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Minto Metals Corp. — Interim / Quarterly Report 2021
Dec 1, 2021
47935_rns_2021-11-30_8f18e9bf-7a3d-48f5-a960-b58ab998d2aa.pdf
Interim / Quarterly Report
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Minto Explorations Ltd.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended September 30, 2021 and 2020 (Unaudited)
NOTICE TO READER
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim condensed consolidated financial statements have been prepared by and are the responsibility of management.
The Company’s independent auditor has not performed a review of these financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.
Minto Explorations Ltd.
Condensed Interim Consolidated Statements of Financial Position As at September 30, 2021 and December 31, 2020 (Unaudited - stated in thousands of Canadian dollars)
| As at | Note | September 30, 2021 | September 30, 2021 | December 31, 2020 | |
|---|---|---|---|---|---|
| Assets | |||||
| Current assets | |||||
| Cash | $ | 1,031 | $ | 507 | |
| Accounts Receivable | 5 | 9,446 | 6,437 | ||
| Inventories | 6 | 6,904 | 5,604 | ||
| Prepaid expenses | 2,992 | 755 | |||
| 20,373 | 13,303 | ||||
| Non-current assets | |||||
| Mineral properties, plant and equipment | 7 | 51,062 | 48,594 | ||
| Right-of-use assets | 8 | 8,755 | 10,433 | ||
| Long-term deposits | 11,850 | 8,988 | |||
| Total assets | $ | 92,040 | $ | 81,318 | |
| Liabilities | |||||
| Current liabilities | |||||
| Accounts payable and accrued liabilities | $ | 39,662 | $ | 20,937 | |
| Current portion of Sumitomo loan | 9 | 7,627 | 2,012 | ||
| Currentportion of lease liability | 8 | 5,638 | 6,065 | ||
| 52,927 | 29,014 | ||||
| Non-current liabilities | |||||
| Lease liabilities | 8 | 3,448 | 3,610 | ||
| Due to Pembridge | 9 | 5,093 | 4,841 | ||
| Due to Sumitomo | 9 | - | 1,732 | ||
| Long-term debt | 9 | 11,918 | 11,347 | ||
| Deferred revenue | 10 | 14,245 | 14,901 | ||
| Deferred income tax liabilities | 2,814 | 2,670 | |||
| Asset retirement obligation | 11 | 32,944 | 32,196 | ||
| Total liabilities | 123,389 | 100,311 | |||
| Shareholders' equity (deficiency) | |||||
| Share capital | 12 | 210,443 | 216,749 | ||
| Deficit | (241,792) | (235,742) | |||
| Total shareholders' equity (deficiency) | (31,349) | $ | (18,993) | ||
| Total liabilities and shareholders' equity (deficiency) | $ | 92,040 | $ | 81,318 |
ON BEHALF OF THE BOARD:
“Gati Al-Jebouri” “David James” Director Director
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
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Minto Explorations Ltd.
Condensed Interim Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) For the three and nine month periods ended September 30, 2021 and 2020 (unaudited - stated in thousands of Canadian dollars, except share and per share amounts)
| Three months ended | Three months ended | Nine months ended | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Note | September 30, 2021 | September | 30,2020 | September 30, 2021 | September | 30,2020 | |||
| Revenue | 13 | $ | 30,125 |
$ | 26,355 |
$ | 91,008 |
$ | 62,117 |
| Production costs | (27,779) | (21,582) | (78,696) | (59,089) | |||||
| Royalty expense | (951) | (249) | (2,566) | (745) | |||||
| Depletion and amortization | 7, 8 | (2,862) | (2,238) | (7,681) | (6,705) | ||||
| Income (loss) from mine operations | (1,467) | 2,286 | 2,065 | (4,422) | |||||
| Expenses | |||||||||
| Related party management fees | (399) | (186) | (649) | (377) | |||||
| Other expenses | (270) | - | (883) | (205) | |||||
| Income (loss) from operations | (2,136) | 2,100 | 533 | (5,004) | |||||
| Other income (loss), net | 14 | (2,404) | (835) | (2,804) | (224) | ||||
| Finance costs | 15 | (1,378) | (1,284) | (3,635) | (3,504) | ||||
| Income (loss) before income taxes | (5,918) | (19) | (5,906) | (8,732) | |||||
| Income tax recovery (expense) | (420) |
229 | (144) | (51) | |||||
| Net income(loss) and comprehensive income(loss) | $ | (6,338) | 210 | $ | (6,050) | $ | (8,783) | ||
| Per share amounts | |||||||||
| Basic and diluted | $ | (0.01) | $ | 0.00 | $ | (0.01) | $ | (0.02) | |
| Weighted Average Number of Common Shares Outstandin | 722,746,364 | 721,342,769 | 722,746,364 | 400,626,573 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
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Minto Explorations Ltd.
