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NextSource Materials Inc. — Management Reports 2023
Sep 28, 2023
46104_rns_2023-09-28_55df712b-fe4e-4eed-8640-86b52a4b5881.pdf
Management Reports
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NextSource Materials Inc.
Management's Discussion and Analysis (MD&A)
For the years ended June 30, 2023 and 2022
Expressed in US Dollars
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This MD&A contains "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of applicable United States securities laws (collectively referred to herein as "forward-looking information"). Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans," "expects," or "does not expect," "is expected," "budget," "scheduled," "goal," "estimates," "forecasts," "intends," "anticipates," or "does not anticipate," or "believes" or variations of such words and phrases or statements that certain actions, events or results "may," "could," "would," "might," or "will be taken," "occur," or "be achieved".
Forward-looking information includes, but is not limited to, information and statements with respect to the intended use of proceeds of the Offering (as defined herein); certain expectations, development plans, and production estimates in respect of the Molo Graphite Mine; certain expectations, development plans, and estimates in respect of the Mauritius BAF (as defined herein) and additional BAFs (as defined herein) located in other key geographical locations, and strategies and project evaluation measures relating thereto; the Company's intention to enter into a new long-term industrial lease for the New Mauritius BAF Property (as defined herein); the potential completion of a New Mauritius BAF Technical Study (as defined herein); the potential impact of the Company's BAF Partnership (as defined herein); potential construction of an AG (as defined herein) production facility; a potential agreement with POSCO (as defined herein); supply, demand and pricing outlook in the graphite and EV (as defined herein) market; potential completion of a Feasibility Study (as defined herein); and the Company's business objectives and targeted milestones (and timing thereof).
Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. Such factors relate to, among others, BAF technical studies, emerging markets; development, commissioning, and operation of the Molo Graphite Mine; development, commissioning, and operation of the BAFs; construction and start-up of new mines and industrial plants; geopolitical risk and conflict; additional financings; the Company's development and exploration projects are in the African country of Madagascar and are subject to country political and regulatory risks; the Company has a significant shareholder; economic dependence on the Molo Graphite Mine; permits and licenses are necessary to begin operations of Phase 1 of the Molo Graphite Mine; additional permits and licenses are necessary to complete the development of Phase 2 of the Molo Graphite Mine; fluctuations in the market price of graphite and other metals may adversely affect the value of the Company's securities, revenue projections and the ability of the Company to develop Phase 2 of the Molo Graphite Mine; estimates of mineral resources may not be realized; the Company has a limited operating history and expects to incur operating losses for the foreseeable future; due to the speculative nature of mineral property exploration, there is substantial risk that the Company's assets will not go into commercial production and the business will fail; mining companies are increasingly required to consider and provide benefits to the communities and countries in which they operate, and are subject to extensive environmental, health and safety laws and regulations; because of the inherent dangers involved in mining operations and mineral exploration, there is a risk that the Company may incur liability or damages as the Company conducts business; should the Company lose the services of key executives, the Company's financial condition and proposed expansion may be negatively impacted; access to the Company's properties, mine operations, and export of product may be restricted by inclement weather or lack of proper infrastructure; climate change and related regulatory responses may impact the Company's business; compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for management; tax risks; the Company may experience losses due to foreign exchange translations; the Company's business is subject to anti-corruption and anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and reputational harm; the Company is exposed to general economic conditions, which could have a material adverse impact on its business, operating results and financial condition; the market price for the common shares of the Company (the "Common Shares") is particularly volatile given the Company's status as a company with a small public float, limited operating history and lack of profits which could lead to wide fluctuations in the market price for the Common Shares; the Company does not intend to pay dividends in the foreseeable future; and other risks involved in the mineral exploration and development industry and risks specific to the Company, including the risk factors identified elsewhere in the annual information form of the Company dated September 28, 2023 (the "AIF") and in this MD&A under "Risk Factors" and in other continuous disclosure documents of the Company filed under the Company's SEDAR+ profile at www.sedarplus.ca.
Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management and/or "qualified persons" (as such term is defined under National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101")) made in light of their experience and their perception of trends, current conditions and expected developments, as well as other factors that management and/or qualified persons believe to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. Although the Company believes that the assumptions and expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on forward-looking information because the Company can give no assurance that such expectations will prove to be correct. In addition to the assumptions discussed in this MD&A, the material assumptions upon which such forwardlooking information is based include, among others, that: the Company will be successful in its financing activities, the demand for graphite will develop as anticipated; graphite prices will remain at or attain levels that would make the Molo Graphite Mine and BAFs economic; that any proposed operating and capital plans will not be disrupted by operational issues, title issues, loss of permits, environmental concerns, power supply, labour disturbances, financing requirements or adverse weather conditions; the Company will continue to have the ability to attract and retain skilled staff; and there are no material unanticipated variations in the cost of energy or supplies. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information contained in this MD&A is presented for the purposes of assisting investors in understanding the Company's expected financial and operating performance and the Company's plans and objectives and may not be appropriate for other purposes.
In respect of any forward-looking information or statements relating to the Mauritius BAF or other BAFs, including but not limited to annual sales and operating cash flows, such figures, if any, have been included herein for the purposes of providing information on the project evaluation measures of the BAFs and should not be viewed as financial outlooks or guidance for the Company.
The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
This MD&A includes market, industry and economic data and projections obtained from various publicly available sources and other sources believed by the Company to be true. Although the Company believes these to be reliable, it has not independently verified the information from third party sources, or analyzed or verified the underlying reports relied upon or referred to by the third parties, or ascertained the underlying economic and other assumptions relied upon by the third parties. The Company believes that the market, industry and economic data and projections are accurate and that the estimates and assumptions are reasonable, but there can be no assurance as to their accuracy or completeness. The accuracy and completeness of the market, industry and economic data and projections in this MD&A are not guaranteed and the Company does not make any representation as to the accuracy or completeness of such information. For the avoidance of doubt, nothing stated in this paragraph operates to relieve the Company from liability for any misrepresentation contained in this MD&A under applicable Canadian securities laws.
The forward-looking information contained in this MD&A and documents incorporated by reference herein are expressly qualified by the foregoing cautionary statement.
INTRODUCTION
This Management's Discussion and Analysis ("MD&A") dated September 28, 2023 of NextSource Materials Inc. ("NextSource", "we", "our" or "the Company") should be read in conjunction with Company's audited Consolidated Financial Statements for the years ended June 30, 2023 and 2022 (the "Financial Statements") that were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and the AIF, each as filed on the Canadian Securities Administrators' SEDAR+ website at www.sedarplus.ca.
The Financial Statements and this MD&A are presented United States dollars ("USD" or "$") and all units of measurement are expressed using the metric system, unless otherwise specified. Certain information in this MD&A is presented in Canadian dollars ("CAD$").
Additional information relating to the Company is available on the Canadian Securities Administrators' (the "CSA") SEDAR+ website at www.sedarplus.ca and on the United States Securities and Exchange Commission's (the "SEC") website at www.sec.gov.
EXECUTIVE SUMMARY
NextSource Materials Inc. was continued under the Canada Business Corporations Act from the State of Minnesota to Canada on December 27, 2017. The Company's head and registered office is located at 130 King Street West, Exchange Tower, Suite 1940, Toronto, Ontario M5X 2A2. The Company's website is www.nextsourcematerials.com.
The outstanding Common Shares are listed and posted for trading on the Toronto Stock Exchange (the "TSX") under the symbol "NEXT" and on the OTCQB under the symbol "NSRCF". The Company is a reporting issuer in each of the provinces of Canada, except Quebec.
Business Strategy
The Company is intent on becoming a vertically integrated global supplier of battery materials through the mining and value-added processing of graphite and other minerals. The Company's principal business is the development of the Molo Graphite Mine in Madagascar and has announced plans to build the first of several battery anode facilities ("BAFs") in Mauritius.
Mineral Properties
The Company is developing the Molo Graphite Mine located near the town of Fotadrevo in the Province of Toliara, Madagascar, which is the Company's sole material mineral property.
Phase 1 of the Molo Graphite Mine was designed with a nameplate production capacity of 17,000 tpa of SuperFlake® graphite concentrate. On March 23, 2023, the Company announced the initiation of commissioning. On June 22, 2023, the Company announced production of the first tonne of SuperFlake® graphite concentrate as part of the commissioning and optimization of the processing plant. The operations team is now focused on ramping up the plant over the next few months to the nameplate production capacity of 17,000 tpa of flake graphite concentrate.
The Company is progressing with the Feasibility Study for a proposed Phase 2 Expansion of the Molo Graphite Mine, which is nearing completion. Prior to making a Phase 2 construction decision, the Company will consider the Feasibility Study results as well as Phase 1 operational results. Construction of the Phase 2 expansion is subject to the Feasibility Study confirming positive project economics, a decision on whether to proceed with the expansion, a decision on the capacity of the expansion, and subsequently obtaining sufficient funding for construction costs and working capital.
The Company also owns the Green Giant Vanadium Project, located in Madagascar, and the Sagar Project, located in Quebec, both of which are at the exploration and evaluation stage and are not considered material to the Company.
For additional information with respect to the Molo Graphite Mine, readers are referred to the AIF, and in particular Schedule "A" thereto, which is the summary section from the PEA reproduced in its entirety (except in respect of the previously delineated mineral reserve estimates, which have been retracted by the Company), and the "Risk Factors" section of the AIF.
