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Minsud Resources Corp. — Interim / Quarterly Report 2023
Aug 29, 2023
46305_rns_2023-08-28_5a86d1ee-3e6c-40fb-bd90-3b38c1805496.pdf
Interim / Quarterly Report
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Condensed Interim Consolidated Financial Statements
Minsud Resources Corp.
For the Three and Six Months Ended June 30, 2023 and 2022 (All amounts in Canadian Dollars unless otherwise noted)
Unaudited
| INDEX | |
|---|---|
| Condensed Interim Consolidated Statements of Loss and Comprehensive Loss | 1 |
| Condensed Interim Consolidated Statements of Financial Position | 2 |
| Condensed Interim Consolidated Statements of Changes in Equity | 3 - 4 |
| Condensed Interim Consolidated Statements of Cash Flows | 5 |
| Notes to the Condensed Interim Consolidated Financial Statements | 6 |
| NOTICE TO READER |
The accompanying consolidated financial statements have been prepared by the Company's management and the Company's independent auditors have not performed a review of these financial statements.
Minsud Resources Corp.
Condensed Interim Consolidated Statements of Comprehensive Income For the Periods Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader
(All Amounts in Canadian Dollars Unless Otherwise Noted)
| Expenses General and administrative Marketing and communications Professional and regulatory fees (note 9) Share-based payments (note 8) Taxes on ownership of subsidiary Hyperinflation - monetary loss Interest income Net Loss for the Period Other Comprehensive Income (Loss) Items that may be reclassified to profit and loss: Currency translation adjustment Comprehensive Income (Loss) for the Period Net Loss per Share - basic and diluted Weighted Average Number of Common Shares Outstanding basic and diluted Net loss for the Period Attributable to: Non-controlling interest Equity shareholders of the Company Comprehensive Loss for the Period Attributable to: Non-controlling interest Equity shareholders of the Company |
Expenses General and administrative Marketing and communications Professional and regulatory fees (note 9) Share-based payments (note 8) Taxes on ownership of subsidiary Hyperinflation - monetary loss Interest income Net Loss for the Period Other Comprehensive Income (Loss) Items that may be reclassified to profit and loss: Currency translation adjustment Comprehensive Income (Loss) for the Period Net Loss per Share - basic and diluted Weighted Average Number of Common Shares Outstanding basic and diluted Net loss for the Period Attributable to: Non-controlling interest Equity shareholders of the Company Comprehensive Loss for the Period Attributable to: Non-controlling interest Equity shareholders of the Company |
|---|---|
| (2,998,272) (729,079) (4,096,816) (1,206,045) 202,644 994,665 547,897 1,357,704 |
|
| $ (2,795,628) $ 265,586 $ (3,548,919) $ 151,659 |
|
| $ (0.02) $ 0.00 $ (0.02) $ (0.01) |
|
| 163,890,694 163,890,694 163,890,694 163,890,694 |
|
| $ (3,586) $ (1,984) $ (5,885) $ (2,775) (2,994,686) (727,095) (4,090,931) (1,203,270) |
|
| $ (2,998,272) $ (729,079) $ (4,096,816) $ (1,206,045) |
|
| $ (16,984) $ (8,220) $ (31,287) $ (19,240) (2,778,644) 273,806 (3,517,632) 170,899 |
|
| $ (2,795,628) $ 265,586 $ (3,548,919) $ 151,659 |
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
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Minsud Resources Corp.
Condensed Interim Consolidated Statements of Financial Position as at June 30, 2023 Unaudited - see Notice to Reader
(All Amounts in Canadian Dollars Unless Otherwise Noted)
| Minsud Resources Corp. Condensed Interim Consolidated Statements of Financial Position as at Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted) |
June 30, 2023 |
|---|---|
| June 30, 2023 December 31, 2022 (Audited) |
|
| Assets Non-Current Assets Mineral properties (note 6 and 9) Property and equipment (note 5) Deferred tax asset Current Assets Cash and cash equivalents Prepaid expenses and deposits Input tax credits receivable Current portion of deferred tax asset Shareholders' Equity Issued capital (note 7) Share-based payment reserve (note 8) Cumulative translation reserve Deficit Equity attributable to shareholders of the Company Non-controlling interest (note 2(b)) Liabilities Non-Current Liabilities Deferred exploration recovery (note 12) Current Liabilities Accounts payable and accrued liabilities (note 9) Current portion of trust acquisition payable (note 6) Other liabilities Deferred exploration recovery (note 12) Business of the Company(note 1) Going Concern(note 2(c)) Commitments(note 11) South 32 Limited Agreement(note 12) Subsequent Events(note 13) |
$ 32,684,166 $ 27,050,292 705,741 456,238 2,068 6,797 |
| 33,391,975 27,513,327 |
|
| 3,131,805 2,856,838 37,428 43,050 1,175,372 679,077 2,520 3,733 |
|
| 4,347,125 3,582,698 |
|
| $ 37,739,100 $ 31,096,025 |
|
| 19,301,492 19,328,842 8,366,917 6,121,122 48,326 (524,973) (18,603,108) (14,512,178) |
|
| 9,113,627 10,412,813 29,930 33,868 |
|
| 9,143,557 10,446,681 |
|
| - 19,720,687 |
|
| 1,439,597 556,582 66,175 135,310 191,782 236,765 26,897,989 - |
|
| 28,595,543 928,657 |
|
| $ 37,739,100 $ 31,096,025 |
|
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Approved on behalf of the Board of Directors
Signed "Alberto F. Orcoyen" , Director Signed "Paul Andersen" , Director
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Minsud Resources Corp.
Condensed Interim Consolidated Statements of Changes in Equity For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader
(All Amounts in Canadian Dollars Unless Otherwise Noted)
| Balance at January 1, 2023 Loss for the period attributable to shareholders of the Company Loss for the period attributable to non-controlling interests Other comprehensive income for the period Share-based payments (note 8) Effects of change in non-controlling interest (note 2(b)) Balance at June 30, 2023 |
Number of Common Shares Issued Capital Share-based Payment Reserve Cumulative Translation Reserve Deficit Non- Controlling Interest Total Equity |
|---|---|
| 163,890,694 $ 19,328,842 $ 6,121,122 $ (524,973) $(14,512,178) $ 33,868 $ 10,446,681 - - - - (4,090,931) - (4,090,931) - - - - - (5,885) (5,885) - - - 571,272 - (23,375) 547,897 |
|
| 163,890,694 19,328,842 6,121,122 46,299 (18,603,109) 4,608 6,897,762 - - 2,245,795 - - - 2,245,795 - (27,350) - 2,027 1 25,322 - |
|
| 163,890,694 $ 19,301,492 $ 8,366,917 $ 48,326 $(18,603,108) $ 29,930 $ 9,143,557 |
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
-3-
Minsud Resources Corp.