Condensed Interim Consolidated Statements of Cash Flows For the three and nine month periods ended September 30, 2021 and 2020 (unaudited - stated in thousands of Canadian dollars)
| Three months ended | Three months ended | Nine months ended | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Note | September 30, 2021 | September | 30,2020 | September 30, 2021 | September | 30,2020 | |||
| Operating activities | |||||||||
| Net income (loss) for the period | $ | (6,338) |
$ | 210 |
$ | (6,050) |
$ | (8,783) |
|
| Adjustments for the following items: | |||||||||
| Depletion, depreciation and accretion | 2,797 | 2,238 | 7,616 | 6,705 | |||||
| Finance costs | 1,228 | 1,155 | 2,683 | 3,502 | |||||
| Other income (loss), net | (226) | (571) | (517) | (17) | |||||
| Amortization of deferred revenue | (970) | (802) | (1,547) | (2,128) | |||||
| Income tax expense (recovery) | 420 | (229) | 144 | 51 | |||||
| Change in non-cash workingcapital | 16 | 8,712 | (3,985) | 12,179 | 9,923 | ||||
| 5,623 | (1,984) | 14,508 | 9,253 | ||||||
| Interestpaid | (496) | (517) | (496) | (1,064) | |||||
| Net cashprovided by (used in)operatingactivities | 5,127 | (2,501) | 14,012 | 8,189 | |||||
| Investing activities | |||||||||
| Additions to mineral properties, plant and | |||||||||
| equipment | 7 | (1,726) | (719) | (3,931) | (5,105) | ||||
| Net cash used in investingactivities | (1,726) | (719) | (3,931) | (5,105) | |||||
| Financing activities | |||||||||
| Advances from Sumitomo | 9 | - | 6,299 | - | |||||
| Repayments on Sumitomo loan | 9 | (939) | (2,461) | - | |||||
| Repayment of lease liabilities | 8 | (1,960) | (1,836) | (5,238) | (5,312) | ||||
| Class B common shares issued | - | - | - | 4,076 | |||||
| Return of capital | 12 | - | - | (6,306) | - | ||||
| Proceeds from Pembridge | 9 | - | 4,575 | - | 4,575 | ||||
| Long-term deposits | - | (5,000) | (1,851) | (5,000) | |||||
| Net cashprovided(used in)financingactivities | (2,899) | (2,261) | (9,557) | (1,661) | |||||
| Change in cash | 502 | (5,481) | 524 | 1,423 | |||||
| Cash,beginningofperiod | 529 | 7,639 | 507 | 735 | |||||
| Cash,end ofperiod | $ | 1,031 | $ | 2,158 | $ | 1,031 | $ | 2,158 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
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Minto Explorations Ltd. Condensed Interim Consolidated Statements of Changes in Deficiency (unaudited - stated in thousands of Canadian dollars, except share information)
| Shareholders' equity | Shareholders' equity | |||||||
|---|---|---|---|---|---|---|---|---|
| Note | **Number of shares ** | Share capital | Deficit | (deficiency) | ||||
| Balance at January 1, 2020 | 238,506,300 | $ | 212,673 | $ | (217,461) | $ | (4,788) | |
| Class B common share issuance | 12 | 484,240,064 | 4,076 | - | 4,076 | |||
| Net loss and comprehensive loss | - | - | (8,993) | (8,993) | ||||
| Balance at June 30, 2020 | 722,746,364 | 216,749 | (226,454) | (9,705) | ||||
| Net loss and comprehensive loss | - | - | (9,288) | (9,288) | ||||
| Balance at December 31, 2020 | 722,746,364 | 216,749 | (235,742) | (18,993) | ||||
| Return of capital | 12 | - | (6,306) | - | (6,306) | |||
| Net income and comprehensive income | - | - | (6,050) | (6,050) | ||||
| Balance at September 30, 2021 | 722,746,364 | $ | 210,443 | $ | (241,792) | $ | (31,349) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
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Minto Explorations Ltd. Notes to the Condensed Interim Consolidated Financial Statements For the three and nine month periods ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
1. Description of Business and Nature of Operations
Minto Explorations Ltd. (“Minto” or the “Company”), is a privately owned Canadian company incorporated in British Columbia, Canada. The Company is engaged in the production of copper and precious metals from the Minto Mine located in Yukon, Canada. The Company has two wholly-subsidiaries which hold mineral claims.