Battery Anode Facilities
The Company announced on February 28, 2023 its strategy for the staged buildout of BAFs in key jurisdictions starting with Mauritius. The BAFs are value-added processing facilities that are capable of converting flake graphite into SPG and CSPG, which forms the anode material that is assembled along with cathode material into lithium-ion batteries used in electric vehicle ("EV") applications. The BAFs are not considered "mineral projects" as defined in NI 43-101, and the Mauritius BAF Technical Study and any similar studies to be completed by the Company are not and will not be "technical reports" for the purposes of NI 43-101 but rather are preliminary economic and technical studies relating to the design, construction and operation of the Mauritius BAF and potential other BAFs. See "Cautionary Statement Regarding Forward-Looking Information" and "Risk Factors" in the AIF. In respect of any forward-looking information or statements relating to the Mauritius BAF or other BAFs, including but not limited to annual sales and operating cash flows, such figures
have been included herein for the purposes of providing information on the project evaluation measures of the BAFs and should not be viewed as financial outlooks or guidance for the Company.
The highlights of the BAF strategy are as follows:
• Plans to construct multiple BAFs in key jurisdictions capable of producing CSPG.
• The BAFs will leverage the Company's exclusive partnership outside of the People's Republic of China with a leading valueadded graphite processor and a CSPG sales and marketing company (the "Partnership") for use of proprietary and well-established flake graphite processing technology and international CSPG sales and marketing relationships.
• The first BAF will be constructed in Mauritius (the "Mauritius BAF"), which was selected due to its proximity to the Molo Graphite Mine in Madagascar and its strategic position along shipping routes from Europe to Asia:
- o The Company intends to sign a new long-term industrial lease to build the Mauritius BAF in the vicinity of the international freeport of Port Louis, Mauritius (the "New Mauritius BAF Property"). The Company has completed preliminary due diligence in relation to the New Mauritius BAF Property and expects that the alternative location will reduce ground shipping costs, address stakeholder feedback and improve the project's social and environmental standards. Like the original location, the New Mauritius BAF Property has the capacity to house an initial production line with a production capacity of 3,600 tpa of CSPG with space to expand capacity with the construction of additional production lines as demand increases.
- o An initial technical study for the Mauritius BAF presented certain economic results and project evaluation measures for the Mauritius BAF, as more particularly disclosed in the short form prospectus dated July 27, 2023 and filed by the Company in connection with the Offering (the "Initial Mauritius BAF Technical Study"). The Mauritius BAF is not considered a "mineral project" as defined in NI 43-101, and the Initial Mauritius BAF Technical Study was not a "technical report" for the purposes of NI 43-101 but rather a preliminary economic and technical study relating to the design, construction, and operation of the Mauritius BAF. While the Initial Mauritius BAF Technical Study continues to be valuable in completing the contemplated New Mauritius BAF Technical Study (as defined herein), the previously announced results of the Initial Mauritius BAF Technical Study relating to project evaluation measures, including the construction costs, timing of construction, sales potential, operating cash flows, NPV, IRR and other metrics relating the Mauritius BAF may not be achieved and should not be relied upon. The Company will provide an update in respect of project evaluation measures once any New Mauritius BAF Technical Study has been completed.
- o Construction of the Mauritius BAF is subject to completion of the front-end engineering and design ("FEED") study and environmental and impact assessment ("EIA") process, obtaining all necessary permits, and sufficient funding for construction costs and working capital.
- o Construction process is expected to take approximately twelve (12) months, starting with the ordering of long lead items in October 2023.
• Evaluation of the potential construction of a BAF in North America (a "North America BAF") and initiation of the application process to access various financial loans and grants offered under Canadian federal and provincial programs and under the U.S. Inflation Reduction Act (the "IRA").
• Evaluation of the potential construction of a BAF in the United Kingdom (a "UK BAF") and initiation of the application process to access various financial loans and grants offered under the UK Government Automotive Transformation Fund.
- Evaluation of the potential construction of a BAF in the European Union (a "European BAF").
- Evaluation and potential construction of an artificial graphite ("AG") production facility, which would enable the Company to supply AG anode material.
- Evaluation of potential agreement with South Korea's POSCO International ("POSCO") for a strategic collaboration that could involve an equity investment into the Company as well as a long-term offtake agreement for spheronized and purified graphite ("SPG") and the Company's other graphite products
For additional information with respect to the BAFs, readers are referred to the AIF, and in particular under the heading "Description of the Business – Battery Anode Facilities", which includes disclosures related to the Mauritius BAF Technical Study and other BAF-related items, and the "Risk Factors" section of the AIF.
OUTLOOK AND MILESTONES
The Company is not providing any forward guidance on production volumes, revenues, or operating costs for Phase 1 of the Molo Graphite Mine. Mine commissioning has progressed from running and testing processes using run-of-mine material, through identifying and rectifying construction issues, to resolving bottlenecks and underperforming equipment during a planned temporary shutdown that was completed at the beginning of August. Although the mine is producing flake graphite concentrate, the optimization phase of the commissioning process is still in progress due to certain bottlenecks that remain unresolved that are preventing a ramp-up to nameplate production capacity. As a result, a complete third-party assessment of the processing plant is currently in progress by mechanical engineering and operations specialists and by metallurgical and process design engineers. This assessment will be completed in October and will inform the next optimization activities as well as a revised ramp-up schedule. As a result, the Company will continue to capitalize mine development costs until the declaration of commercial production, which will occur when the production capacity approaches nameplate production capacity.
Notwithstanding a slower than expected ramp-up of the Molo Mine, flake graphite concentrate is being stockpiled at the mine and at a third-party warehouse facility at the Port of Tulear. The Company has also been shipping flake graphite qualifying material produced at the mine to prospective customers, and is preparing to ship 20 tonnes to our BAF Technology Partner for testing and conversion into coated, spheronized, purified graphite ("CSPG").
No commercial shipments have been completed to-date. The first commercial shipment and sale of flake graphite concentrate under existing offtake agreements is expected to occur within the next quarter and will be dependent on accumulating sufficient shipping volumes at the port and aligning with international shipping schedules.
The Feasibility study for the potential Phase 2 expansion is nearing completion and the highlights are expected to be released in October.
Although the Company has been progressing with the EIA for the Mauritius BAF and the technical evaluation of effluent treatment and recycling of spent acids, the lessor has not delivered the premises free from any occupant(s) or occupation pursuant to the terms of the long term lease agreement (the "Agreement") and accordingly the Company has therefore terminated the Agreement for this location in accordance with the terms thereof.
The Company remains committed to building its first BAF plant in Mauritius and is in advanced discussions in connection with an alternative location for the Mauritius BAF in the vicinity of the international freeport of Port Louis. The Company has completed preliminary due diligence in relation to the New Mauritius BAF Property and expects it will reduce ground shipping costs, address stakeholder feedback and improve the project's social and environmental standards. Like the original location, the New Mauritius BAF Property has the capacity to house an initial production line of 3,600 tpa with space to expand capacity with the construction of additional production lines as demand increases. The Company expects the lease terms for the New Mauritius BAF Property will be on similar commercial terms as the previous lease and will provide an update once a lease is executed.
While the Initial Mauritius BAF Technical Study continues to be valuable in completing a similar technical study relating to the construction and operation of the Mauritius BAF on the New Mauritius BAF Property (the "New Mauritius BAF Technical Study"), the previously announced results of the Initial Mauritius BAF Technical Study relating to project evaluation measures, including the construction costs, timing of construction, sales potential, operating cash flows, NPV, IRR and other metrics relating the Mauritius BAF may not be achieved and should not be relied upon. The Company will provide an update in respect of project evaluation measures once a New Mauritius BAF Technical Study has been completed. Notwithstanding, the Company intends to order long-lead items for the Mauritius BAF in October.
The Company is working to achieve the following milestones over the next twelve months:
- Securing lease for the New Mauritius BAF Property within the vicinity of the international freeport of Port Louis, Mauritius
- Ordering of long lead items for the Mauritius BAF
- Completion of commissioning optimization activities
- Ramp-up of production capacity and declaration of commercial production
- First commercial shipment of flake graphite
- Completion of a Feasibility Study for a Phase 2 expansion
- Decision on the final capacity of the Phase 2 expansion and whether to proceed with construction
RESULTS OF OPERATIONS
The Company has two operating segments, consisting of mine development and BAF development. No commercial revenues have been generated by the Company. The Company's President and Chief Executive Officer and Chief Financial Officer are the operating decision-makers and direct the allocation of resources to its segments.
Financial Results for the years ended June 30, 2023 and 2022
| Year ended June 30, 2023 | Year ended June 30, 2022 | |||||
|---|---|---|---|---|---|---|
| Mine | BAF | Total | Mine | BAF | Total | |
| Revenues | $ - | $ - | $ - | $ - | $ - | $ - |
| Expenses | ||||||
| Operating expenses | 355,703 | - | 355,703 | 65,160 | - | 65,160 |
| Exploration and evaluation expenses | 43,385 | - | 43,385 | 177,955 | - | 177,955 |
| Depreciation | 225,222 | 161,987 | 387,209 | 32,524 | - | 32,524 |
| Impairment of VAT receivable | 3,953,376 | - | 3,953,376 | - | - | - |
| Segment gross profit | (4,577,686) | (161,987) | (4,739,673) | (275,639) | - | (275,639) |
| Other Operating Expenses | ||||||
| General and administrative expenses | 3,482,527 | 1,929,292 | ||||
| Share-based compensation | 514,048 | 385,930 | ||||
| Depreciation | 6,646 | 2,516 | ||||
| Lease finance costs | 442,505 | 11,980 | ||||
| Flow through provision expense | - | (28,385) | ||||
| Foreign currency translation (gain) loss | (29,558) | 87,543 | ||||
| Interest | (123,869) | (133) | ||||
| Loss before other items | (9,031,972) | (2,664,382) | ||||
| Gain on disposal of asset | - | (2,530) | ||||
| Change in value of royalty obligation | (87,390) | 495,704 | ||||
| Change in fair value of warrant derivative financial liability | 2,783,360 | (19,229,287) | ||||
| Change in value of commercial production obligation | (49,255) | (48,472) | ||||
| (Loss) income before income taxes | (11,678,687) | 16,120,203 | ||||
| Income tax expense | - | - | ||||
| Net (loss) income | (11,678,687) | 16,120,203 | ||||
| Other comprehensive income | ||||||
| Items that will be reclassified subsequently to net income (loss) | ||||||
| Translation adjustment for foreign operations | (1,890,444) | 76,154 | ||||
| Net (loss) income and comprehensive (loss) income | $ (13,569,131) | $ 16,196,357 |
Discussion of the years ended June 30, 2023 and 2022
Revenues were $nil (2022: 2022) since no sellable product was produced during the reporting period.