Condensed Interim Consolidated Statements of Changes in Equity For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader
(All Amounts in Canadian Dollars Unless Otherwise Noted)
| Balance at January 1, 2022 Loss for the period attributable to shareholders of the Company Loss for the period attributable to non-controlling interests Other comprehensive income for the period Share-based payments (note 8) Effects of change in non-controlling interest (note 2(b)) Balance at June 30, 2022 |
Number of Common Shares Issued Capital Share-based Payment Reserves Cumulative Translation Reserve Deficit Non- Controlling Interest Total Equity |
|---|---|
| 163,890,694 $ 19,371,637 $ 5,648,471 $ (2,995,052) $ (10,907,745) $ 35,128 $ 11,152,439 - - - - (1,203,270) - (1,203,270) - - - - - (2,775) (2,775) - - - 1,000,110 - (5,445) 994,665 |
|
| 163,890,694 19,371,637 5,648,471 (1,994,942) (12,111,015) 26,908 10,941,059 - - 327,166 - - - 327,166 - (18,602) - 371,079 - 10,562 363,039 |
|
| 163,890,694 $ 19,353,035 $ 5,975,637 $ (1,623,863) $(12,111,015) $ 37,470 $ 11,631,264 |
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
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Minsud Resources Corp.
Condensed Interim Consolidated Statements of Cash Flows For the Periods Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader
(All Amounts in Canadian Dollars Unless Otherwise Noted)
| Cash Provided By (Used In): Operating Activities Net loss for the period Items not affecting cash flows from operating activities: Hyperinflation - monetary loss Items not affecting cash: Share-based payments (note 8) Net changes in non-cash working capital: Input tax credits receivable Prepaid expenses and deposits Accounts payable and accrued liabilities Investing Activities Mineral property expenditures Purchase of property and equipment (note 5) Proceeds from deferred exploration recovery (note 12) Trust acquisition payments Change in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning of Period Cash and Cash Equivalents - End of Period Cash and cash equivalents is comprised of: Cash Cash equivalents Total Supplemental Cash Flow Information Interest received |
Cash Provided By (Used In): Operating Activities Net loss for the period Items not affecting cash flows from operating activities: Hyperinflation - monetary loss Items not affecting cash: Share-based payments (note 8) Net changes in non-cash working capital: Input tax credits receivable Prepaid expenses and deposits Accounts payable and accrued liabilities Investing Activities Mineral property expenditures Purchase of property and equipment (note 5) Proceeds from deferred exploration recovery (note 12) Trust acquisition payments Change in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning of Period Cash and Cash Equivalents - End of Period Cash and cash equivalents is comprised of: Cash Cash equivalents Total Supplemental Cash Flow Information Interest received |
|---|---|
| (291,447) (167,435) (476,261) (289,842) 99,165 (8,407) (14,822) (12,138) (163) 4,752 (10,152) (8,682) (36,053) (19,195) (29,401) (16,060) |
|
| (228,498) (190,285) (530,636) (326,722) |
|
| (3,406,046) (2,050,470) (6,001,107) (2,945,653) (211,210) (277,154) (303,604) (373,501) 2,976,571 2,516,450 7,177,302 3,786,915 (136,008) - (66,988) - |
|
| (776,693) 188,826 805,603 467,761 |
|
| (1,005,191) (1,459) 274,967 141,039 4,136,996 2,751,187 2,856,838 2,608,689 |
|
| $ 3,131,805 $ 2,749,728 $ 3,131,805 $ 2,749,728 | |
| $ 3,072,897 $ 2,675,057 $ 3,072,897 $ 2,675,057 58,908 74,671 58,908 74,671 |
|
| $ 3,131,805 $ 2,749,728 $ 3,131,805 $ 2,749,728 |
|
| $ 2,593 $ - $ 5,452 $ - |
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
1. Business of the Company
Minsud Resources Corp. (the “Company”) was incorporated under the Ontario Business Corporations Act on October 11, 2007 and is a publicly listed company on the TSX Venture Exchange under the symbol "MSR". The registered office is located at 340 Richmond Street West, Toronto Ontario. The principal place of business is located at Esmeralda 684 piso 15 - (CP.1007), Ciudad de Buenos Aires, Argentina.
The Company is in the process of exploring its mineral resource properties located in Argentina. To date, the Company has not earned significant revenues and is considered to be in the exploration stage. The realization of amounts shown for resource properties is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to develop these properties and generate future profitable operations or proceeds of disposition from these properties.
2. Basis of Presentation and Going Concern
a) Statement of Compliance
The Company's condensed interim consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting." These condensed interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2022, which were prepared with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the IFRS Interpretations Committee. These condensed interim consolidated financial statements have been prepared following the same accounting policies used in the preparation of the Company's audited consolidated financial statements for the year ended December 31, 2022, and were approved by the Board of Directors of the Company on August 28, 2023.
b) Basis of Consolidation
These condensed interim consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Minsud Argentina Inc ("MAI"), and MAI's subsidiary Minera Sud Argentina S.A. ("MSA").
MAI acquired 10,309,400 of the 10,852,000 outstanding common shares of MSA at May 10, 2011, representing a 95% ownership interest in MSA. The Company entered into a put and call option agreement with respect to the remaining 542,600 shares of MSA (representing 5% of the total number of issued and outstanding shares of MSA) which includes an irrevocable covenant to not divest or encumber such shares. The put and call option agreement allows the remaining 542,600 shares of MSA to be exchanged for 790,000 common shares of the Company at the option of either party.