The Minto Mine was acquired by Pembridge Resources plc (“Pembridge”) on June 3, 2019 when Pembridge acquired all of the issued and outstanding common shares of Minto from Capstone Mining Corp (“Capstone”). Prior to its acquisition, the Minto Mine had been on care and maintenance since October 2018. Subsequent to the acquisition, the Company restarted operations and the mine restarted commercial production in October 2019.
On June 16, 2021, the Company announced that it has entered into a series of agreements that will see the Company going public by way of a Reverse Takeover (“RTO”) of 1246778 B.C. Ltd. (“778”), together with a concurrent application to list the Resulting Issuer’s shares on the TSX Venture Exchange. The entity resulting from the combination of 778 and Minto Explorations Ltd. will be named Minto Metals Corp..
On June 11, 2021, the Minto Explorations Ltd. and 778 entered into Agency Agreements with Stifel GMP and Raymond James Ltd. as co-lead agents and joint bookrunners on behalf of a syndicate of agents to sell on a “best efforts” basis, up to $45 million (the “Offering”) of shares from treasury. The offering price was $2.60 CDN per share. In addition, Minto Explorations Ltd. and 778 have granted an over-allotment option of $6.75 million in gross receipts. As at September 30, 2021 the Company has firm commitments for $31.0 million of shares.
The Company’s head office is located at Suite 800, 5940 Macleod Trail SW, Calgary, Alberta.
2. Going Concern
These condensed interim consolidated financial statements (the “Financial Statements”) have been prepared by management on a going concern basis which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as going concern, it may be unable to realize the carrying value of its assets and meet its liabilities and obligations as they become due. To date, the Company has not obtained profitable operations from its various assets and activities and continues to incur losses.
The Company has in place a planning, budgeting and forecasting process to determine the funds required to support the Company’s operations and expansionary plans. At September 30, 2021, the Company had cash of $1.0 million (December 31, 2020 - $0.5 million), available capacity of $5.7 million (USD $4.5 million) for future draws under the Prepayment Facility Agreement with Sumitomo Canada Limited, and a working capital deficiency of $32.6 million (December 31, 2020 - $15.7 million). The working capital deficiency was primarily due to accounts payable and accruals of $39.7 million (December 31, 2020 - $20.9 million) and the Sumitomo loan, all of which is classified as current at September 30, 2021. The Company recognized a net loss of $6.3 million and $6.1 million for the three and nine month periods ended September 30, 2021 (2020 – net income of of $0.2 million and loss of and $8.8 million respectively). These conditions indicate the existence of a
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
material uncertainty which may cast significant doubts about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent on its ability to achieve profitable operations in the future, on its ability to raise additional capital through debt or equity financings, and the cooperation of lenders. The Company has been successful in the raising capital in the past but there are no assurances that it will be successful in closing additional raises.
These Financial Statements do not reflect adjustments to the carrying values of the assets and liabilities, revenues, expenses and the balance sheet classification that would be used if the going concern assumption were not appropriate. Such adjustments could be material.
3. Basis of Presentation, Significant Accounting Judgements and Estimates, and Significant Accounting Policies
a) Statement of Compliance
These Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). The financial statements do not contain all disclosures required by International Financial Reporting Standards (“IFRS”) and accordingly should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 and the notes thereto. The financial statements were approved by the Company’s Board of Directors and authorized for issuance on November 17, 2021.
These Financial Statements have been prepared under the historical cost method except for certain financial assets and liabilities which are measured at fair value. These Financial Statements are presented in Canadian dollars, which is also the functional currency of the Company.
b) Seasonality of operations
The Company is subject to fluctuations in its operations due to the location of the Minto Mine and shipping terminal. Concentrate produced at the Minto Mine is transported by trucks to the Skagway Ore Terminal (“Terminal”) in Alaska. The concentrate is stored at the Terminal until sufficient quantities are accumulated for shipment to the Port of Niihama, Japan. The trucks must cross the Yukon river in order to reach Alaska. During the spring and fall seasons, the Yukon River is too low for barges to operate. As a result, the Company stores produced concentrate at its site until water levels return to normal in the summer season, or a traversable ice bridge forms across the river in the winter season.
c) Use of estimates and judgements
The preparation of these Financial Statements requires management to make judgments, estimates and assumptions that affect the reported amount of revenues, expenses, assets, liabilities, and the disclosure of contingent assets and liabilities. These estimates and judgments concern matters that are inherently complex and uncertain. Judgements and estimates are continually evaluated and are based on historical experience and expectation of future events. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revisions affect only that period on in the period of the revision and future periods if the revision affects current and future periods.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
In preparing the Financial Statements for the three and nine month periods ended September 30, 2021, the Company applied the critical judgements and estimates as disclosed in Note 2 of its consolidated financial statements for the year ended December 31, 2020.