Net loss and comprehensive loss decreased to $13,569,131 (2022: net income and comprehensive income of $16,196,357) as a result of the following factors:
-
Mine expenditures increased to $4,577,686 (2022: $275,639) due to:
- o Increased operating expenses to $355,703 (2022: $65,160) related mainly to mine travel and overhead
- o Exploration and evaluation expenditures decreased to $43,385 (2022: $177,955) due to decreased exploration camp and administration expenses
- o Increased depreciation to $225,222 (2022: $32,524) due to the completion of the mining camp, buildings and civil works, and acquisition of mining vehicles
- o Impairment of VAT receivable of $3,953,376 (2022: $nil) due to considerable uncertainty as to the timing and recoverability of refundable Madagascar value added tax
-
BAF expenditures increased to $161,987 (2022: $nil) due to depreciation of the right-of-use asset related to the BAF lease.
-
General and administrative expenses increased to $3,482,527 (2022: $1,929,292) due to:
-
o Increased payroll and benefits to $1,123,098 (2022: $707,936) related mainly to the hiring of management and administrative employees
-
o Increased consulting fees to $446,553 (2022: $416,503)
-
o Increased professional fees to $654,227 (2022: $280,772) related mainly to the completion of interim reviews
-
o Increased public company expenses to $341,556 (2022: $134,674) related mainly to increased media communications
-
o Increased corporate travel expenses to $212,464 (2022: $81,748) related to increased international travel
-
o Decreased insurance expenses to $61,814 (2022: $124,498)
-
o Increased sales and marketing expenses to $100,134 (2022: $7,141) related to the engagement of automotive industry marketing consultants
-
o Increased office and administration expenses to $542,681 (2022: $176,020) related mainly to increased IS/IT systems and office administration costs in Canada, Mauritius and Madagascar
-
Share-based compensation increased to $514,048 (2022: $385,930) due to the vesting of RSUs over their expected vesting period.
-
Lease finance costs increased to $442,505 (2022: $11,980) due to the recognition of right of use assets for the mining property and the Mauritius BAF lease.
-
Interest income increased to $123,869 (2022: income of $133) from interest earned on bank deposits.
-
Royalty obligation was remeasured resulting in a change in value gain of $87,390 (2022: loss of $495,704).
-
Warrant derivative liabilities were remeasured prior to exercise resulting in a change in value loss of $2,783,360 (2022: gain of $19,229,287).
-
Commercial production obligation was remeasured resulting in a change in value gain of $49,255 (2022: gain of $48,272).
Financial Results for the three months ended June 30, 2023 and 2022
| Three months ended June 30, 2023 | Three months ended June 30, 2022 | |||||
|---|---|---|---|---|---|---|
| Mine | BAF | Total | Mine | BAF | Total | |
| Revenues | $ - | $ - | $ - | $ - | $ - | $ - |
| Expenses | ||||||
| Operating expenses | (607,662) | - | (607,662) | 138,990 | - | 138,990 |
| Exploration and evaluation expenses | 40,977 | - | 40,977 | 69,989 | - | 69,989 |
| Depreciation | 128,771 | 120,826 | 249,597 | 13,644 | - | 13,644 |
| Impairment of VAT receivable | 577,160 | - | 577,160 | - | - | - |
| Segment gross profit | (139,246) | (120,826) | (260,072) | (222,623) | - | (222,623) |
| Other Operating Expenses | ||||||
| General and administrative expenses | 1,125,134 | 450,766 | ||||
| Share-based compensation | 84,415 | 229,272 | ||||
| Depreciation | 4,140 | 586 | ||||
| Lease finance costs | 310,762 | 11,214 | ||||
| Flow through provision expense | - | (28,385) | ||||
| Foreign currency translation (gain) loss | (1,069,550) | 87,874 | ||||
| Interest | (123,588) | (31) | ||||
| Loss before other items | (591,385) | (973,919) | ||||
| Gain on disposal of asset | - | (2,530) | ||||
| Change in value of royalty obligation | (95,591) | 95,405 | ||||
| Change in fair value of warrant derivative financial liability | - | (30,775,492) | ||||
| Change in value of commercial production obligation | - | - | ||||
| (Loss) income before income taxes | (495,794) | 29,708,698 | ||||
| Income tax expense | - | - | ||||
| Net (loss) income | (495,794) | 29,708,698 | ||||
| Other comprehensive income | ||||||
| Items that will be reclassified subsequently to net income (loss) | ||||||
| Translation adjustment for foreign operations | (2,749,708) | 83,370 | ||||
| Net (loss) income and comprehensive (loss) income | $ (3,245,502) | $ 29,792,068 |
Discussion of the three months ended June 30, 2023 and 2022
Revenues were $nil (2022: 2022) since no sellable product was produced during the reporting period.
Net loss and comprehensive loss of $3,245,502 (2022: net income and comprehensive income of $29,792,068) as a result of the following factors:
- Mine expenditures decreased due to:
- o Capitalization of mine development expenditures related to commissioning of the mine:
- o Exploration and evaluation expenditures decreased to $40,977 (2022: $69,989) due to decreased exploration camp and administration expenses.
- o Increased depreciation to $128,771 (2022: $13,644) due to the completion of the mining camp, buildings and civil works, and acquisition of mining vehicles
- o Impairment of VAT receivable of $577,160 (2022: $nil) due to considerable uncertainty as to the timing and recoverability of refundable Madagascar value added tax
- BAF expenditures increased to $120,826 (2022: $nil) due to the depreciation of the right-of-use asset related to the BAF lease.
- General and administrative expenses increased to $1,125,134 (2022: $450,766) due to:
- o Increased payroll and benefits to $393,742 (2022: $218,913) related mainly to the hiring of management and administrative employees
- o Decreased consulting fees to $54,586 (2022: $109,751)
- o Increased professional fees to $337,873 (2022: $103,211) related mainly to the completion of interim reviews
- o Increased public company expenses to $75,907 (2022: gain of $5,041) related mainly to increased media communications
- o Decreased corporate travel expenses to $30,440 (2022: $36,106) related to increased international travel
- o Decreased insurance expenses to a gain of $42,429 (2022: $75,196)
- o Increased sales and marketing expenses to $100,134 (2022: $544) related to the engagement of automotive industry marketing consultants
- o Increased office and administration expenses to $175,881 (2022: gain of $87,914) related mainly to increased IS/IT systems and office administration costs in Canada, Mauritius and Madagascar
- Share-based compensation decreased to $84,415 (2022: $229,272) due to the vesting of RSUs over their expected vesting period.
- Lease finance costs increased to $310,762 (2022: $11,214) due to the recognition of right of use assets for the mining property and the Mauritius BAF lease.
- Interest income increased to $123,588 (2022: income of $31) from interest earned on bank deposits.
- Royalty obligation was remeasured resulting in a change in value gain of $95,591 (2022: loss of $95,405).
STATEMENT OF FINANCIAL POSITION
Cash and Cash Equivalents
The Company's cash balances are deposited with major financial institutions in Canada and with reputable financial institutions in Madagascar and Mauritius. Limited amounts of cash are currently held in Madagascar and Mauritius.
| Cash and cash equivalents | Canada | Mauritius | Madagascar | Total |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| As at June 30, 2023 | 6,309,738 | 139,408 | 436,312 | 6,885,458 |
| As at June 30, 2022 | 9,641,083 | 61,010 | 91,160 | 9,793,253 |
Amounts Receivable
Amounts receivables decreased to $494,250 (June 30, 2022: $574,260) due to changes in value-added tax receivables and short-term loans to officers. During the year ended June 30, 2023, due to considerable uncertainty as to the timing and recoverability of refundable Madagascar value added tax (VAT), the Company recognized an impairment of sales tax receivable of $3,953,376 (2022: $nil). As of June 30, 2023, Amounts Receivable are presented net of an impairment of sales tax receivable of $3,953,376 (June 30, 2022: impairment of $nil).
Inventories
Inventories increased to $470,336 (June 30, 2022: $nil) due to diesel, raw materials, and a run-of-mine pad work-in-progress inventory that will be consumed through mine operations. As of June 30, 2023, there were no finished goods recognized in inventory.
Prepaid Expenses
Prepaid expenses increased to $172,384 (June 30, 2022: $96,792) due to an increase in prepaid software licenses.
Long-Term Prepayments and Deposits
Deposits for long-term assets increased to $719,271 (June 30, 2022: $181,161) due to an changes in prepaid expenditures relating to assets under construction and the payment of a security deposit of $669,318 related to the Mauritius BAF lease.