As at June 30 2023, MAI held 144,951,699 (December 31, 2022 - 144,951,699) of the 145,494,299 (December 31, 2022 - 145,494,299) outstanding common shares of MSA, representing an ownership interest of 99.63% (December 31, 2022 - 99.63%). As at June 30, 2023 and December 31, 2022, the 542,600 shares of MSA not owned by MAI represented a non-controlling interests of 0.37% for both periods.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
2. Basis of Presentation and Going Concern (continued)
b) Basis of Consolidation (continued)
Consolidation of an investee begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has:
-
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
-
Exposure, or rights, to variable returns from its involvement with the investee; and
-
The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that ownership of a majority of voting rights results in control. To support this presumption, and when the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-
The contractual arrangement(s) with the other vote holders of the investee;
-
Rights arising from other contractual arrangement(s); and
-
The Company's voting rights and potential voting rights.
The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to align their accounting policies with the Company's accounting policies. All inter-company assets and liabilities, equity, income, expenses and cash flows relating to intercompany transactions are eliminated in full on consolidation.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
2. Basis of Presentation and Going Concern (continued)
c) Going Concern
The Company has not yet established whether its mineral properties contain resources or reserves that are economically recoverable. The recovery of amounts capitalized as mineral properties is dependent upon the discovery of economically recoverable resources or reserves, the ability of the Company to arrange appropriate financing to complete the development of properties, and upon future profitable production, or alternatively, upon the Company’s ability to dispose of its interests on an advantageous basis, all of which are uncertain.
The Company’s ability to continue as a going concern is dependent upon, but not limited to, its ability to raise financing necessary to fund its exploration programs, maintain its mineral properties concession rights and exploration agreements with purchase options, discharge its liabilities as they become due and generate positive cash flows from operations.
These condensed interim consolidated financial statements are prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has not generated revenue from operations. During the six months ended June 30, 2023, the Company incurred a net loss of $4,096,816 (2022 - $1,206,045) and as of that date, the Company's deficit was $18,603,108 (December 31, 2022 - $14,512,178). As at June 30, 2023, the Company has current assets of $4,347,125 (December 31, 2022 - $3,582,698) and current liabilities of $28,595,543 (December 31, 2022 - $928,657). The Company has a working capital deficit of $24,248,418 as at June 30, 2023 (December 31, 2022 - working capital of $2,654,041).
The prices of metals and minerals fluctuate widely and are affected by many factors outside of the Company’s control. The prices of metals and minerals and future expectation of such prices have a significant impact on the market sentiment for investment in mining and mineral exploration companies. This in turn may impact the Company’s ability to raise equity financing for its long-term working capital requirements.
The above noted events and conditions give rise to a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. These condensed interim consolidated financial statements do not give effect to adjustments that may be necessary, should the Company be unable to continue as a going concern. If the going concern assumption was not used then the adjustments required to report the Company’s assets and liabilities at liquidation values could be material to these condensed interim consolidated financial statements.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
3. Significant Accounting Policies
The accounting policies are consistent with those of the Company's audited consolidated financial statements for the year ended December 31, 2022.
4. Significant Accounting Judgments, Estimates and Assumptions
The preparation of these condensed interim consolidated financial statements in conformity with IFRS requires management to make estimates, assumptions and judgments with respect to future events. These estimates and judgments are based on past experience and other factors, in particular, forecasts of future events that are reasonable in the circumstances. The actual results are likely to differ from the estimates, assumptions and judgments made by management.
The following paragraphs describe the most critical management estimates and assumptions in the recognition and measurement of assets, liabilities and expenses and the most critical management judgments in applying accounting policies.
Estimates
i) Share-based payments
The estimate of share-based payment and the fair value of warrants requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Company has made estimates as to the volatility of its own shares, the expected life of options and expected extinguishments. The model used by the Company is the Black-Scholes option pricing model. Changes in the subjective input assumptions, such as the expected price volatility, can materially affect the fair value estimate.
Critical Judgments
i) Impairment of mineral properties
Mineral properties are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. When an indicator of impairment is identified, the Company determines the recoverable amount of the mineral property, which is the higher of an asset's fair value less costs of disposal or value in use. An impairment loss is recognized if the carrying value exceeds the recoverable amount. The recoverable amount of a mineral property may be determined by reference to estimated future operating results and discounted net cash flows, current market valuations of similar properties or a combination of the above. In undertaking this review, management of the Company is required to make significant estimates of, amongst other things: reserve and resource amounts, future production and sale volumes, forecast commodity prices, future operating, capital and reclamation costs to the end of the mine's life and current market valuations from observable market data which may not be directly comparable. These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverable amount of a specific mineral property asset. Changes in these estimates could have a material impact on the carrying value of the mineral property amounts and the impairment losses recognized.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
4. Significant Accounting Judgments, Estimates and Assumptions (continued)
Critical Judgments (continued)
ii) Functional currency of foreign subsidiaries
Management uses its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. As part of this approach, management gives priority to indicators like the currency that mainly influences costs and the currency in which those costs will be settled and the currency in which funds from financing activities are generated. Management also assesses the degree of autonomy the foreign operation has with respect to operating activities.
iii) Hyper-inflationary accounting
The Company has designated Argentina as a hyper-inflationary economy and has therefore employed the use of the hyper-inflationary accounting to consolidate and report MSA. The determination of whether an economy is hyper-inflationary requires the Company to make certain estimates and judgments, such as an assessment of historic inflation rates and anticipation of future trends. In addition, the application of hyperinflationary accounting requires the selection and use of price indices to estimate the impact of inflation on the non-monetary assets and liabilities, and results of operations of the Company. The selection of price indices is based on the Company’s assessment of various available price indices on the basis of reliability and relevance. Changes in estimates may significantly impact the carrying value of nonmonetary assets or liabilities, and results of operations, which are subject to hyper-inflationary adjustments, and the related gains and losses within the other comprehensive income.
iv) Deferred exploration recoveries
Management considered the facts and circumstances surrounding the receipt of deferred exploration recoveries (note 12), in determining that it represents a liability to the Company. The payment represents a portion of the funding that will form the consideration for South32 Aluminium (Holdings) Pty Ltd's ("South32") investment in MSA, should South32 exercise its right to acquire a 50.1% direct interest in MSA. In management’s view, as the Company continues to operate the Chita Valley Project, this payment for the future sale of a controlling interest in MSA is considered to be a present obligation of the Company.
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Minsud Resources Corp.