On April 1, 2021, the Company changed its depletion base from estimated reserves to estimated resources, based on a Preliminary Economic Assessment (“PEA”) that was completed on March 31, 2021. The change in depletion base has had no impact on the opening shareholders’ deficiency.
4. Adoption of New and Revised IFRS and IFRS Not Yet Effective
On August 27, 2020, an amendment to IFRS 9 and certain other standards, IBOR Reform and its Effect on Financial Reporting, was issued by the IASB and became effective January 1, 2021. The Company has assessed the impact of the amendment and determined it does not currently have a significant effect on the Company’s financial statements.
The Company has not adopted any standard, interpretation, or amendment that has been issued but is not yet effective.
5. Accounts Receivable
| 5. Accounts Receivable |
||||
|---|---|---|---|---|
| As at | September | 30, 2021 | December | 31,2020 |
| Trade receivables | $ | 8,775 |
$ | 6,031 |
| Goods and services taxes and other | 671 | 406 | ||
| $ | 9,446 | $ | 6,437 |
Trade receivables represent the value of metal concentrates as at period end for which the funds are not yet received. Goods and services taxes are recoverable within one year. All accounts receivable are expected to be received within twelve months and are thus recognized as current assets.
6. Inventories
| 6. Inventories |
||||
|---|---|---|---|---|
| As at | September | 30, 2021 | December | 31,2020 |
| Consumable parts and supplies | $ | 6,751 |
$ | 3,619 |
| Ore stockpiles | 153 | 1,985 | ||
| $ | 6,904 | $ | 5,604 |
At December 31, 2020 the ore stockpile was valued at the lower of cost or net realizable value, resulting in a write-down of $1.4 million. No write-down was recognized during the three and nine month periods ended September 30, 2021 and 2020.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
7. Mineral Properties, Plant and Equipment
| Mineral Properties | Mineral Properties | Mineral Properties | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Depletable | Non-depletable | |||||||||||
| Mineral | ||||||||||||
| Producing | exploration and | |||||||||||
| mineral | development | Mill | Plant & | Construction | ||||||||
| Nine months ended September 30, 2021 | properties | properties | development | equipment | in | progress | Total | |||||
| Cost | ||||||||||||
| At January 1, 2021 | $ | 51,095 |
$ | 27,002 |
$ | 9,621 |
$ | 160,462 |
$ | 7,875 |
$ | 256,055 |
| Transfers | 15,693 | (15,693) | - | - | - | - | ||||||
| Additions | 2,564 | - | - | 1,262 | 19 | 3,845 | ||||||
| Changes in estimates | 595 | - | - | - | - | 595 | ||||||
| Cost at September 30,2021 | $ | 69,947 | $ | 11,309 | $ | 9,621 | $ | 161,724 | $ | 7,894 | $ | 260,495 |
| Accumulated depreciation and amortization | ||||||||||||
| At January 1, 2021 | $ | 43,624 |
$ | 70 |
$ | 9,615 |
$ | 154,152 |
$ | - |
$ | 207,461 |
| Depletion and amortization | 1,242 | - | - | 730 | - | 1,972 | ||||||
| Accumulated depreciation and | ||||||||||||
| amortization at September 30, 2021 | $ | 44,866 | $ | 70 | $ | 9,615 | $ | 154,882 | $ | - | $ | 209,433 |
| Carryingamount at September 30, 2021 | $ | 25,081 |
$ | 11,239 |
$ | 6 |
$ | 6,842 |
$ | 7,894 |
$ | 51,062 |
| Mineral Properties | ||||||||||||
| Depletable | Non-depletable | |||||||||||
| Mineral | ||||||||||||
| Producing | exploration and | |||||||||||
| mineral | development | Mill | Plant & | Construction | ||||||||
| Year ended December 31, 2020 | properties | properties | development | equipment | in | progress | Total | |||||
| Cost | ||||||||||||
| At January 1, 2020 | $ | 47,029 |
$ | 24,963 |
$ | 9,621 |
$ | 160,146 |
$ | 7,590 |
$ | 249,349 |
| Transfers | 2,727 | (2,727) | - | - | - | - | ||||||
| Additions | - | 4,766 | - | 316 | 285 | 5,367 | ||||||
| Changes in estimates | 1,339 | - | - | - | - | 1,339 | ||||||
| Cost at December 31, 2020 | $ | 51,095 |
$ | 27,002 |
$ | 9,621 |
$ | 160,462 |
$ | 7,875 |
$ | 256,055 |
| Accumulated depreciation and amortization | ||||||||||||
| At January 1, 2020 | $ | 42,398 |
$ | 70 |
$ | 9,615 |
$ | 153,241 |
$ | - |
$ | 205,324 |
| Depletion and amortization | 1,226 | - | - | 911 | - | 2,137 | ||||||
| Accumulated depreciation and | ||||||||||||
| amortization at December 31, 2020 | $ | 43,624 |
$ | 70 |
$ | 9,615 |
$ | 154,152 |
$ | - |
$ | 207,461 |
| Carryingamount at December 31,2020 | $ | 7,471 | $ | 26,932 | $ | 6 | $ | 6,310 | $ | 7,875 | $ | 48,594 |
Construction in progress relates to capital costs incurred by the Minto Mine which are not yet in use.