Property, Plant, Equipment, and development
As of June 30, 2023, the carrying value of property, plant, equipment, and development was $44,236,829 (June 30, 2022: $18,652,394). The property, plant and equipment are all for Phase 1 of the Molo Mine in Madagascar. The right of use assets consists of $11,963,148 for the BAF lease in Mauritius and $456,061 for the Molo property lease in Madagascar. The assets under construction consist of $15,181,485 for the Molo processing plant, $2,612,845 for Molo Phase 2 development costs and $1,204,731 for BAF development costs.
During the year ended June 30, 2023, the Company capitalized additions of $25,518,369 (2022: 14,350,273), capitalized mine development costs of $2,077,755 (2022: $nil), transferred $7,987,025 from assets under construction into property, plant and equipment, recorded depreciation of $380,286 (2022: $35,040), and recognized an impact of foreign exchange of $1,631,403 (2022: $nil). Non-cash additions consisted of $12,125,134 for recognition of the BAF lease Right of Use Asset, $93,445 for accretion of the commercial production obligation, $1,373,075 for accretion of the royalty obligation, and $492,346 for asset retirement obligations for the Molo Mine.
| Right of Use | Assets Under | |||||
|---|---|---|---|---|---|---|
| Property | Plant | Equipment | Assets | Construction | Total | |
| $ | $ | $ | $ | $ | $ | |
| As at June 30, 2021 | 708,514 | - | 4,683 | 12,074 | 3,611,890 | 4,337,161 |
| Additions | 398,836 | - | 239,542 | 530,562 | 13,181,333 | 14,350,273 |
| Depreciation | - | - | (29,053) | (5,987) | - | (35,040) |
| As at June 30, 2022 | 1,107,350 | - | 215,172 | 536,649 | 16,793,223 | 18,652,394 |
| Additions | 632,524 | 1,603,458 | 2,031,526 | 12,125,135 | 9,125,726 | 25,518,369 |
| Development costs | 30,122 | - | - | - | 2,047,633 | 2,077,755 |
| Transfers | 361,852 | 7,008,136 | 617,037 | - | (7,987,025) | - |
| Depreciation | - | (45,400) | (155,133) | (179,753) | - | (380,286) |
| Impact of foreign exchange | (35,089) | (404,201) | (148,795) | (62,822) | (980,496) | (1,631,403) |
| As at June 30, 2023 | 2,096,759 | 8,161,993 | 2,559,807 | 12,419,209 | 18,999,061 | 44,236,829 |
| Cost | 1,107,350 | - | 244,780 | 554,727 | 16,793,223 | 18,700,080 |
| Accumulated depreciation | - | - | (29,608) | (18,078) | - | (47,686) |
| As at June 30, 2022 | 1,107,350 | - | 215,172 | 536,649 | 16,793,223 | 18,652,394 |
| Cost | 2,096,759 | 8,207,393 | 2,744,548 | 12,617,040 | 18,999,061 | 44,664,801 |
| Accumulated depreciation | - | (45,400) | (184,741) | (197,831) | - | (427,972) |
| As at June 30, 2023 | 2,096,759 | 8,161,993 | 2,559,807 | 12,419,209 | 18,999,061 | 44,236,829 |
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities increased to $3,014,594 (June 30, 2022: $1,864,665) due to an increase in construction related accounts payables and accrued liabilities.
Right-of-Use Lease Obligations
The Company has recognized the following Right-of-Use ("ROU") assets and long-term lease obligations:
• On July 1, 2019, the Company recognized a ROU asset and lease obligation of $24,164 using an incremental borrowing rate of 10.43% for the exploration camp located in Fotadrevo, Madagascar. The long-term lease agreement terminated on June 30, 2023.
- On March 31, 2022, the Company recognized a ROU asset and lease obligation of $389,049 using an incremental borrowing rate of 13.8% for the emphyteutic property lease of the Molo mine, which has an initial term of 50 years. The lease is payable annually in Ariary to the Government of Madagascar and as of June 30, 2023, had a remaining term of 48.75 years.
- On February 28, 2023, the Company recognized a ROU asset and lease obligation of $12,125,134 using an incremental borrowing rate of 11.5% for the Mauritius BAF industrial lease, which has an initial term of 20 years plus a renewal of 5 years. The lease is payable annually in US dollars and as of June 30, 2023, has a remaining term of 24.65 years. The current annual lease is set at $1,338,637 and will increase according to the annual change in US CPI with a minimum of 0% and maximum of 3%.
The following table sets out the carrying amounts of lease obligations for ROU assets included in the consolidated statements of financial position and the movements between the reporting periods:
| Exploration Camp | BAF Property | Molo Property | Total Obligations | |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| As at June 30, 2021 | 11,099 | - | - | 11,099 |
| Additions | - | - | 389,049 | 389,049 |
| Finance costs | 900 | - | 11,080 | 11,980 |
| Foreign exchange adjustments | (318) | - | (8,713) | (9,031) |
| Lease payments | (6,027) | - | (47,252) | (53,279) |
| As at June 30, 2022 | 5,654 | - | 344,164 | 349,818 |
| Additions | - | 12,125,135 | - | 12,125,135 |
| Finance costs | 289 | 398,574 | 43,642 | 442,505 |
| Foreign exchange adjustments | (258) | - | (33,639) | (33,897) |
| Lease payments | (5,685) | (1,338,637) | (43,308) | (1,387,630) |
| As at June 30, 2023 | - | 11,185,072 | 310,859 | 11,495,931 |
The following table sets out the lease obligations included in the consolidated statements of financial position:
| Exploration Camp | BAF Property | Molo Property | Total Obligations | |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| Current portion of lease obligations | - | 1,244,935 | 41,626 | 1,286,561 |
| Long-term lease obligations | - | 9,940,137 | 269,233 | 10,209,370 |
| As at June 30, 2023 | - | 11,185,072 | 310,859 | 11,495,931 |
Future minimum lease payments required to meet obligations that have initial or remaining non-cancellable lease terms are set out in the following table:
| Exploration Camp | BAF Property | Molo Property | Total Obligations | |
|---|---|---|---|---|
| $ | $ | $ | $ | |
| Within 12 months | - | 1,338,637 | 41,628 | 1,380,265 |
| Between 13 and 24 months | - | 1,338,637 | 41,628 | 1,380,265 |
| Between 25 and 36 months | - | 1,338,637 | 41,628 | 1,380,265 |
| Between 37 and 48 months | - | 1,338,637 | 41,628 | 1,380,265 |
| Between 49 and 60 months | - | 1,338,637 | 41,628 | 1,380,265 |
| Over 60 months | - | 25,434,103 | 1,789,980 | 27,224,083 |
| Total undiscounted lease obligations | - | 32,127,288 | 1,998,120 | 34,125,408 |
Low value leases, short term leases of less than 12 months, and leases with variable payments proportional to the rate of use of the underlying assets do not give rise to lease obligations. During the year ended June 30, 2023, the Company recognized short-term rent expenses of $11,786 (2022: $7,141) in the consolidated statements of operations and comprehensive (loss) income.
Royalty obligation
Vision Blue
On February 8, 2021, the Company announced a financing agreement with Vision Blue Resources Limited ("Vision Blue") for gross proceeds of $29.5 million consisting of private placements and a royalty financing agreement. As part of the royalty financing agreement:
- (a) The Company received the initial royalty funding of $8.0 million (less a $1.5 million royalty financing fee) on June 28, 2021 and received the remaining $3.0 million on August 17, 2022.
- (b) Beginning on the biannual period ending June 30, 2022, the Company must pay the greater of: (i) $825,000 (the "Minimum Repayment") or (ii) 3% of the gross sales revenues from graphite concentrate sales (the "GSR"). Once Vision Blue has received cumulative royalty payments of $16.5 million, the Minimum Repayment will cease, and the royalty will only be based on the GSR. NextSource has the option at any time to reduce the GSR to 2.25% by paying $20 million to Vision Blue. Each of the biannual Minimum Repayments can be deferred by 12 months, subject to accrued interest of 15% per annum.
- (c) Vision Blue received a royalty of 1.0% of the gross revenues from sales of vanadium pentoxide ("V2O5") from the Green Giant Vanadium Project for a period of 15 years following commencement of production of V2O5.
On June 30, 2021, the Company recognized a royalty obligation at the fair value of $6.5 million, which was equal to the present value using an effective discount rate of 13.8% of (1) the deferred $3.0 million royalty funding, (2) the minimum royalty payments, (3) the accrued interest on the deferral of minimum royalty payments, and (4) the perpetual 3% GSR for the remaining 30-year life of mine for Phase 1. The discount rate was determined at recognition by calculating the internal rate of return (IRR) of the expected cash flows. Upon recognition, a total of $169,279 of capitalized legal fees was netted against the obligation resulting in an initial carrying value of $6,330,721. The carrying value of the royalty obligation will be remeasured at each reporting period based on the revised expected future cash flows using the original discount rate under the amortized cost method.