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
5. Property and Equipment
| As at June 30, 2023 Cost Balance, beginning of period Additions Currency translation adjustments Effects of hyperinflation Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation Currency translation adjustments Effects of hyperinflation Balance, end of period Net carrying amount as at June 30, 2023 As at June 30, 2022 Cost Balance, beginning of period Additions Disposals Currency translation adjustments Effects of hyperinflation Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation Disposals Currency translation adjustments Effects of hyperinflation Balance, end of period Net carrying amount as at June 30, 2022 |
Vehicles Office Equipment Facilities Other Total |
|---|---|
| $ 237,861 $ 255,312 $ 149,660 $ 1,989 $ 644,822 213,861 65,606 17,599 6,538 303,604 (100,308) (94,246) (56,890) (1,209) (252,653) 100,556 102,765 57,783 1,645 262,749 |
|
| 451,970 329,437 168,152 8,963 958,522 |
|
| (115,601) (64,330) (8,275) (378) (188,584) (24,501) (32,735) (7,648) (742) (65,626) 45,735 29,117 4,346 255 79,453 (47,149) (26,962) (3,727) (186) (78,024) |
|
| (141,516) (94,910) (15,304) (1,051) (252,781) |
|
| $ 310,454 $ 234,527 $ 152,848 $ 7,912 $ 705,741 |
|
| Vehicles Office Equipment Facilities Other Total |
|
| $ 74,613 $ 45,718 $ - $ - $ 120,331 121,503 146,685 103,662 1,651 373,501 - - - - - (17,953) (11,008) - (100) (29,061) 40,166 32,086 20,443 318 93,013 |
|
| 218,329 213,481 124,105 1,869 557,784 |
|
| (74,613) (17,106) - - (91,719) (10,529) (15,898) (2,613) (171) (29,211) - - - - - 13,925 4,134 131 14 18,204 (23,540) (8,107) - (11) (31,658) |
|
| (94,757) (36,977) (2,482) (168) (134,384) |
|
| $ 123,572 $ 176,504 $ 121,623 $ 1,701 $ 423,400 |
Depreciation expense has been capitalized to mineral properties.
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Minsud Resources Corp.
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
6. Mineral Properties
| As at June 30, 2023 Balance, beginning of period Property rights/exploration agreements Exploration activities(1) Currency translation adjustments Effects of hyperinflation Balance, end of period As at June 30, 2022 Balance, beginning of period Property rights/exploration agreements Exploration activities(1) Currency translation adjustments Effects of hyperinflation Balance, end of period |
San Juan Province Chita Valley Chita Brechas Vacas Minas de Pinto Other Total $ 14,906,432 $ 8,366,134 $ 3,764,402 $ 13,324 $ 27,050,292 - - 43,334 - 43,334 3,959,157 1,245,404 146,855 - 5,351,416 (5,833,913) (3,203,644) (1,344,244) (4,830) (10,386,631) 5,923,382 3,298,672 1,398,642 5,059 10,625,755 $ 18,955,058 $ 9,706,566 $ 4,008,989 $ 13,553 $ 32,684,166 San Juan Province Chita Valley Chita Brechas Vacas Minas de Pinto Other Total |
|---|---|
| $ 9,703,838 $ 6,188,736 $ 2,957,597 $ 11,029 $ 18,861,200 - - 48,049 - 48,049 445,478 311,565 24,243 - 781,286 (1,598,119) (1,072,442) (501,279) (1,944) (3,173,784) 2,811,375 1,887,478 884,573 3,440 5,586,866 |
|
| $ 11,362,572 $ 7,315,337 $ 3,413,183 $ 12,525 $ 22,103,617 |
(1)Amounts recorded as exploration activities include fees paid for drilling, construction of roads and labour and technical fees.
Chita Property
On September 28, 2006, the Company, through MSA, entered into an Exploration Agreement (the "Chita Agreement") including a Purchase Option to purchase a 100% ownership interest in the mining properties pursuant to certain terms and conditions, with the owners of the mining properties identified as Proyecto Chita in the Chita Valley, in the Province of San Juan, Argentina. The Chita Property includes the Chita I, II, III, IV, V and VI mining concessions, as well as the Romina, Lucrecia and Mabel mining concessions.
On August 3, 2012, the Company exercised its Purchase Option to acquire a 100% interest in the Chita Property in exchange for a series of cash payments totaling US$420,000. On September 12, 2012, the ownership interest in the Chita Property was transferred to the Company and registered by the Ministry of Mines in San Juan Province.
On September 12, 2017, the Company made the final payment pursuant to the Purchase Option resulting in a 100% ownership interest in the Chita Property.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
6. Mineral Properties (continued)
Chita Property (continued)
On July 14, 2022, the Company announced an agreement with San Juan Mining S.A. to acquire a mineral property named “Mina Gabriela” located in the central area of the Chita property, in San Juan Province, Argentina. Under the terms of the Transfer Agreement, Minsud acquired 100% of Mina Gabriela’s rights for a cash purchase price of US$30,000 ($39,414). The “Mina Gabriela’’ property has an area of 30 hectares which is within and overlapping the Chita property.
Brechas Vacas Property
On September 7, 2007, MSA entered into an exploration agreement including a purchase option (the "Initial Brechas Vacas Agreement") with the owners of the mining properties (the "Brechas Vacas owners") identified as Proyecto Brechas Vacas, located in the Chita Valley, in the Province of San Juan, Argentina (the “Brechas Vacas property”). In addition to the exploration rights, the Brechas Vacas owners granted to MSA, an irrevocable and exclusive option to purchase a 50% ownership interest in the property.
On September 6, 2011, MSA exercised its option to purchase a 50% ownership interest in the Brechas Vacas property for consideration of US$210,000. Subsequent to exercising this option, the ownership of the Brechas Vacas property was transferred by the Brechas Vacas owners to the Brechas Vacas Trust and MSA simultaneously acquired a 50% beneficial interest in the Brechas Vacas Trust. The remaining 50% beneficial interest in the Brechas Vacas Trust held by the Brechas Vacas owners was subject to a new exclusive and irrevocable purchase option agreement (the “BV Option Agreement”) dated January 3, 2012 granted in favour of MSA, and amended on December 19, 2013, June 24, 2016 and June 24, 2019. The option under the BV Option Agreement can be exercised by MSA at any time on or before June 26, 2022 and provides MSA with an irrevocable and exclusive right to purchase the remaining 50% beneficial interest in the Brechas Vacas Trust in exchange for a cash payment of US$735,000 in addition to the exclusive right to evaluate, prospect and explore the Brechas Vacas property.
