,873,332 19,372,133 19,165,942 |
23,053 18,797,499 18,954,687 18,241,607 |
All exploration expenditures relate to work done on the Solwezi Licenses. Net losses for all periods reflect general and administrative costs including legal and accounting.
6. DISCUSSION OF OPERATIONS
The following discussions address some of the reasons for variations in the quarterly numbers, but as is typical with junior exploration and mining companies there can be significant fluctuation from quarter to quarter. Quarterly results can vary greatly depending on whether the Company is in an active exploration phase or has granted stock options. Activity levels are primarily dependent on the success of the Company’s ongoing exploration and evaluation work and the Company’s ability to raise funds through equity issuances. The granting of stock options can cause a material variation in net loss on a quarterly basis due to the resulting share-based payment charges which can be significant.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
Overall Performance & Results of Operations
Three Month Period Ended December 31, 2021.
The Company’s loss for the three months ended December 31, 2021, was $1,198,191, or $0.01 per share, as compared to a loss of $108,015, or $0.00 per share for the three months ended December 31, 2020. Of the current period loss, $962,248 was related to an allowance of doubtful accounts of $962,248. The remaining change was largely related to decrease to salaries and wages to officers and directors which included a fourth quarter bonus during the fiscal year ended December 31, 2020, legal fees resulting from the company’s defence of matters in Zambia, and consulting fees which included a fourth-quarter accrual.
Significant expenses during the three-month period ended December 31, 2021 consisted of accounting and audit fees, $13,387 (2020: $22,500), consulting fees, $54,126 (2020: $18,727), investor and shareholder relations, $61,648 (2020: $34,223), legal fees, $12,202 (2020: $431), office services and miscellaneous, $26,237 (2020: $27,028), regulatory and transfer agent fees, $14,701 (2020: $1,185), share-based payments, $2,743 (2020: $4,440), and wages and benefits, $88,126 (2020: $302,887).
Twelve Month Period Ended December 31, 2021
The Company’s loss for the twelve months ended December 31, 2021, was $1,902,114, or $0.02 per share, as compared to a loss of $759,134, or $0.01 per share for the twelve months ended December 31, 2020. Operating expenditures were largely in-line with the comparative period, with significant differences in professional fees resulting from higher audit fees and increased legal activity required relating to civil actions in Zambia, share-based payments resulting from options granted and vested during the period, and allowance for doubtful accounts related to the Company’s loan to Red Sea Resources.
Major expenses during the twelve-month period ended December 31, 2021 consisted of accounting and audit fees, $80,324 (2020: $57,637), consulting fees, $67,126 (2020: $74,324), investor and shareholder relations, $123,323 (2020: $78,676), legal fees, $142,725 (2020: $69,866), office services and miscellaneous expenses, $97,810 (2020: $65,051), regulatory and transfer agent fees, $49,630 (2020: $20,667), share-based payments, $81,601 (2020: $330,413), and wages and benefits, $324,919 (2020: $321,607).
During the twelve-month period ended December 31, 2021, $869,152 in cash was used for operating activities.
During the twelve-month period ended December 31, 2021, investing activities required $133,136 in cash, comprised of $139,741 in cash used for exploration and evaluation asset expenditures and $308,615 advanced as a loan to related parties less $315,220 received in option payments.
During the twelve-month period ended December 31, 2021, the Company generated $2,505,229 from financing activities, comprised of $1,966,900 in proceeds from private placements, $112,750 in proceeds from option exercises, and $531,167 in proceeds from warrant exercises, less share issuance costs of $72,871 and payments towards lease liabilities of $26,717.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
7. LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2021, the Company had $2,564,905 in cash. The Company does not have cash flow from operations due to it being an exploration stage company; therefore, financings have been the sole source of funds. At December 31, 2021, the Company had a working capital of $2,464,379. In the opinion of management this working capital is sufficient to support the Company’s 2023 general administrative and corporate operating requirements, but the Company will need to rely in the future on further financings for continued exploration and evaluation activities.
Liquidity Outlook
In order to finance the Company’s exploration programs and to cover administrative and overhead expenses, the Company raises money through the sale of equity, from the exercise of convertible securities and from optioning its exploration and evaluation assets. Many factors influence the Company’s ability to raise funds, including the health of the resource market, the climate for mineral exploration investment, the Company’s track record, and the experience and calibre of its management. Actual funding requirements may vary from those planned due to several factors, including the progress of exploration activities.
Management is encouraged by improving equity markets for mineral exploration programs and anticipates seeking additional sources of funding prior to the end of the fiscal year. Given volatility in equity markets, global economic uncertainty, cost pressures and results of exploration activities there can be no certainty equity funding will be available to the Company or if available funding will be on acceptable terms. Management believes it will be able to raise equity capital as required but recognizes that there will be risks which may be beyond its control.