On June 30, 2023, the obligation was remeasured at $12,016,881 (June 30, 2022: $7,731,196). During the year ended June 30, 2023, the obligation increased due to the receipt of the remaining $3.0 million royalty funding, accretion of $1,373,075 (2022: $904,771) and remeasurement gain of $87,390 (2022: loss $495,704) recognized through the consolidated statements of operations and comprehensive (loss) income. The royalty minimum repayment of $948,750 due on June 30, 2023 was completed on July 18, 2023.
| Total | |
|---|---|
| $ | |
| As at June 30, 2021 | 6,330,721 |
| Accretion of royalty obligation | 904,771 |
| Remeasurement of royalty obligation | 495,704 |
| As at June 30, 2022 | 7,731,196 |
| Accretion of royalty obligation | 1,373,075 |
| Royalty proceeds | 3,000,000 |
| Royalty minimum repayments | - |
| Remeasurement of royalty obligation | (87,390) |
| As at June 30, 2023 | 12,016,881 |
| Total | |
| $ | |
| Current portion of royalty obligation | 2,846,250 |
| Long-term royalty obligation | 9,170,631 |
| As at June 30, 2023 | 12,016,881 |
Future undiscounted minimum royalty payments including accrued interest on deferrals are set out in the following table:
| Total | |
|---|---|
| $ | |
| Within 12 months | 2,846,250 |
| Between 13 and 24 months | 1,897,500 |
| Between 25 and 36 months | 1,897,500 |
| Between 37 and 48 months | 1,897,500 |
| Between 49 and 60 months | 1,897,500 |
| Over 60 months | 8,538,750 |
| Total undiscounted minimum payments and interest | 18,975,000 |
Warrant Derivative Liabilities
As of June 30, 2023, the derivative financial liability was $nil (June 30, 2022: $21,689,490). During the year ended June 30, 2023, a total of $24,472,850 was reclassified to equity upon the exercise of warrants (2022: $4,462,156).
| Warrant Liability | |
|---|---|
| $ | |
| As at June 30, 2021 | 45,380,933 |
| Reclassification to equity on exercise of warrants | (4,462,156) |
|---|---|
| Change in fair value through profit and loss | (19,229,287) |
| As at June 30, 2022 | 21,689,490 |
| Reclassification to equity on exercise of warrants | (24,472,850) |
| Change in fair value through profit and loss | 2,783,360 |
| As at June 30, 2023 | - |
On October 31, 2022, the warrants expiring on May 19, 2023 were exercised. The fair value was estimated prior to exercise using the following model inputs. The change in fair value was recognized through the consolidated statements of operations and comprehensive (loss) income and the fair value was reclassified to equity.
Commercial production provision
On April 16, 2014, the Company signed a Sale and Purchase Agreement and a Mineral Rights Agreement (together "the Agreements") with Capricorn Metals (formerly Malagasy Minerals) to acquire the remaining 25% interest in the Molo Graphite Property. Pursuant to the Agreements, a further cash payment of CAD$1,000,000 is due within 30 days of the commencement of commercial production (the "Commercial Production Fee"). On June 30, 2021, the Company recognized a provision of $708,514 using a 13.8% discount rate based on an initial expectation of settlement on or around June 30, 2022. The provision was recorded at amortized cost and capitalized as Property under property, plant, equipment, and development. The obligation expected to be settled upon the declaration of commercial production of Phase 1 of the Molo Graphite Mine.
During the year ended June 30, 2023, the obligation increased through accretion of $94,018. On June 30, 2023, the obligation was remeasured at $754,973 (June 30, 2022: $727,051) resulting in remeasurement gains of $49,255 and a foreign exchange gain of $16,842 that were recognized through the consolidated statements of operations and comprehensive (loss) income.
Asset retirement obligations
The Company has recognized provisions for asset retirement obligations at its Molo Graphite Mine property. Although the ultimate amounts of the future site reclamation provisions are uncertain, the provision of these obligations is based on information currently available, including closure plans and applicable regulations. The amount and timing of closure plans will vary depending on a number of factors including changes in the mining plan. Significant closure activities will include demolition of facilities, land rehabilitation, water treatment, monitoring and other costs.
As of June 30, 2023, the total undiscounted amount of estimated cash flows required to settle the Company's estimated future closure and decommissioning costs is $1,404,798 (2022: $nil). The estimated future cash flows were then inflated using an inflation rate of 8.15%. The total provision for closure and decommissioning costs was calculated using a discount rate of 12%. The obligation is expected to be settled at the end of the 30-year life of mine in 2053.
As of June 30, 2023, the present value of estimated future cash flows required to settle the Company's closure and decommissioning costs as of the reporting date was estimated at $492,346 (2022: $nil).
Commitments
The Company has contractual commitments under an energy services agreement ("ESA") with CrossBoundary Energy Madagascar ("CBE") for the hybrid solar thermal power plant owned and operated by CBE that is supplying electricity to the Molo Graphite Mine. The ESA has a term of 20 years ending in 2043 and requires the Company to purchase a minimum energy output of 11,200,000 KWh per annum at a tariff of $0.0837 per KWh equivalent to $937,440 per annum.
CASH FLOWS FROM OPERATING, INVESTING, AND FINANCING ACTIVITIES
The following are the Company's cash flows from operating, investing and financing activities for the years ended June 30, 2023 and 2022:
| Year ended | Year ended | |
|---|---|---|
| June 30, | June 30, | |
| 2023 | 2022 | |
| Operating activities | ||
| Net (loss) income | $ (11,678,687) | $ 16,120,203 |
| Add (deduct) items not affecting cash: | ||
| Depreciation of property, plant, equipment and development | 393,855 | 35,040 |
| Change in value of lease obligations | 408,608 | 2,949 |
| Change in value of royalty obligations | (87,390) | 495,704 |
| Change in fair value of warrant derivative financial liability | 2,783,360 | (19,229,287) |
|---|---|---|
| Change in value of provision | (49,255) | (48,472) |
| Gain on disposal of asset | - | (2,530) |
| Share-based compensation expense | 514,048 | 315,740 |
| (7,715,461) | (2,310,653) | |
| Change in non-cash working capital balances: | ||
| Increase in amounts receivable, prepaids and inventories | (465,918) | (525,708) |
| Increase in accounts payable and accrued liabilities | 1,149,929 | 1,259,545 |
| Decrease in provisions | (16,268) | (57,133) |
| Net cash used in operating activities | (7,047,718) | (1,633,949) |
| Investing activities | ||
| Increase in prepayments and deposits | (538,110) | (181,161) |
| Additions to property, plant, equipment, and development | (13,512,124) | (12,961,819) |
| Proceeds from disposition of equipment | - | 2,530 |
| Net cash used in investing activities | (14,050,234) | (13,140,450) |
| Financing activities | ||
| Proceeds from the exercise of warrants | 17,002,227 | 1,530,192 |
| Proceeds from the exercise of stock options | - | 577,500 |
| Settlement of RSUs | (153,699) | - |
| Lease obligation principal payments | (1,387,630) | (53,279) |
| Proceeds from royalty financing | 3,000,000 | - |
| Net cash provided by financing activities | 18,460,898 | 2,054,413 |
| Effect of exchange rate changes on cash and cash equivalents | (270,741) | 76,153 |
| Net decrease in cash and cash equivalents | (2,907,795) | (12,643,833) |
| Cash and cash equivalents, beginning of year | 9,793,253 | 22,437,086 |
| Cash and cash equivalents, end of year | $ 6,885,458 | $ 9,793,253 |
Net cash used in operating activities increased to $7,047,718 (2022: $1,633,949) due to an increase in general and administrative expenses and impairment of sales tax receivable.
Net cash used in investing activities increased to $14,050,234 (2022: $13,140,450) due to the capitalization of mine construction costs, mine development costs, and acquisition of vehicles and equipment.
Net cash provided by financing activities increased to $18,460,898 (2022: $2,054,413) due to proceeds from the exercise of warrants and proceeds from royalty financing.
OUTSTANDING SECURITIES
The Company's common shares trade on the Toronto Stock Exchange (the "TSX") under the symbol "NEXT" and the OTCQB under the symbol "NSRCF". The Company's common shares have no par value, and the authorized share capital is composed of an unlimited number of common shares.
As of June 30, 2023 and 2022, the Company had the following outstanding securities:
| As atJune 30,2023 | As atJune 30,2022 | |
|---|---|---|
| Common shares issued and outstanding | 125,271,007 | 101,872,614 |
| Warrants | - | 23,214,286 |
| Stock options | 1,710,000 | 1,910,000 |
| Restricted share units (RSUs) | 160,000 | 270,000 |
| Fully diluted common shares | 127,141,007 | 127,266,900 |
Common Shares
As of June 30, 2023, the Company had 125,271,007 common shares issued and outstanding (June 30, 2022: 101,872,614). The Company's common shares have no par value, and the authorized share capital is composed of an unlimited number of common shares.
The following changes occurred during the year ended June 30, 2023:
- (a) On October 31, 2022, a total of 23,214,286 warrants priced at CAD$1.00 were exercised into 23,214,286 common shares for gross proceeds of $17,002,227.
- (b) On June 30, 2023, a total of 184,107 RSUs were converted into 184,107 common shares.
The following changes occurred during the year ended June 30, 2022:
- (a) On September 23, 2021, a total of 211,112 warrants with an exercise price of CAD$0.90 were exercised into 211,112 common shares for gross proceeds of $150,588.
- (b) On October 5, 2021, a total of 54,616 warrants with an exercise price of CAD$0.65 and 206,667 warrants with an exercise price of CAD$0.90 were exercised into 261,283 common shares for gross proceeds of $175,077.
- (c) On October 20, 2021, a total of 155,556 warrants with an exercise price of CAD$0.90 were exercised into 155,556 common shares for gross proceeds of $113,110.
- (d) On October 22, 2021, a total of 214,445 warrants with an exercise price of CAD$0.90 were exercised into 214,445 common shares for gross proceeds of $156,129.
- (e) On November 23, 2021, a total of 100,000 warrants with an exercise price of CAD$0.65 were exercised into 100,000 common shares for gross proceeds of $51,407.
- (f) On December 16, 2021, a total of 123,518 RSUs were converted into common shares.
- (g) On March 2, 2022, a total of 461,539 warrants with an exercise price of CAD$0.65 were exercised into 461,539 common shares for gross proceeds of $235,804.