On October 7, 2021, the Company, through MSA, has exercised its option to purchase the remaining 50% beneficial interest in the Brechas Vacas Trust, and has become the indirect owner of 100% of the Brechas Vacas property. The Brechas Vacas property represents one of the main properties in the Company’s flagship Chita Valley Project. MSA has paid the required sum of US$735,000 to the Brechas Vacas owners representing the price to fully exercise the option, which was settled in Argentinean pesos.
The Brechas Vacas owners will retain a 0.6% Net Smelter Return ("NSR") royalty on the Brechas Vacas property with the Company having the option to purchase 0.3% of the 0.6% NSR royalty, at any time, for a one-time payment of US$400,000.
As at December 31, 2021, the Company had made aggregate cash payments totaling US$1,925,000 ($2,300,752) and also issued 629,000 common shares of the Company.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
6. Mineral Properties (continued)
Minas de Pinto Property
On May 7, 2010, the Company, through MSA, entered into an Exploration Agreement including a Purchase Option (the "Initial Minas de Pinto Agreement") with the owners of the mining properties identified under the name of Proyecto Minas de Pinto, located in the Chita Valley in the Province of San Juan, Argentina. Included in Proyecto Minas de Pinto are the Arqueros, Don Marcos, Estrellita, Paulita, Paulita II, Pierina II, Pierina III, San Pablo, and San Urbano mining concessions.
Pursuant to the Minas de Pinto Agreement, the owners granted to the Company the irrevocable and exclusive right to evaluate, prospect and explore the properties using any method, and at the Company's sole discretion. In addition to the exploration rights, the owners granted to the Company an irrevocable and exclusive option to purchase a 100% ownership interest in the properties pursuant to certain terms and conditions stated in the Minas de Pinto Agreement. The Company made aggregate payments of US$252,500 by the respective due dates in accordance with the Minas de Pinto Agreement.
On April 22, 2014, the Minas de Pinto Owners settled the Minas de Pinto Trust and transferred 100% of the mineral properties governed by the Minas de Pinto agreement to the Minas de Pinto Trust. The Company acquired a 50% interest in the Minas de Pinto Trust for total consideration of US$417,500 with the first payment due upon signing and the final payment due May 7, 2018.
The remaining 50% beneficial interest in the Minas de Pinto Trust held by the Minas de Pinto Owners was subject to a new exclusive and irrevocable purchase option agreement (the “Option”) granted in favour of MSA. The Option provides MSA with an irrevocable and exclusive right to purchase the remaining 50% beneficial interest in the Minas de Pinto Trust in addition to the exclusive right to evaluate, prospect and explore the Minas de Pinto properties for consideration of US$1,335,000 payable at any time on or before May 7, 2019.
On May 8, 2017, the Company and the Minas de Pinto Owners signed an addendum to extend the period in which the Company can acquire the remaining 50% beneficial interest by exercising the Option prior to November 7, 2020. The addendum modified the payment schedule and increased the total amount to be paid to US$417,500.
On May 4, 2020, upon exercise of the Option discussed above, MSA entered into a Transfer Agreement, pursuant to which MSA acquired an additional 15% interest in the Minas de Pinto Trust in exchange for aggregate cash payments of US$400,000, payable in eight semi-annual payments of US$50,000 starting on May 7, 2020 until November 7, 2023. Furthermore, the parties entered into a second addendum to the Option, which would allow MSA to purchase the remaining 35% interest in the Minas de Pinto Trust by paying US$935,000 on or before April 7, 2024.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
6. Mineral Properties (continued)
Minas de Pinto Property (continued)
The following table summarizes the payments made and outstanding related to the Minas de Pinto property:
| property: | |
|---|---|
| $US Status |
|
| Initial Exploration Agreement Minas de Pinto Trust- 50% interest Minas de Pinto Trust- 15% interest (1) Minas de Pinto Trust- 15% interest (1) Total Payments Minas de Pinto Trust (Outstanding) |
$ 252,500 Paid 417,500 Paid 350,000 Paid 50,000 Outstanding $ 1,020,000 $ 50,000 |
(1) The aggregate payments of US$400,000 represents the consideration to be paid to acquire the additional 15% interest in the Minas de Pinto Trust.
As at June 30, 2023, the Company was in compliance with their staggered payments schedule. Payments related to the Transfer Agreement that are outstanding, but not yet overdue, amount to US$50,000 ($66,175), which is repayable during the year ended December 31, 2023.
Trust Agreement with Landowners
On December 5, 2022, the Company signed a "Trust Agreement" with landowners in the Chita Valley Project, which includes the Chita Property, the Brachas Vacas Property, and the Minas de Pinto Property. The Trust Agreement grants the purchase option of the property for a cash payment of US$1,500,000 (the "Purchase Price") during a term of 15 years, which can be paid at any time during the life of the Trust Agreement. The Purchase Price turns into an obligation if an "Acceleration Event" occurs, such as a confirmation by the Ministry of Mining of the Province of San Juan approving the feasibility study of the Chita Valley Project. To maintain the purchase option in good standing, the Company must comply with the following staggered payment (the "Maintenance Payments"): from year one to year five, annual payments of US$20,000; from year six to year ten, annual payments of US$40,000; and from year eleven to year fifteen, annual payments of US$100,000. The Maintenance Payments are in addition to the Purchase Price and are required until the Company's satisfaction of the Purchase Price. After the end of each five-year tranche, the Company must demonstrate a minimum annual investment of US$1,000,000 under the "Mineral Properties" asset, as disclosed in its annual consolidated financial statements.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
7. Issued Capital
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series.
During the period ended June 30, 2023 and the year ended December 31, 2022, the Company did not issue any common shares.