Capital Resources
The Company believes it has sufficient capital to cover its administrative overhead expenses for the next twelve months. For the year ended December 31, 2021, the Company’s exploration and evaluation expenditures was satisfied through exploration activities completed by Rio Tinto, as part of the initial work program and stage 1 activities as defined by the Earn-in Agreement. To continue exploring the Solwezi Licenses without the participation of Rio Tinto, Midnight Sun may be required to raise additional capital, and if capital is not available the Company will have to delay some planned exploration expenditures. During the year ended December 31, 2021, the Company closed a private placement financing which generated gross proceeds of $1,966,900.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
8. TRANSACTIONS WITH RELATED PARTIES
The Company’s related parties at December 31, 2021 consist of 8 officers and directors (and their related companies).
| Name of Related Party | Position at Sept 30, 2020 | Nature of transaction |
|---|---|---|
| Allan J. Fabbro Fengjie Huang Mathew Mackenzie Richard J. Mazur Wayne Moorhouse Brett Richards/Richards Enterprises Inc. Robert A. Sibthorpe / 069426 BC Ltd Alastair Brownlow / Red Fern ConsultingLtd. |
Director & CEO Director(Zambian subsidiary) Secretary Director Director Director VP Exploration & Director CFO |
Director Management services Corporate secretary Director Director Director Management services Management services |
As at December 31, 2021, $66,298 (2020 - $4,200) is due to officers, directors, or companies with a director in common for cash advances, unpaid geological consulting fees, unpaid wages and bonuses and unpaid expenses. Included in share subscriptions receivable is $nil (2020 - $33,500) due from a director and officer of the Company. Included in accounts receivable is $nil (2020 - $25,780) due from a director and officer of the Company.
Investments
During the year ended December 31, 2020, the Company purchased 2,500,000 common shares of Red Sea Resources Ltd. (“Red Sea”) at a price of $0.01 per common share for a total of $25,000. Red Sea, a private company, has common officers and directors as the Company and is in the process of identifying and acquiring exploration and evaluation properties in Egypt. During the year ended December 31, 2020, the Company was granted an additional 800,000 common shares of Red Sea valued at $0.05 per share for a total of 40,000 as a financing fee on the issuance of a USD $650,000 loan. During the year ended December 31, 2021, the Company was granted an additional 200,000 common shares of Red Sea, valued at $0.10 per common share on the advance of an additional USD $100,000 loan.
As at December 31, 2021, the investments were valued at $0.10 (2020 - $0.10) per common share for a total value of $350,000 (2020 - $330,000).
Loans Receivable
During the year ended December 31, 2020, the Company issued a promissory note to Red Sea in the amount of USD $650,000 without interest, payable on demand. During the year ended December 31, 2021, the Company extended an additional USD $108,990 to Red Sea, resulting in a total loan of USD 750,000 outstanding ($962,248). Subsequent to December 31, 2021, the Company entered into an agreement whereby it increased the amount advanced to $1,268,099 and renegotiated the instrument as a convertible debenture, maturing on January 11, 2023 and convertible at $0.15 per common share. The convertible debenture includes interest of $63,030 owing at the time of repayment.
As at December 31, 2021, the Company has taken a full allowance for doubtful accounts of $962,248 on the Red Sea loans.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
During the year ended December 31, 2021, the Company issued loans to officers of the Company in the amount of $173,333. The loans are unsecured, bear interest at 3% per annum, and mature on February 9, 2022. The Company recognized a total of $2,094 in interest on its loans receivable during the year ended December 31, 2021. Subsequent to the year ended December 31, 2021, the Company entered into an amending agreement to extend the maturity of these loans to December 31, 2022.
A reconciliation of the Company’s loans receivable as at December 31, 2021 and 2020 is as follows:
| Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|
| Opening balance | $ | 830,778 $ | - |
| Additions | 308,615 | 832,195 | |
| Interest accrued | 2,094 | - | |
| Allowance for bad debt | (962,248) | - | |
| Foreign exchange | (3,812) | (1,417) | |
| $ | 175,427 $ | 830,778 |
9. KEY MANAGEMENT COMPENSATION
Compensation paid or accrued to key management and/or their related companies during the twelve-months ended December 31, 2021, and 2020 is as follows:
| For the Year Ended December 31, |
For the Year Ended December 31, |
|
|---|---|---|
| Nature of Expenditure | 2021 | 2020 |
| Wages and benefits Consulting fees Share-based payments Total |
$ 280,339 93,126 45,860 |
$ 308,060 68,304 205,071 |
| $ 419,325 |
$ 581,435 |
Key management consists of those individuals having authority and responsibility for, directly or indirectly, planning, directing, and controlling the activities of the Company. Wages are paid to the Company’s CEO, Corporate Secretary and Directors and Consulting fees are amounts paid to the Company’s CFO.