- (h) On March 31, 2022, a total of 30,800 warrants with an exercise price of CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,998.
- (i) On April 28, 2022, a total of 38,500 warrants with an exercise price of CAD$0.65 were exercised into 38,500 common shares for gross proceeds of $19,575.
- (j) On May 18, 2022, a total of 325,000 warrants with an exercise price of CAD$0.65 were exercised into 325,000 common shares for gross proceeds of $162,345.
- (k) On May 18, 2022, a total of 220,000 options with an exercise price of USD$0.66 were exercised into 220,000 common shares for gross proceeds of $144,833.
- (l) On May 23, 2022, a total of 220,000 options with an exercise price of USD$0.66 were exercised into 220,000 common shares for gross proceeds of $146,764.
- (m) On June 2, 2022, a total of 220,000 options with an exercise price of USD$0.66 were exercised into 220,000 common shares for gross proceeds of $145,200.
- (n) On June 9, 2022, a total of 215,000 options with an exercise price of USD$0.66 were exercised into 215,000 common shares for gross proceeds of $141,900.
- (o) On June 24, 2022, a total of 30,800 warrants with an exercise price of CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,529.
- (p) On June 27, 2022, a total of 180,000 warrants with an exercise price of CAD$0.65 were exercised into 180,000 common shares for gross proceeds of $91,090.
- (q) On June 30, 2022, a total of 680,801 warrants with an exercise price of CAD$0.65 were exercised into 680,801 common shares for gross proceeds of $343,538.
Warrants
As of June 30, 2023, the Company had Nil common share purchase warrants outstanding (June 30, 2022: 23,214,286).
| As at | As at | ||||||
|---|---|---|---|---|---|---|---|
| Issued | Expiration | Exercise | June 30, | June 30, | |||
| Date | Date | Price | 2022 | Issued | Cancelled | Exercised | 2023 |
| May 19, 2021 | May 19, 2023 | CAD $1.00 | 23,214,286 | - | - | (23,214,286) | - |
| Totals | 23,214,286 | - | - | (23,214,286) | - |
The following changes occurred during the year ended June 30, 2023:
(a) On October 31, 2022, a total of 23,214,286 warrants with an exercise price of CAD$1.00 were exercised into 23,214,286 common shares for gross proceeds of $17,002,227.
The following changes occurred during the year ended June 30, 2022:
- (a) On September 23, 2021, a total of 211,112 warrants with an exercise price of CAD$0.90 were exercised into 211,112 common shares for gross proceeds of $150,588.
- (b) On October 5, 2021, a total of 54,616 warrants with an exercise price of CAD$0.65 and 206,667 warrants with an exercise price of CAD$0.90 were exercised into 261,283 common shares for gross proceeds of $175,077.
- (c) On October 20, 2021, a total of 155,556 warrants with an exercise price of CAD$0.90 were exercised into 155,556 common shares for gross proceeds of $113,110.
- (d) On October 22, 2021, a total of 214,445 warrants with an exercise price of CAD$0.90 were exercised into 214,445 common shares for gross proceeds of $156,129.
- (e) On November 23, 2021, a total of 100,000 warrants with an exercise price of CAD$0.65 were exercised into 100,000 common shares for gross proceeds of $51,407.
- (f) On March 2, 2022, a total of 461,539 warrants with an exercise price of CAD$0.65 were exercised into 461,539 common shares for gross proceeds of $235,804.
- (g) On March 31, 2022, a total of 30,800 warrants with an exercise price of CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,998.
- (h) On April 28, 2022, a total of 38,500 warrants with an exercise price of CAD$0.65 were exercised into 38,500 common shares for gross proceeds of $19,575.
- (i) On May 18, 2022, a total of 325,000 warrants with an exercise price of CAD$0.65 were exercised into 325,000 common shares for gross proceeds of $162,345.
- (j) On June 24, 2022, a total of 30,800 warrants with an exercise price of CAD$0.65 were exercised into 30,800 common shares for gross proceeds of $15,529.
- (k) On June 27, 2022, a total of 180,000 warrants with an exercise price of CAD$0.65 were exercised into 180,000 common shares for gross proceeds of $91,090.
- (l) On June 30, 2022, a total of 680,801 warrants with an exercise price of CAD$0.65 were exercised into 680,801 common shares for gross proceeds of $343,538.
Stock Options
As of June 30, 2023, the Company had 1,710,000 stock options outstanding (June 30, 2022: 1,910,000) with a weighted average expiration of 0.75 years (June 30, 2022: 1.74) exercisable into 1,710,000 common shares (June 30, 2022: 1,910,000) at a weighted average exercise price of CAD$2.70 (June 30, 2022: CAD$2.79). All outstanding stock options vested on their respective grant dates.
| As at | As at | |||
|---|---|---|---|---|
| Grant | Expiration | Exercise | June 30, | June 30, |
| Date | Date | Price | 2022 | Awarded | Cancelled | Exercised | 2023 |
|---|---|---|---|---|---|---|---|
| March 26, 2019 | March 26, 2024 | CAD $1.00 | 580,000 | - | - | - | 580,000 |
| March 19, 2021 | March 19, 2024 | CAD $3.60 | 1,300,000 | - | (200,000) | - | 1,100,000 |
| May 11, 2022 | May 11, 2025 | CAD $2.50 | 30,000 | - | - | - | 30,000 |
| Totals | 1,910,000 | - | (200,000) | - | 1,710,000 |
The following changes occurred during the year ended June 30, 2023:
(a) As per the terms of our long-term incentive plant, 200,000 stock options granted on March 19, 2021 were cancelled on the anniversary of the departure of former directors.
The following changes occurred during the year ended June 30, 2022:
(a) On May 11, 2022, the Company granted 30,000 stock options exercisable at a price of CAD$2.50 for a period of three years. The options were valued at $43,050 using the Black-Scholes pricing model based on a risk-free rate of 2.74%, a term of 3 years, volatility of 128% and a market price of $1.93 (CAD$2.50). These stock options vested on the grant date.
Restricted Share Units (RSUs)
As of June 30, 2023, the Company had 160,000 RSUs outstanding (June 30, 2022: 270,000) that subject to satisfying their respective vesting conditions entitle the holders to receive 160,000 common shares (June 30, 2022: 270,000) for no additional consideration. The RSUs have a weighted average time until vesting of nil years (June 30, 2022: 0.38) and weighted average time until expiration of 1.00 years (June 30, 2022: 1.00).
| Vesting | As at | As at | |||||
|---|---|---|---|---|---|---|---|
| Grant | Measurement | Expiration | June 30, | Settled | Settled | June 30, | |
| Date | Date | Date | 2022 | Awarded | in Cash | in Shares | 2023 |
| Vested RSUs | |||||||
| March 19, 2021 | December 31, 2022 | June 30, 2023 | 200,000 | - | (49,129) | (150,871) | - |
| May 11, 2022 | July 14, 2022 | June 30, 2023 | 40,000 | - | (6,764) | (33,236) | - |
| May 11, 2022 | July 14, 2022 | June 30, 2023 | 30,000 | - | (30,000) | - | - |
| July 28, 2022 | June 30, 2023 | June 30, 2024 | - | 160,000 | - | - | 160,000 |
| Totals | 270,000 | 160,000 | (85,893) | (184,107) | 160,000 |
The following changes occurred during the year ended June 30, 2023:
- (a) On July 14, 2022, the 30,000 and 40,000 RSUs granted on May 11, 2022 satisfied their respective vesting conditions.
- (b) On July 28, 2022, the Company granted 160,000 RSUs with a vesting date of June 30, 2023 whereby the respective holders will receive a total of 160,000 common shares subject to being employed on the vesting date. The grant date fair value was estimated at $322,818 based on a grant-date market price of $2.02 (CAD$2.59).
- (c) On December 31, 2022, the 200,000 RSUs granted on March 19, 2021 satisfied their respective vesting conditions.
- (d) On June 30, 2023, 184,107 RSUs were settled in common shares and 85,893 RSUs were settled in cash.
- (e) On June 30, 2023, the 160,000 RSUs granted on July 28, 2022 satisfied their respective vesting conditions.
During the year ended June 30, 2023, a total of $514,048 was expensed as share-based compensation related to the expensing of the value of RSUs over their expected vesting periods.
The following changes occurred during the year ended June 30, 2022:
(a) On May 11, 2022, the Company granted 40,000 RSUs with a vesting date of July 14, 2022, whereby the holder will receive 40,000 common shares subject to achieving certain milestones on the vesting date. The grant date fair value was estimated at $77,230 based on a grant-date market price of $1.93 (CAD$2.50).
(b) On May 11, 2022, the Company granted 30,000 RSUs with a vesting date of July 14, 2022, whereby the holder will receive 30,000 common shares subject to being employed on the vesting date. These RSUs vested on July 14, 2022. The grant date fair value was estimated at $57,922 based on a grant-date market price of $1.93 (CAD$2.50).
RELATED PARTY TRANSACTIONS
Parties are related if one party has the direct or indirect ability to control or exercise significant influence over the other party in making operating and financial decisions. Parties are also related if they are subject to common control or common significant influence. Related parties include the Company subsidiaries and key management. Key management consists of the Board of Directors, Chief Executive Officer, Chief Financial Officer, and Senior Vice Presidents, Related parties also includes companies controlled by key management. Related party transactions occur when there is a transfer of economic resources or financial obligations between related parties. Related party transactions in the normal course of business that have commercial substance are initially measured at fair value. Balances and transactions between the Company and its wholly owned subsidiaries have been eliminated and are not disclosed in this note.