8. Stock Option Plan
On November 29, 2011 a new form of stock option plan (the “2011 Plan”) was approved by the shareholders at the annual and special meeting of shareholders held that day. The 2011 Plan is a rolling stock option plan. Options to purchase up to 10% of the total number of Company's shares issued and outstanding at the date of any grant are issuable pursuant to the 2011 Plan. The 2011 Plan is a rolling plan as the number of options which may be granted pursuant to the 2011 Plan will increase as the number of the Company's shares, which are issued and outstanding, increases. If an option expires or is otherwise terminated for any reason, the number of the Company's shares in respect of that expired or terminated option shall again be available for the purposes of the 2011 Plan. Pursuant to the policies of the Exchange, the shareholders of the Company are required to approve, on a yearly basis, stock option plans which have a rolling plan ceiling. Options issued under the 2011 Plan are non-assignable and nontransferable and may be granted for a term not exceeding ten years. The 2011 Plan is administered by the Company’s board of directors (the "Board of Directors") or a committee established by the Board of Directors for that purpose (the “Committee”). The 2011 Plan may be amended, subject to applicable regulatory and shareholder approval, or terminated by the Board of Directors or the Committee at any time, but such amendment or termination will not alter the terms or conditions of any option awarded prior to the date of such amendment or termination. Any option outstanding when the 2011 Plan is amended or terminated will remain in effect until it is exercised or expires or is otherwise terminated in accordance with the provisions of the 2011 Plan. The 2011 Plan provides that other terms and conditions, including vesting provisions, may be attached to a particular stock option at the discretion of the Board of Directors or the Committee, provided that, if required by any stock exchange on which the shares of the Company trades, options issued to consultants which provide investor relations activities must vest in stages over not less than 12 months with no more than one-quarter of the options vesting in any three-month period. All option grants are to be evidenced by the execution of an option agreement between the Company and the optionee which shall give effect to the provisions of the 2011 Plan. Options may be granted under the 2011 Plan only to directors, officers, employees and other service providers of the Company subject to the rules and regulations of applicable regulatory authorities and any Canadian stock exchange upon which the Company's shares may be listed or may trade from time to time.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
8. Stock Option Plan (continued)
The aggregate number of the Company's shares which may be reserved for issuance to any one individual under the 2011 Plan within any 12 month period shall not exceed 5% of the Company's shares issued and outstanding at the date of the grant (on a non-diluted basis). Further, the aggregate number of the Company's shares which may be reserved for issuance under the 2011 Plan: (a) to any consultant to the Company shall not exceed 2% of the number of the Company's shares issued and outstanding on the date of the grant (on a non-diluted basis) and (b) to all employees or consultants who provide investor relations activities shall not exceed 2% of the number of the Company's shares issued and outstanding on the date of the grant (on a non-diluted basis). In the event an optionee ceases to be a service provider or employee of the Company (other than by reason of death), the vested stock options will expire on the earlier of the expiry date stated in the option agreement executed in respect of such grant and one year following the date of termination. In the event of death of an optionee, all options will be automatically exercisable by the personal representatives of the optionee within, but only within, the period of one year next succeeding the optionee’s death and prior to the expiry date of the option, whichever is sooner. The price at which an optionee may purchase a Company's share upon the exercise of an option will be as set forth in the option agreement executed in respect of such option and, in any event, will not be less than the market price of the Company's shares as of the date of the grant of the stock option (the “Grant Date”) less any discounts from the market price allowed by the Exchange, subject to a minimum exercise price of $0.10. The market price of the Company's shares means the closing price on the last trading day immediately preceding the Grant Date. The Company's shares will not be issued pursuant to options granted under the 2011 Plan until they have been fully paid for.
- i) Movements in stock options during the period:
| Balance - January 1, 2022 Options granted Options expired Balance - December 31, 2022 Options granted Balance - June 30, 2023 |
Number of Options Weighted Average Exercise Price |
|---|---|
| 1,846,750 $ 0.11 3,060,000 0.30 (30,750) (0.15) |
|
| 4,876,000 0.11 7,850,000 0.57 |
|
| 12,726,000 $ 0.43 |
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Minsud Resources Corp.
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
8. Stock Option Plan (continued)
During the period ended June 30, 2023:
- a) The Company granted 2,450,000 incentive stock options to certain directors, officers and employees of the Company. The stock options are exercisable at price of $0.30 per share, all of which shall vest one-quarter on January 9, 2023, one-quarter on June 9, 2023, one-quarter on January 9, 2024, and one-quarter on June 9, 2024, and shall be exerciseable for a period of five years from the date of issuance.
The fair value of these options was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 3.11% |
| Expected life | 5.0 years |
| Expected volatility | 104%* |
| Share price | $0.38 |
| Exercise price | $0.30 |
| *Based on volatility of comparable companies |
The fair value of the granted stock options of $744,030 was estimated using the Black-Scholes option pricing model as the fair value of the services received could not be reliably measured. The fair value of the vested stock options during the period ended June 30, 2023 was $521,558.
- b) The Company granted an aggregate of 100,000 incentive stock options to certain directors of the Company. The options are exercisable at a price of $0.375 per share and shall vest immediately. The options have a term of five years.
The fair value of these options was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 2.99% |
| Expected life | 5.0 years |
| Expected volatility | 104%* |
| Share price | $0.650 |
| Exercise price | $0.375 |
| *Based on volatility of comparable companies |
The fair value of the granted stock options of $53,983 was estimated using the Black-Scholes option pricing model as the fair value of the services received could not be reliably measured. The fair value of the vested stock options during the period ended June 30, 2023 was $53,983.
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Minsud Resources Corp.
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
8. Stock Option Plan (continued)
- c) The Company granted an aggregate of 5,300,000 incentive stock options, out of which an aggregate of 4,000,000 options were granted to certain directors and the Company's CEO. The options are exercisable at a price of $0.696 per share and shall vest as follows: one-quarter on May 11, 2023, one-quarter on November 11, 2023, one-quarter on May 11, 2024 and one-quarter on November 11, 2024. The options have a term of five years.
The fair value of these options was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 2.77% |
| Expected life | 5.0 years |
| Expected volatility | 104%* |
| Share price | $1.00 |
| Exercise price | $0.696 |
| *Based on volatility of comparable companies |
The fair value of the granted stock options of $4,295,148 was estimated using the Black-Scholes option pricing model as the fair value of the services received could not be reliably measured. The fair value of the vested stock options during the period ended June 30, 2023 was $1,609,876.
During the year ended December 31, 2022:
- d) The Company granted 3,060,000 incentive stock options, of which 2,480,000 were granted to directors and officers of the Company. The options are exercisable at a price of $0.30 per share, all of which shall vest as to one-quarter on February 11, 2022, one quarter on August 11, 2022, one-quarter on February 11, 2023, and one quarter on August 11, 2023, and shall be exercisable for a period of five years from the date of issuance.