During the nine months ended September 30, 2021, the Company invested $2.2 million (nine months ended September 30, 2020: $4.6 million) in the Copper Keel ore body by improving access to the site for future development. In the second quarter of 2021, $15.7 million of mineral exploration and development properties relating to the Copper Keel ore body were transferred to producing mineral properties due to the commencement of commercial production.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
The Company changed its depletion base from estimated reserves to estimated resources (refer to Note 3(C)).
8. Lease Liabilities
Right-of-use assets
| Right-of-use assets | ||||
|---|---|---|---|---|
| As at | September | 30, 2021 | December | 31,2020 |
| Balance, beginning of period | $ | 10,433 |
$ | 7,665 |
| Additions | 7,469 | 8,801 | ||
| Terminations | (3,503) | - | ||
| Depreciation | (5,644) | (6,033) | ||
| Balance,end ofperiod | $ | 8,755 | $ | 10,433 |
Lease liabilities
| Lease liabilities | ||||
|---|---|---|---|---|
| As at | September | 30, 2021 | December | 31,2020 |
| Balance, beginning of period | $ | 9,675 |
$ | 7,327 |
| Additions | 7,469 | 8,801 | ||
| Terminations | (3,311) | - | ||
| Lease payments | (5,237) | (7,405) | ||
| Interest expense | 490 | 952 | ||
| Total balance, end of period | $ | 9,086 |
$ | 9,675 |
| Less: currentportion | (5,638) | (6,065) | ||
| Non-currentportion | $ | 3,448 | $ | 3,610 |
Lease payments
Undiscounted payments associated with the Company’s lease liabilities as of September 30, 2021, are summarized below:
| Less than 1 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| year | 1 | - 3years | 4 - 5years | Total | |||||
| Undiscounted leasepayments | $ | 5,638 | $ | 3,448 | $ | - | $ | 9,086 |
During the period ended September 30, 2021, Minto entered into lease arrangements totalling $7.5 million and terminated one lease. A $0.2 million loss on disposition was included in other income (loss) because of the lease termination.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
9. Long term debt
On June 3, 2019 the Company closed a private placement of USD $10.0 million of 8.0% senior secured notes due June 3, 2024 (the “Notes”) with Copper Holdings LLC (“Copper Holdings”) and Cedro Holdings LLC (“Cedro Holdings”). Proceeds net of discount on the Notes amounted to $11.1 million (USD $8.4 million) with an implied discount of 12%. Interest on the Notes is payable in semi-annual instalments and the Notes have a general security charge over all of Minto’s assets. The Notes do not bear any capital maintenance covenants. The Company’s USD denominated debt was translated to Canadian dollars at the period ending exchange rate. Concurrent with the issuance of the Notes, Copper Holdings and Cedro Holdings acquired Class B common shares for total consideration of $2.1 million (Note 12).
| As at | September | 30, 2021 | December | 31,2020 |
|---|---|---|---|---|
| Balance, beginning of period | $ | 11,347 |
$ | 11,161 |
| Interest accretion | 297 | 436 | ||
| Foreign currencytranslation | 274 | (250) | ||
| Balance,end ofperiod | $ | 11,918 | $ | 11,347 |
Due to Sumitomo
On September 8, 2020, the Company entered into a Prepayment Facility Agreement with Sumitomo Canada Limited, the purchaser of the Company’s copper. The facility limit is USD $12.5 million and may be drawn against at any time giving notice in increments of USD $1.0 million. Interest is calculated quarterly on the outstanding balance at LIBOR for the applicable period. Management is currently assessing the impact of the LIBRO Reform and is currently in discussions with Sumitomo.
The loan is secured by a general and continuing security in the collateral; all accounts, inventory, equipment, intangibles, documents of title, money, chattel paper, instruments, securities, documents, proceeds, leaseholds and all present and future undertakings.