The following key management related party transactions occurred during the following reporting periods:
| Related party transactions | Year ended | Year ended |
|---|---|---|
| contained within | June 30, | June 30, |
| 2023 | 2022 | |
| Payroll and benefits | $ 868,016 | $ 452,631 |
| Management consulting fees | 363,621 | 339,612 |
| Professional fees | 18,774 | 27,506 |
| Share-based compensation | 514,048 | 385,930 |
| Total | $ 1,764,460 | $ 1,205,679 |
Payroll and benefits are for management compensation for Craig Scherba (CEO), Brent Nykoliation (SVP), Danniel Stokes (VP), and Markus Reichardt (VP), and for remuneration of Directors for Brett Whalen (Director), Chris Kruba (Director), Ian Pearce (Director) and Sir Mick Davis (Chair of the Board). Consulting fees are for management compensation for companies controlled by Marc Johnson (CFO) and Robin Borley (COO). Professional fees are for accounting services performed by a company controlled by Marc Johnson (CFO). Share-based compensation is for the vesting of stock options and RSUs expenditures.
The following key management related party balances existed at the end of the following reporting periods:
| Related party transactions | As of | As of |
|---|---|---|
| Contained within | June 30, | June 30, |
| 2023 | 2022 | |
| Amounts receivable | $ 185,478 | $ 193,471 |
| Accounts payable and accrued liabilities | $ 63,750 | $ 35,257 |
Amounts receivable are for short-term loans to officers related to the exercise of stock options that are expected to be repaid by December 31, 2023. Accrued liabilities are for the accrual of director fees and net payroll obligations.
CAPITAL MANAGEMENT
Capital Management
There were no changes in the Company's approach to capital management during the year ended June 30, 2023.
The Company's investment policy is to invest excess cash in very low risk financial instruments such as term deposits or by holding funds in high yield savings accounts with major Canadian banks. The Company is not subject to any externally imposed capital requirements. To date, the Company has funded operations by raising equity and obtaining royalty financing.
The Company manages its capital structure (consisting of shareholders' equity and debt obligations) on an ongoing basis and in response to changes in economic conditions and risk characteristics of its underlying assets. Changes to the capital structure can involve the issuance of new equity, obtaining working capital loans, construction financing, issuing debt, the acquisition or disposition of assets, or adjustments to the amounts held in cash, cash equivalents and short-term investments.
Capital Resource Analysis
As of June 30, 2023, the Company had a working capital surplus of $120,050 (June 30, 2022: deficit of $13,868,626). Based on the surplus and subsequent prospectus equity financing as well as management's assessment of its past ability to manage capital, the Company believes
it will be able to satisfy its current and long-term obligations as they come due. As of June 30, 2023, the Company had completed construction of Phase 1 of the Molo Graphite Mine and was progressing with commissioning. During the remaining commissioning and mine ramp-up, the Company is expecting to incur working capital of $0.5 to $1.5 million and general and administrative costs of $1.0 to $1.8 million.
| As at | As at | |
|---|---|---|
| June 30, | June 30, | |
| 2023 | 2022 | |
| Current Assets: | ||
| Cash and cash equivalents | $ 6,885,458 | $ 9,793,253 |
| Amounts receivable | 494,250 | 574,260 |
| Inventories | 470,336 | - |
| Prepaid expenses | 172,384 | 96,792 |
| Total Current Assets | 8,022,428 | 10,464,305 |
| Current Liabilities: | ||
| Accounts payable and accrued liabilities | 3,014,594 | 1,864,665 |
| Current portion of lease obligations | 1,286,561 | 51,725 |
| Current portion of royalty obligations | 2,846,250 | - |
| Fair value of warrant derivative liabilities | - | 21,689,490 |
| Commercial production obligation | 754,973 | 727,051 |
| Total Current Liabilities | 7,902,378 | 24,332,931 |
| Working Capital (Deficit) surplus | 120,050 | (13,868,626) |
As of June 30, 2023, the Company had cash and cash equivalents of $6,885,458 (June 30, 2022: $9,793,253). On August 1, 2023, the Company completed a prospectus equity funding of $37,750,585 (CAD$50,000,775) resulting in net proceeds of $36,569,511 (CAD$48,436,439). The cash and cash equivalents together with the prospectus offering net proceeds are expected to be sufficient to settle current liabilities, fund expected commissioning and ramp-up costs for Phase 1 of the Molo Graphite Mine, and fund all of the planned Mauritius BAF development costs, Molo Phase 2 development costs (Feasibility and FEED studies), and general and administrative costs during the next twelve months.
If the Company makes construction decisions, the ability to construct Phase 2 of the Molo Graphite Mine, and any additional BAF plants, will be dependent on management's ability to secure additional financing. The Company may choose to raise such additional capital by issuing new equity, obtaining working capital, construction financing, or secured loans, or arranging other financing arrangements. While the Company has been successful at obtaining additional financing in the past, there can be no assurance it will be able to do so in the future or on terms that are acceptable to the Company.
Contractual Obligations and Commitments
The Company is subject to contractual obligations related to the energy services agreement, royalties, royalty obligation minimum repayments and the long-term lease agreements for the Molo Graphite Mine property and the Mauritius BAF property. The Company's future operating cash flows are expected to be sufficient to satisfy contractual obligations related to these obligations and commitments.
Off-balance sheet arrangements
The Company does not have any off-balance sheet arrangements including any arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Liquidity risk
As of June 30, 2023, the Company had cash and cash equivalents of $6,885,458 (June 30, 2022: $9,793,253) to settle current liabilities of $7,902,378 (June 30, 2022: $24,332,931).
The following Company obligations have contractual maturities over the next twelve months:
- Accounts payable and accrued liabilities, which are generally due within 30 days.
- Minimum Repayments under the royalty agreement due semi-annually on June 30 and December 31.
- Commercial production obligation due upon declaration of commercial production at the Molo Mine.
- Annual lease payment obligations for the Mauritius BAF lease and for the Molo Mine property.
As a result, the Company was exposed to liquidity risk as of June 30, 2023. Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. Liquidity risk arises from the Company's financial obligations and in the management of its assets, liabilities, and capital structure. To minimize liquidity risk, the Company has implemented cost control measures including a construction budget and the minimizing of discretionary expenditures unless the project has sufficient economic or geologic merit. In managing liquidity, the Company's primary objective is to ensure the entity can continue as a going concern while obtaining sufficient funding to meet its obligations as they come due. The Company manages this risk by regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments in a cost-effective manner. The main factors that affect liquidity include working capital requirements, capital-expenditure requirements, and equity capital market conditions. The Company's liquidity requirements are met through a variety of sources, including cash and cash equivalents and equity capital markets. The Company is dependent on obtaining financing to complete development of the Molo Phase 2 expansion additional BAF plants.
Credit risk
The Company does not have commercial customers and therefore does not have credit risk related to amounts receivables. The Company has credit risk arising from amounts classified as loans to officers. The Company manages this risk by settling against amounts due to officers. The Company has credit risk arising from the potential from counterparty default on cash and cash equivalents held on deposit with financial institutions. The Company manages this risk by ensuring that deposits are only held with large Canadian banks and financial institutions, whereas any offshore deposits are held with reputable foreign financial institutions. The Company also limits the deposits held with foreign financial institutions.
During the year ended June 30, 2023, due to considerable uncertainty as to the timing and recoverability of refundable Madagascar value added tax (VAT), the Company recognized an impairment of VAT receivable of $3,953,376 (2022: $nil). As of June 30, 2023, amounts receivable are presented net of an impairment of VAT receivable of $3,953,376 (June 30, 2022: impairment of $nil).
Interest rate risk
This is the sensitivity of the fair value or of the future cash flows of a financial instrument to changes in interest rates. The Company does not have any financial assets or liabilities that are subject to variable interest rates.
Commodity price risks
This is the sensitivity of the fair value of, and future cash flows, generated from its mineral projects. The Molo Graphite Mine property and assets under construction are carried at historical cost. As a result, the recoverability of the carrying values are exposed to commodity price risks. The royalty obligation remeasurement includes an estimate of the present value of royalties paid on graphite revenues and as a result, is exposed to graphite price risk with a sensitivity to a 10% change in graphite prices of 1%. Graphite is not a commodity product and therefore does not have an established forward pricing or futures market that could be used to hedge against this exposure. The Company manages this risk by monitoring mineral and commodity price trends to determine the appropriate timing for funding the development, acquisition or disposition of its mineral exploration and development projects.
Currency risk
This is the sensitivity of the fair value or of the future cash flows of financial instruments to changes in foreign exchange rates. The Company transacts in currencies other than the US dollar, including the Canadian dollar, the Madagascar Ariary, the Mauritius Rupee, and the South African Rand. The Company purchases services and has certain salary commitments in those foreign currencies. The Company also has monetary and financial instruments that may fluctuate due to changes in foreign exchange rates. Derivative financial instruments are not used to reduce exposure to fluctuations in foreign exchange rates. The Company is not sensitive to foreign exchange exposure since it has not made commitments to deliver products quoted in foreign currencies. Due to construction activities related to the Molo Graphite Mine, the Company is increasing its sensitivity to foreign exchange risk arising from the translation of the financial statements of subsidiaries with a functional currency other than the US dollar whereby changes in certain assets, liabilities and equity are measured through other comprehensive income.