The fair value of these options was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 1.70% |
| Expected life | 5.0 years |
| Expected volatility | 104%* |
| Share price | $0.24 |
| Exercise price | $0.30 |
| *Based on volatility of comparable companies |
The fair value of the granted stock options of $540,824 was estimated using the Black-Scholes option pricing model as the fair value of the services received could not be reliably measured. The fair value of the vested stock options during the period ended June 30, 2023 was $60,379.
-19-
Minsud Resources Corp.
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
8. Stock Option Plan (continued)
ii) Stock options outstanding at the end of the period
| Exercise Price | Options Vested Options Unvested Remaining Contractual Life (Years) Expiry Date |
|---|---|
| $ 0.10 $ 0.15 $ 0.30 $ 0.30 $ 0.38 $ 0.70 |
1,400,000 - 2.05 July 16, 2025 416,000 - 2.62 February 12, 2026 2,295,000 765,000 3.62 February 12, 2026 1,225,000 1,225,000 4.53 January 9, 2028 100,000 - 4.83 April 27, 2028 1,325,000 3,975,000 4.87 May 11, 2028 6,761,000 5,965,000 4.12 |
As at June 30, 2023, 3,663,069 stock options are available for issuance at the discretion of the Company's Board of Directors pursuant to the Company's stock option plan.
9. Related Party Transactions and Balances
During the period ended June 30, 2023, the Company incurred the following related party transactions:
i) Transactions
-
a) A total salary of $149,582 (2022 - $126,033) was charged by the Company's current CEO. These amounts have been expensed to professional fees.
-
b) A total of $22,000 of accounting and regulatory compliance fees (2022 - $23,500) and $12,000 of CFO fees (2022 - $12,000) was charged by an accounting firm in which the Company's CFO is a partner. These amounts have been expensed to professional fees.
-
c) A total of $24,271 of professional fees (2022 - $26,619) and $192 (2022 - $430) of mineral property exploration expenses were charged by the Company's prior Vice-President (Exploration). These amounts have been capitalized to mineral properties.
-
d) A total of $14,478 of professional fees (2022 - $Nil) and $2,742 (2022 - $Nil) of mineral property exploration expenses were charged by the Company's current Vice-President (Exploration). These amounts have been capitalized to mineral properties.
-20-
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
Minsud Resources Corp.
9. Related Party Transactions and Balances (continued)
-
ii) Period-end balances
-
a) As at June 30, 2023, accounts payable and accrued liabilities included $18,971 (December 31, 2022 - $74,351) payable to the Company's current CEO.
-
b) As at June 30, 2023, accounts payable and accrued liabilities included $11,705 (December 31, 2022 - $33,915) payable to an accounting firm in which the Company's CFO is a partner.
Amounts owing to related parties are non-interest bearing and have no repayment terms.
10. Financial Instruments
Fair Values
The carrying amounts for the Company’s cash and cash equivalents, accounts payable and accrued liabilities, other liabilities, and trust acquisition payable approximate their fair values because of the short-term nature or immaterial interest rate risk of/for these items.
The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to meet its obligations and cause a financial loss. The Company is not exposed to any significant credit risk as at June 30, 2023. The Company’s maximum exposure is limited to its cash as presented in the consolidated statements of financial position. The Company's cash and cash equivalents are on deposit with highly rated financial institutions in Canada and Argentina. The Company's exposure to and management of credit risk has not changed materially from that of the prior year.
Liquidity Risk
Liquidity risk is the risk that an entity will not be able to meet its financial obligations as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at June 30, 2023, the Company has current assets of $4,347,125 (December 31, 2022 - $3,582,698) and current liabilities of $28,595,543 (December 31, 2022 - $928,657). The Company has a working capital deficit as at June 30, 2023 of $24,248,418 (December 31, 2022 - working capital of $2,654,041). All of the Company's current financial assets and liabilities, with the exception of the current portion of trust acquisition payable, have contractual maturities of less than 30 days and are subject to normal trade terms. The Company's exposure to and management of liquidity risk has not changed materially from that of the prior year.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
10. Financial Instruments (continued)
Market Risk
Market risk is the risk that changes in market prices and interest rates will affect the Company's net earnings or the value of financial instruments. These risks are generally outside the control of the Company. The objective of the Company is to mitigate market risk exposures within acceptable limits, while maximizing returns. In order to mitigate these risks, the Company invests in financial instruments with carrying maturities and interest rates based on the Company's expected working capital requirements. The Company’s market risk consists of risks from changes in foreign exchange rates, interest rates and market prices that affect its financial liabilities, financial assets and future transactions.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows from a financial instrument will fluctuate due to changes in market interest rates. The Company has significant cash balances and it has no interest-bearing debt. The Company’s exposure to interest rate risk is minimal as it does not hold any investments or debt that is subject to interest rate fluctuations. The Company's exposure to and management of interest rate risk has not changed materially from that of the prior year.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows from the Company's operations will fluctuate due to changes in foreign exchange rates. The Company has cash and cash equivalents and accounts payable and accrued liabilities denominated in Argentinean Pesos (AR$). The carrying value of these items may change due to fluctuations in foreign exchange rates. The Company's obligations pursuant to the various mineral property agreements are denominated in United States Dollars (US$). As the Company ordinarily raises capital through the issuance of common shares and warrants in Canadian Dollars, the Company is exposed to risk due to fluctuations in the foreign exchange rate between the United States Dollar and the Canadian Dollar and between the Argentinean Peso and the United States Dollar. The Company's exposure to and management of foreign currency risk has not changed materially from that of the prior year.
Sensitivity Analysis
As at June 30, 2023, cash and cash equivalents includes AR$108,785,333 and US$1,715,834, accounts payable and accrued liabilities includes AR$259,594,472 and US$10,780 and trust acquisition payable includes US$50,000.
At June 30, 2023, if the Canadian Dollar had weakened (strengthened) 10 percent against the United States Dollar with all other variables held constant, the net loss for the period would have been $218,923 lower (higher). If the Canadian Dollar had weakened (strengthened) 10 percent against the Argentinean Peso with all other variables held constant, the net loss for the year would have been $77,755 higher (lower). If the Canadian Dollar had weakened (strengthened) 10 percent against the Argentinean Peso with all other variables held constant, the other comprehensive loss for the period would have been $3,146,830 lower (higher).
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Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
Minsud Resources Corp.