All the above payments and accruals were made in the normal course of operations and have been valued here and in the Financial Statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
10. OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
11. PROPOSED TRANSACTIONS
The Company does not currently have any proposed transactions other than the transactions discussed in this MD&A; however, the Company will continue to review potential property acquisitions in addition to conducting exploration work on its properties.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
12. CHANGES IN ACCOUNTING POLICY
There were no changes to accounting policies for the year ended December 31, 2021.
13. FINANCIAL INSTRUMENTS AND RELATED RISKS
The Board, through the Audit Committee, is responsible for identifying the principal risks facing the Company and ensuring that appropriate risk management systems are developed and implemented. The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk and credit risk in accordance with its risk management framework.
Financial Instruments
Financial assets
The Company classified its financial assets in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (FVTOCI”), or at amortized cost. The determination of the classification of financial assets is made at initial recognition. Equity instruments that are held for trading (including all equity derivative instruments) are classified as FVTPL; for other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrumentby-instrument basis) to designate them as at FVTOCI.
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 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 operations and comprehensive loss 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 of operations and comprehensive loss. 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.
Investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive (loss) income as they arise.
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.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
The following table shows the classification of the Company’s financial assets under IFRS 9:
| Financialasset | IFRS 9 Classification |
|---|---|
| Cash | Amortized cost |
| Advances and deposits | Amortized cost |
| Short-term investments | FVTPL |
| Loan receivable | Amortized cost |
| Receivables | 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 operations and comprehensive loss.
Other financial liabilities - This category includes accounts payable and accrued liabilities 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 losses 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 under IFRS 9:
| Financial liability | IFRS 9 Classification |
|---|---|
| Accounts payable and accrued liabilities | Other financial liabilities |
| Due to related parties | Other financial liabilities |
| Loan payable | Other financial liabilities |
The carrying value of receivables, loan receivable, short-term investments, accounts payable and accrued liabilities, loan payable, and amounts due to related parties approximated their fair value because of the short-term nature of these instruments.
Related Risks
Interest rate risk
The Company has non-material exposure at December 31, 2021 and December 31, 2020 to interest rate risk through its financial instruments.
Currency Risk
Throughout the year ended December 31, 2021, the majority of the Company’s cash was held in Canadian dollars, the Company’s functional and reporting currency. The Company is exposed to currency risk due to accounts payable denominated in US Dollars. A 1% change in the foreign exchange rate between the Canadian and US Dollar would not result in a material fluctuation in the net loss for the period. Credit risk
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
The Company has some cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in investment-grade short-term deposit certificates issued by Canadian financial institutions with which it keeps its bank accounts and management believes the risk of loss to be remote. The Company also has $13,163 held with a major financial institution in Zambia. Management believes the risk of loss to be remote.
Receivables consist of goods and services tax due from the Government of Canada in the amount of $6,317. The Company also holds a $962,248 loan receivable from a related party, bearing no interest and payable on demand and $175,427 from officers and directors bearing interest at 3% per annum and repayable within six months of issuance. The Company assesses expected credit losses based upon current credit information and during the year ended December 31, 2021, the Company took an allowance for doubtful accounts on the entire loan receivable from a related party of $962,248. To assess credit risk on the loans to officers and directors, the Company assesses maturity date and ability to make payments and has not assessed a significant risk of collection.
Liquidity Risk
The Company attempts to manage liquidity risk by maintaining sufficient cash balances. Liquidity requirements are managed based on expected cash flows to ensure that there is sufficient capital in order to meet short-term obligations. As at December 31, 2021, the Company had $2,564,905 cash (December 31, 2020 – $1,061,964) and current liabilities of $171,955 (December 31, 2020 - $201,073).
Finance Risk
The Company has no source of operating cash flow and no assurance that additional funding will be available to it for further exploration and development of its projects when required. Although the Company has been successful in the past in obtaining financing through the sale of equity securities or joint ventures, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in the delay or indefinite postponement of further exploration and development of its properties.
14. RISKS AND UNCERTAINTIES
The Company has no history of profitable operations and its present business is at an early stage. As such, the Company is subject to many risks common to such enterprises, including under-capitalization, cash shortages and limitations with respect to personnel, financial and other resources and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders' investment and the likelihood of success must be considered in light of its early stage of operations.
The risks and uncertainties described in this section are not inclusive of all risks and uncertainties to which the Company may be subject.
Early Stage – Need for Additional Funds
The Company has no history of profitable operations and its present business is at an early stage. As such, the Company is subject to many risks common to such enterprises, including under-capitalization, cash shortages and limitations with respect to personnel, financial and other resources and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and the likelihood of success must be considered in light of its early stage of operations.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
Political Risk
The Company’s operations and investments may be affected by local political and economic developments including: expropriation; nationalization; invalidation of governmental orders; permits or agreements pertaining to property rights; failure to enforce existing laws; failure to uphold property rights; political unrest; labour disputes; limitations on repatriation of earnings; limitations on foreign ownership; inability to obtain or delays in obtaining necessary mining permits; opposition to mining from local, environmental or other non-governmental organizations; government participation; royalties, duties, rates of exchange, high rates of inflation, price controls, exchange controls, currency fluctuations; taxation and changes in laws, regulations or policies; as well as by laws and policies of Canada affecting foreign trade, investment and taxation.