The Company is required to meet non-financial covenants under the Prepayment Facility Agreement in the case where an advance subsequent to the initial advance of USD $8.0 million is being requested by Minto. The key covenants include the following:
-
(i) In the immediately preceding period of three full calendar months, the Company shall have produced more than 75% of the forecast figure for the Minto Mine, as set out in the 2020 Cash Flow Model;
-
(ii) successful establishment of flow-through ventilation and secondary egress (or any other appropriate vent system to support full production from the Copper Keel zone at the Minto Mine) and commencement of ore production from the Copper Keel zone at the Minto Mine; and
The Company was not in compliance with all covenants at September 30, 2021 and accordingly have disclosed the entire Sumitomo loan amount as being current. Management is currently in negotiations to extend the agreement with Sumitomo to extend the agreement by an additional 3 years.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
9. Long term debt (continued)
| 9. Long term debt(continued) |
||||
|---|---|---|---|---|
| As at | September | 30, 2021 | December | 31,2020 |
| Balance, beginning of period | $ | 3,744 |
$ | - |
| Advances | 6,299 | 3,890 | ||
| Interest | 22 | 16 | ||
| Payments | (2,461) | (93) | ||
| Foreign currencytranslation | 23 | (69) | ||
| 7,627 | 3,744 | |||
| less: currentportion | (7,627) | (2,012) | ||
| Long-term | $ | - | $ | 1,732 |
Due to Pembridge
In the start-up phase of the Minto Mine, Pembridge provided the first CAD $4.0 million of funding to the surety account that acts as security in connection with Minto’s remediation obligation. The Company recognized a CAD $4.0 million payable to Pembridge for the transfer of the account to Minto. The CAD $4.0 million accrues interest at 8% and is to be repaid in quarterly tranches of CAD $1.0 million when Minto has completed funding the surety account to CAD $10.0 million. The Due to Pembridge balance also includes $0.5 million related to mineral claims held by two fully owned subsidiaries.
| As at | September | 30, 2021 | December | 31,2020 |
|---|---|---|---|---|
| Balance, beginning of period | $ | 4,841 |
$ | - |
| Advance | - | 4,510 | ||
| Interest | 252 | 331 | ||
| $ | 5,093 | $ | 4,841 |
10. Deferred Revenue
| 10. Deferred Revenue | ||||
|---|---|---|---|---|
| As at | September | 30, 2021 | December | 31,2020 |
| Balance, beginning of period | $ | 14,901 |
$ | 15,669 |
| Recognized as revenue on sale of gold and silver | (1,547) | (2,084) | ||
| Accretion | 891 | 1,316 | ||
| Balance,end ofperiod | $ | 14,245 | $ | 14,901 |
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
11. Asset Retirement Obligation
Details of the changes in the asset retirement obligation is as follows:
| As at | September | 30, 2021 | December | 31,2020 |
|---|---|---|---|---|
| Balance, beginning of period | $ | 32,196 |
$ | 31,938 |
| Change in estimates | 595 | 132 |
||
| Reclamation completed | (86) | - |
||
| Interest expense from discountingobligations | 239 | 126 |
||
| Balance,end ofperiod | $ | 32,944 | $ | 32,196 |
The estimated undiscounted cash flows required to satisfy the Minto reclamation and closure cost obligation as at September 30, 2021 were $34.4 million (December 31, 2020 - $32.9 million). The undiscounted cash flows were adjusted for inflation and uncertainty of the cash flows and then discounted using current marketbased risk-free rate of 1.1% (December 31, 2020 – 0.39%) to arrive at a discounted cash flows of $32.9 million (December 31, 2020 - $32.2 million). An amount of $72.1 million is secured by a Surety Bond from Zurich Insurance Company Ltd. in favour of the Government of Yukon.
12. Share Capital
a) Authorized
-
Unlimited number of common voting shares
-
Unlimited number of Class A common voting shares
-
Unlimited number of Class B non-voting common shares
b) Issued and outstanding
| b) Issued and outstanding | |||
|---|---|---|---|
| Number of shares | Amount | ||
| Class A Common voting shares | |||
| Opening balance at January 1, 2020 | 79,502,100 | $ | 210,531 |
| Return of capital | - | (6,306) | |
| Balance at December 31,2020 and September 30,2021 | 79,502,100 | 204,225 | |
| Class B Common non-voting shares | |||
| Opening balance at January 1, 2020 | 159,004,200 | 2,142 | |
| Issue for cash | 484,240,064 | 4,076 | |
| Balance at December 31,2020 and September 30,2021 | 643,244,264 | 6,218 | |
| Total Share Capital | 722,746,364 | $ | 210,443 |
On March 31, 2021, pursuant to the Shareholders’ Agreement of June 2020, the Company paid the first USD $5.0 million (CAD $6.3 million) payment of the purchase price for the Company to Capstone Mining Corp. on behalf of Pembridge as a return of their capital.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
Share Capital (continued)
- c) Put Option
The Company has entered into a Put Option agreement with the Class B shareholders whereby at anytime after December 31, 2021 upon written notice to the Company any shareholder who holds a greater than 20% interest shall have the right to require the Company to determine the Appraised Fair Market Value of all shares held by the investor. The Company shall purchase or cause to be purchase all of the exercising investor’s shares within a reasonable period.