11. Commitments
On January 25, 2022, the service agreement with the Vice-President (Exploration) was renewed for a monthly fee of US$3,500 until January 25, 2023. This service agreement was not renewed upon expiry.
On April 27, 2023, the Company entered into a service agreement with a new Vice-President (Exploration) for a monthly fee of US$4,000. The service agreement will remain in full force and effect indefinitely. The service agreement can be terminated by either party by giving the other party thirty (30) days written notice or by a mutual agreement between the parties.
Additional commitments related to the Company's mineral properties are disclosed in note 6.
12. South32 Limited Agreement
Earn-in Agreement
The Earn-in Agreement grants to South32 the right to acquire up to a 50.1% direct interest in MSA at the end of the earn-in period.
Under the Earn-in Agreement, South32 will provide up to $14 million in capital contributions to MSA over a period of 4 years, as follows: (i) not less than $3.5 million by December 31, 2020; (ii) not less than an aggregate of $7 million by December 31, 2021; (iii) not less than an aggregate of $10.5 million by December 31, 2022; and (iv) not less than an aggregate of $14 million by December 31, 2023. South32 has the right to withdraw at the end of each year. Once South32 has complied with its funding obligations, South32 may exercise its right to acquire a 50.1% direct interest in MSA by electing to subscribe for 10% of MSA's shares, in consideration for its funding, and acquire the remaining 40.1% of MSA's shares from MAI for a consideration of $14 million.
During the period ended June 30, 2023, MSA received payments translated for financial purposes at the period end exchange rate of $7,177,302 (2022 - $3,786,915) related to the third tranche payments. As at June 30, 2023, South32 invested a total of $20,001,739 (US$15,272,891) (2022 - $10,599,295 (US$8,200,836)) to the Earn-in Agreement. These payments have been deferred as a liability and represents a portion of the funding that will form the consideration for South32's investment in MSA, should South32 exercise its right to acquire a 50.1% direct interest in MSA as discussed above.
On February 3, 2023, the Company announced South32 will fund Year 4 exploration program at the Chita Valley Project. South32 intends to fund the $9,100,000 Year 4 exploration budget and program.
On April 13, 2023, South32 has exercised its earn-in right to acquire a 50.1% ownership interest in Minera Sud Argentina S.A., Minsud’s indirect Argentinian subsidiary that holds and operates the flagship Chita Valley Project.
In accordance with the terms of the earn-in agreement dated November 1, 2019, as amended between South32 and Minsud, South32 had the right to exercise its Earn-In Right upon advancing initial capital contributions to MSA of no less than C$14 million (the “South32 Initial Capital Contribution”) for a period of four years in order to fund MSA’s exploration programs. South32 advanced the South32 Initial Capital Contribution within a period of three years and has, in accordance with the Earn-In Agreement, exercised its Earn-In Right to acquire 50.1% of MSA.
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Minsud Resources Corp. Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader (All Amounts in Canadian Dollars Unless Otherwise Noted)
12. South32 Limited Agreement (continued)
Earn-in Agreement (continued)
Completion of South32’s acquisition of 50.1% of the shares in MSA shall take place on the earlier of: (i) the completion of the Year 4 annual exploration program; and (ii) February 14, 2024.
At the time of Completion, MAI and South32 will enter into a shareholders' agreement to govern the management and operation of MSA which will include further exploration and, if economically feasible, the development and exploitation of the Chita Valley Project (the “Shareholders’ Agreement”). Until Completion, MAI shall continue to manage and operate MSA and, therefore, the Chita Valley Project.
As part of the exercise of the Earn-In Right the parties to the Earn-In Agreement have agreed to certain amendments to the Earn-In Agreement and the Shareholders’ Agreement, including:
-
° The exercise of the Earn-In Right by South32 is confirmed and certain other optional earn-in rights in favour of South32 relating to the funding of a prefeasibility study and a bankable feasibility study are removed.
-
° MAI shall be entitled to elect, prior to Completion, whether South32’s acquisition of the 50.1% stake in MSA will be effected by means of:
-
(i) South32’s subscription for MSA shares in consideration for the South32 Initial Capital Contribution (the “Cash In Option”); or
-
(ii) a combination of a subscription for 10% of MSA shares combined with a sale of 40.1% of MSA shares from MAI to South32 (the “Cash Out Option”).
-
° Previously, the Earn-In Agreement provided that on exercise of the Earn-In Right South32 would pay an amount of C$14 million to MAI (the “Transfer Price”) which is in addition to the South32 Initial Capital Contribution. The amendments to the earn-In Agreement now provide that:
-
(i) Whilst South32 has already committed to fund C$9.1 million for the Year 4 exploration program (of which C$2.6 million has already been contributed) 49.9% of the C$9.1 million Year 4 exploration program will now be funded by MAI by way of this amount being deducted from the Transfer Price;
-
(ii) If MAI opts for the Cash Out Option, then South32 shall pay the balance of the Transfer Price to MAI on Completion and for a period of twenty-four (24) months from the date on which the Shareholders’ Agreement is signed, and provided that MAI reinvests the balance of the Transfer Price in approved MSA programs and budgets, then MAI’s 49.9% share in MSA shall not be diluted; and
-
(iii) If MAI opts for the Cash In Option, then MAI will not be obliged to contribute any amount to an approved program and budget until the aggregate of the South32 Initial Capital Contribution and the amounts contributed and funded by South32 in respect of MSA approved programs and budgets following the South32 Initial Capital Contribution equals C$42 million.
Upon exercise of the Earn-in Right, the Prefeasibility Study Election, Bankable Feasibility Study Election and Purchase Election included in the original Earn-in Agreement, and disclosed in the Company's previous consolidated financial statements were removed.
-24-
Minsud Resources Corp.
Notes to the Condensed Interim Consolidated Financial Statements For the Six Months Ended June 30, 2023 and 2022 Unaudited - see Notice to Reader
(All Amounts in Canadian Dollars Unless Otherwise Noted)
13. Subsequent Events
Subsequent to June 30, 2023, the Company granted an aggregate of 200,000 incentive stock options to certain consultants of the Company. The options are exercisable at a price of $0.872 per share which shall vest one-quarter on the date of grant, one-quarter on February 4, 2024, one-quarter on August 4, 2024, and one-quarter on August 4, 2024, and shall be exercisable for a period of five years from the date of grant.
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