Location Risk
The Company’s property interests are located in remote, undeveloped areas and the availability of infrastructure such as surface access, skilled labour, fuel and power at an economic cost, cannot be assured. These are integral requirements for exploration, development and production facilities on exploration and evaluation assets.
Discovery Risk
Resource property acquisition, exploration, development, and operation is a highly speculative business that involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of precious metals and other minerals may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Major expenses may be required to locate and establish economically viable mineral deposits, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the acquisition, exploration or development programs planned by the Company will result in a profitable commercial mining operation. The potential for any project to eventually become an economically viable operation depends on numerous factors including: the quantity and quality of the minerals discovered if any, the proximity to infrastructure, metal and mineral prices (which vary considerably over time) and government regulations. The exact effect these factors can have on any given exploration property cannot accurately be predicted but the effect can be materially adverse.
Environmental Risk
Environmental laws and regulations may affect the operations of Midnight Sun. These laws and regulations set various standards regulating certain aspects of health and environmental quality. They provide for penalties and other liabilities for the violation of such standards and establish, in certain circumstances, obligations to rehabilitate current and former facilities and locations where operations are or were conducted. Furthermore, the permission to operate could be withdrawn temporarily where there is evidence of serious breaches of health and safety, or even permanently in the case of extreme breaches. Significant liabilities could be imposed on the Company for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damages caused by previous owners of acquired properties or non-compliance with environmental laws or regulations. The Company intends to minimize these risks by taking steps to ensure compliance with environmental, health and safety laws and regulations and operating to international environmental standards.
Price Risk
The market price of precious metals and other minerals is volatile and cannot be controlled.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
Conflicts
The Company’s directors and officers serve as directors or officers or may be associated with other reporting companies or have significant shareholdings in other public companies. To the extent that such other companies may participate in business or asset acquisitions, dispositions, or ventures in which the Company may participate, the directors and officers of the Company may have a conflict of interest in negotiating and concluding terms respecting the transaction.
Dependence on Key Personnel
The Company is very dependent upon the personal efforts and commitment of its existing management. To the extent that management's services would be unavailable for any reason, a disruption to the operations of the Company could result, and other persons would be required to manage and operate the Company.
Competitive Risk
The mineral industry is intensely competitive in all its phases. The Company competes with many other mineral exploration companies who have greater financial resources and technical capacity.
15. COMMITMENTS
Other than obligations disclosed in the Financial Statements and elsewhere this MD&A the Company does not have any commitments.
16. NATURE OF SECURITIES
The purchase of the Company’s securities involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks. The Company’s securities should not be purchased by persons who cannot afford the possibility of the loss of their entire investment. Furthermore, an investment in the Company’s securities should not constitute a major portion of an investor's portfolio.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
17. DISCLOSURE OF OUTSTANDING SHARE DATA
The table below presents the Company’s common share data as of April 29, 2022.
| Price | Expiry date | April 29, 2022 | ||
|---|---|---|---|---|
| Common shares issued and outstanding Securities convertible into common shares: Stock Options $0.35 $0.36 $0.135 $0.31 Total Options Warrants $0.25 $0.25 $0.50 Total Warrants |
August 18, 2022 January 31, 2023 May 6, 2025 April 28, 2026 May 25, 2022 May 25, 2022 July 2, 2023 |
113,004,014 1,000,000 2,250,000 2,300,000 200,000 |
||
| 5,750,000 | ||||
| 7,922,185 419,090 5,796,534 |
||||
| 14,137,809 | ||||
| Total options & warrants outstanding | 19,887,809 |
18. ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS
Additional disclosure concerning Midnight Sun’s general and administrative expenses and exploration and evaluation assets expenditures is provided in the Company’s Financial Statements. These Financial Statements are available on SEDAR at www.sedar.com.
19. APPROVAL
The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. This Committee meets periodically with management and annually with the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company. The Board of Directors of Midnight Sun have approved the financial statements and the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it.
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MIDNIGHT SUN MINING CORP. MANAGEMENT DISCUSSION AND ANALYSIS For the Year Ended December 31, 2021
20. FORWARD LOOKING INFORMATION
Forward-looking statements relate to future events or future performance and reflect management's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of operations, environmental risks, permitting risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual financial statements which are filed and available for review on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
21. ADDITIONAL INFORMATION
Additional information is available on SEDAR at www.sedar.com.
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