In the event that a Class B shareholder exercises the option, the Company would be required to deliver the cash value. In the event the Company is not able to deliver the cash value, other existing shareholders would have the right to buy the exercising investor’s shares. If they do not do so within an agreed period, the Company would be required to commence an auction process for the entire Company. As of September 30, 2021, the Put Option has not been exercised by the Class B shareholders. On or about November 25[th] at the close of the RTO transaction the Put Option will be cancelled as described in Note #1
13. Revenue
The Company’s revenue breakdown by metal is as follows:
| Three months ended | Three months ended | Nine months ended | Nine months ended | Nine months ended | ||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | September | 30,2020 | September | 30, 2021 | September | 30,2020 | ||
| Copper | $ | 30,285 |
$ | 22,151 |
$ | 89,387 |
$ | 53,754 |
| Gold | 2,716 | 6,295 |
9,111 | 14,689 | ||||
| Silver | 66 | 109 | 374 | 355 | ||||
| Total gross revenue | $ | 33,067 |
$ | 28,555 |
$ | 98,872 |
$ | 68,798 |
| Less: treatment and sellingcosts | (2,942) | (2,200) | (7,864) | (6,681) | ||||
| Revenue | $ | 30,125 |
$ | 26,355 | $ | 91,008 | $ | 62,117 |
The Company sells all of its production to Sumitomo Canada Limited and Wheaton Precious Metals.
Metal concentrate sales are billed based on provisional weights and assays upon the passage of control to the customer. As final prices, weights and assays are received, additional invoices are issued and collected. In general, consideration is promptly collected from the customer.
The Company’s commodity price risk associated with financial instruments primarily relates to changes in fair value caused by final settlement pricing adjustments to receivables or payables. To mitigate some of this risk, the Company has fixed the price on 465 tonnes of copper at $9,339 per tonne as at September 30, 2021.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
14. Other Income (Loss), Net
Other income for the three and nine month periods ended September 30, 2021 and 2020 includes the following:
| following: | ||||||||
|---|---|---|---|---|---|---|---|---|
| Three months ended | Nine months ended | |||||||
| September 30, 2021 | September 30,2020 | September 30, 2021 | September 30,2020 | |||||
| Foreign exchange (loss) gain | $ | 160 |
$ | (161) |
$ | 97 |
$ | (16) |
| Change in fair value of metal concentrates | (2,564) | (674) | (2,709) |
(208) | ||||
| Loss on lease termination | - |
- |
(192) | - | ||||
| Other income(loss),net | $ | (2,404) | $ | (835) |
$ | (2,804) |
$ | (224) |
15. Finance Costs
Finance costs for the three and nine month periods ended September 30, 2021 and 2020 includes the following:
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | September | 30,2020 | September 30, 2021 | September | 30,2020 | |||
| Interest expense | $ | 1,057 |
$ | 1,039 |
$ | 2,644 |
$ | 2,770 |
| Accretion | 321 | 245 | 991 | 734 | ||||
| Finance costs | $ | 1,378 | $ | 1,284 | $ | 3,635 | $ | 3,504 |
16. Change in Non-cash Working Capital
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|---|---|
| September 30, 2021 | September | 30,2020 | September 30, 2021 | September | 30,2020 | |||
| (Increase) decrease in accounts receivable | $ | 3,159 |
$ | (5,766) |
$ | (3,009) |
$ | 214 |
| Decrease in inventories | (3,930) | (465) | (1,300) | 1,903 | ||||
| (Increase) decrease in prepaid expenses | (1,127) | 141 | (2,237) | (768) | ||||
| (Decrease) increase in accounts payable and | ||||||||
| accrued liabilities | 10,610 | 2,105 | 18,725 | 8,574 | ||||
| $ | 8,712 | $ | (3,985) | $ | 12,179 | $ | 9,923 |
17. Capital Management
The Company’s capital consists of the items included in shareholders’ equity, long-term debt and cash. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets.
To effectively manage its capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating objectives. The Company ensures that there is sufficient capital to minimize liquidity risk, taking into account anticipated operational cash flows and cash.
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Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
The Company’s share capital is not subject to any external restrictions and the Company did not change its approach to capital management during the period.
18. Related Party Transactions
During the three and nine month periods ended September 30, 2021, the Company undertook the following related party transactions:
-
Management fees of $nil and $nil (2020 - $nil and $0.1 million) and interest of $0.1 million and $0.3 million (2020 - $0.1 million and $0.3 million), respectively, were recorded to Pembridge, a shareholder of the Company. At September 30, 2021, the outstanding management fees payable were $nil (December 31, 2020 $nil). The outstanding interest balance payable to Pembridge at September 30, 2021 was included in the trading balance due to Pembridge of $1.0 million (December 31, 2020 - $0.7 million);
-
Management fees of $0.1 million and $0.2 million (2020 – $nil and $0.2 million) were recorded to Gati Al-Jebouri and Guy Le Bel, common directors of the Company and Pembridge. As at September 30, 2021, $0.4 million (December 31, 2020 - $0.2 million) of fees were outstanding.
-
Management fees of $0.3 million and $0.4 million (2020 - $0.1 million and $0.3 million), respectively, were recorded to Cedro and Copper Holdings, a shareholder of the Company. At September 30, 2021, the outstanding balance payable to Cedro and Copper Holdings was $0.7 million (December 31, 2020 - $0.4 million);
-
On March 31, 2021, pursuant to the Shareholders’ Agreement of June 2020, the Company paid the first USD $5.0 million (CAD $6.3 million) payment of the purchase price for the Company to Capstone Mining Corp. on behalf of Pembridge in the form of a return of their capital.
-
Management fees of $nil and $nil (2020 - $0.1 million and $0.2 million), respectively, were recorded to Minto Management Ltd.; and
-
Interest of $0.1 million and $0.3 million relating to long-term loans (2020 - $0.1 million and $0.3 million), respectively, were recorded to each of Copper Holdings, and Cedro Holdings, shareholders of the Company.
These related party transactions are in the normal course of operations and are measured at the amount of consideration established and agreed to by the related parties.
16
Minto Explorations Ltd. Notes to the Condensed Interim consolidated Financial Statements Three and nine months ended September 30, 2021 and 2020 (unaudited - stated in thousands of CAD dollars, unless otherwise specified)
19. Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the President that makes strategic decisions. The Company is deemed to have one segment for reporting being the operations at the Company’s Canadian Mine location.
20. Commitments and Contingencies
COVID-19 Pandemic
The current outbreak of the COVID-19 pandemic could have a material adverse effect on the Company’s business and operations, as well as impacting global economic conditions. Government efforts to control the spread of the virus have resulted in, among others, travel restrictions to Yukon Territory, Canada, and reduced economic activity in Canada. The international response to the spread of COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock, and financial market volatilities, labour shortage and delay in logistics, and a general reduction in consumer activities. All of these could affect commodity prices, interest rates, credit risk, social security, and inflation. Such public health crises at the moment or in the future may negatively affect the Company's operations along with the operations of its suppliers, contractors, service providers, and local communities.
While the COVID-19 pandemic has already had direct and indirect impacts on the Company’s operations and business, the extent to which the pandemic will continue to impact our operations are highly uncertain and cannot be predicted with confidence as at the date of this MD&A. These uncertainties include, but are not limited to, the duration of the outbreak, Canadian governments’ mandates to curtail the spreading of the virus, community, and social stabilities and the Company’s ability to resume operations efficiently or economically. It is also uncertain whether the Company will be able to maintain an adequate financial condition and have sufficient capital, or have the ability to raise capital. Any of these uncertainties, and others, could have a further material adverse effect on the Company’s business and operations. The Company may experience additional business interruptions, including suspended (whether government-mandated or otherwise) or reduced operations relating to COVID-19, and other such events could have a material adverse impact on the Company’s business, operations, and operating results, financial condition, and liquidity.
21. Subsequent Event
On November 10, 2021 1246778 B.C. Ltd. (the “Corporation” or “778”) and Minto Explorations Ltd. (“Minto”) announced that, in connection with the previously announced “reverse take-over” of 778 by Minto (the “RTO”), the TSX Venture Exchange (the “Exchange”) has conditionally accepted the RTO and the Exchange listing (the “Listing”) of post-RTO common shares of an entity to be named “Minto Metals Corp.” (the “Resulting Issuer”), which will be formed by the amalgamation of 778 and Minto (the “Amalgamation”). The Listing is conditional on 778, Minto and the Resulting Issuer fulfilling a number of conditions on or before February 2, 2022, and it is expected that these conditions precedent will be satisfied, and the Resulting Issuer common shares will begin trading on the Exchange, on or before the end of November, 2021. The Resulting Issuer trading symbol on the Exchange will be “MNTO”.
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