As of June 30, 2023, the Company estimated that a 10% decrease of the USD versus foreign exchange rates would result in a loss of $48,841 (June 30, 2022: gain of $68,224) and a 10% increase in the USD versus foreign exchange rates would result in a gain of $48,841 (June 30, 2022: loss of $68,224). The Company holds the following balances in foreign currency:
| As atJune 30,2023 | As atJune 30,2022 | ||
|---|---|---|---|
| Cash and cash equivalents | CAD | $ 2,119,393 | $ 1,341,893 |
| Cash and cash equivalents | MGA | 104,293 | 62,433 |
| Cash and cash equivalents | MUR | 38,448 | - |
| Amounts receivable | CAD | 246,616 | 319,555 |
| Amounts receivable | MGA | - | 61,234 |
| Prepaid expenses | CAD | 46,667 | - |
|---|---|---|---|
| Prepaid expenses | ZAR | 8,170 | - |
| Prepaid expenses | MGA | 4,184 | - |
| Accounts payable and accrued liabilities | CAD | (306,903) | (124,023) |
| Accounts payable and accrued liabilities | MGA | (1,875,766) | (203,028) |
| Accounts payable and accrued liabilities | MUR | (92,542) | - |
| Accounts payable and accrued liabilities | GBP | 16,469 | - |
| Accounts payable and accrued liabilities | ZAR | (836) | (48,773) |
| Commercial production obligations | CAD | (754,973) | (727,051) |
| Current portion of lease obligations | MGA | (41,628) | - |
| Net foreign exchange exposure in USD | $ (488,407) | $ 682,240 | |
| Impact of 10% increase in CAD/USD exchange rates | $ 135,080 | $ 81,037 | |
| Impact of 10% increase in MGA/USD exchange rates | $ (180,892) | $ (7,936) | |
| Impact of 10% increase in MUR/USD exchange rates | $ (5,409) | $ - | |
| Impact of 10% increase in ZAR/USD exchange rates | $ 733 | $ (4,877) | |
| Impact of 10% increase in GBP/USD exchange rates | $ 1,647 | $ - | |
| Total | $ (48,841) | $ 68,224 |
SUBSEQUENT EVENTS
On July 26, 2023, the Company announced certain corrective disclosures in respect to a review by the Ontario Securities Commission in connection with the Offering. The PEA incorrectly included the previously delineated mineral reserve estimate for Phase 1 of the Molo Graphite Mine into the preliminary economic assessment for Phase 2 expansion of the Molo Graphite Mine, in contravention of NI 43- 101. To correct such error, the Company retracted the mineral reserve estimate from the PEA and from any other continuous disclosure documents filed by the Company. Further, the Company refiled the annual management's discussion and analysis for the years ended June 30, 2022 and 2021 as well as the interim management's discussion and analysis for the period ended March 31, 2023, to remove the references to such mineral reserve statements, and additionally to adjust certain disclosures and remove certain non-IFRS measures previously included relating to the Mauritius BAF. The Company does not consider the mineral reserve retraction to be material to the Company and the mineral resource estimate for the Molo Graphite Mine is not affected.
On August 1, 2023, the Company completed a prospectus equity funding of $37,750,585 (CAD$50,000,775) through the issuance of 30,303,500 common shares at a price of CAD$1.65 per share resulting in net proceeds of $36,569,511 (CAD$48,436,439).
On September 5, 2023, the Company announced the signing of a non-binding memorandum of understanding (the "MoU") with South Korea's POSCO for strategic collaboration that could involve an equity investment into the Company as well as a long-term offtake agreement for SPG and the Company's other graphite products. The MoU envisages the potential for a definitive offtake agreement for 30,000 tpa of SuperFlake® graphite concentrate and 10,000 to 15,000 tpa of SPG over a ten year period, to be supplied to POSCO Future M, a POSCO Group subsidiary that is responsible for EV battery businesses and supplies all of South Korea's major battery cell manufacturers with finished cathode and anode materials. Prior to executing a definitive agreement, certain customary technical and economic studies will need to be completed.
On September 28, 2023, the Company announced certain updates in respect of the development of the Mauritius BAF, including the Company's termination of the original long-term industrial lease entered into in respect of a property upon which the Mauritius BAF was originally intended to be constructed. Additionally, in connection therewith, the Company announced that it is in advanced discussions in connection with an alternative location for the Mauritius BAF in the vicinity of the international freeport of Port Louis, Mauritius, being the New Mauritius BAF Property, upon which the Mauritius BAF may be constructed and in respect of which the Company intends to enter into a new long-term industrial lease on similar commercial terms as the original long-term industrial lease. The Company also announced that while the Initial Mauritius BAF Technical Study would continue to be valuable in completing a similar technical study relating to the construction and operation of the Mauritius BAF on the New Mauritius BAF Property, being the New Mauritius BAF Technical Study, the previously announced results of the Initial Mauritius BAF Technical Study relating to project evaluation measures, including the construction costs, timing of construction, sales potential, operating cash flows, NPV, IRR and other metrics relating the Mauritius BAF may not be achieved and should not be relied upon. The Company announced that it would provide an update in respect of project evaluation measures once any New Mauritius BAF Technical Study has been completed.
RISK FACTORS
The Company manages risks inherent to its business and has procedures to identify and manage significant operational and financial risks. The reader is cautioned to carefully review the risk factors identified in our most recent AIF.
SUMMARIZED ANNUAL DATA
Year ended Year ended Year ended
| June 30, | June 30, | June 30, | |
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| $ | $ | $ | |
| Revenues | $ - | $ - | $ - |
| Mine development expenses | 355,703 | 65,160 | 323,668 |
| Exploration and evaluation expenses | 43,385 | 177,955 | 46,815 |
| General and administrative expenses | 3,482,527 | 1,929,292 | 1,396,801 |
| Net (loss) income | (11,678,687) | 16,120,203 | (41,960,484) |
| Net (loss) income and comprehensive (loss) income | (13,569,131) | 16,196,357 | (41,825,845) |
| Weighted-average common shares (basic and diluted) | 117,264,004 | 99,204,079 | 66,654,804 |
| Net (loss) income per common share (basic and diluted) | (0.10) | 0.16 | (0.63) |
| Dividends declared | - | - | - |
| Total assets | 52,976,660 | 29,297,860 | 26,919,591 |
| Total non-current liabilities | 19,872,347 | 8,029,289 | 6,335,975 |
| Total liabilities | 27,774,725 | 32,362,220 | 53,065,895 |
| Total shareholders' equity (deficit) | 25,201,935 | (3,064,360) | (26,146,304) |
SUMMARIZED QUARTERLY DATA
| Quarter Ended | |||||
|---|---|---|---|---|---|
| June 30, | March 31, | December 31, | September 30, | ||
| 2023 | 2023 | 2022 | 2022 | ||
| $ | $ | $ | $ | ||
| Revenues | - | - | - | - | |
| Mine development expenses | (607,662) | 452,514 | 286,475 | 224,376 | |
| Exploration and evaluation expenses | 40,977 | 2,408 | - | - | |
| General and administrative expenses | 1,125,134 | 1,048,154 | 656,849 | 652,390 | |
| Net income (loss) | (495,794) | (1,631,497) | (3,632,966) | (5,918,430) | |
| Net income (loss) and comprehensive income (loss) | (3,245,502) | (2,094,964) | (2,415,565) | (5,813,100) | |
| Net income (loss) per share (basic and diluted) | (0.00) | (0.01) | (0.03) | (0.06) | |
| Working capital (deficit) surplus | 120,050 | 5,451,580 | 13,706,665 | (21,493,227) |
| Quarter Ended | |||||
|---|---|---|---|---|---|
| June 30, | March 31, | December 31, | September 30, | ||
| 2022 | 2022 | 2021 | 2021 | ||
| $ | $ | $ | $ | ||
| Revenues | - | - | - | - | |
| Mine development expenses | 138,990 | 25,779 | 22,307 | (121,916) | |
| Exploration and evaluation expenses | 69,989 | 14,558 | 40,550 | 52,858 | |
| General and administrative expenses | 450,766 | 602,987 | 456,770 | 418,769 | |
| Net income (loss) | 29,708,698 | (4,714,086) | (6,527,454) | (2,346,955) | |
| Net income (loss) and comprehensive income (loss) | 29,792,068 | (4,651,499) | (6,832,442) | (2,111,770) | |
| Net income (loss) per share (basic and diluted) | 0.30 | (0.05) | (0.07) | (0.02) | |
| Working capital (deficit) surplus | (13,868,626) | (42,484,978) | (37,099,064) | (29,161,919) |
CRITICAL IFRS ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
The Company's Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. The Consolidated Financial Statements follow the same accounting policies and methods of their application as disclosed in Note 3 to the Company's audited consolidated financial statements for the year ended June 30, 2023.
To prepare financial statements in conformity with IFRS, the Company must make estimates, judgements and assumptions concerning the future that affect the carrying values of assets and liabilities as of the date of the consolidated financial statements and the reported values of revenues and expenses during the reporting period. By their nature, these are uncertain and actual outcomes could differ from the estimates, judgments, and assumptions. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and also in future periods when the revision affects both current and future periods. Significant accounting
judgments, estimates and assumptions are reviewed on an ongoing basis. The areas involving significant judgments, estimates and assumptions have been detailed in Note 4 to the Company's audited consolidated financial statements for the year ended June 30, 2023.
Management has discussed the development and selection of critical accounting policies and estimates with the Audit Committee, which has reviewed the Company's disclosure in this MD&A.
QUALIFIED PERSON
Craig Scherba, P.Geo., the Company's President and Chief Executive Officer is the Qualified Person, as defined by NI 43-101, who has reviewed and approved the technical information disclosed in this MD&A.
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of June 30, 2023, the end of the period covered by this MD&A, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2023, the end of the period covered by this MD&A, we maintained effective disclosure controls and procedures.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting using the criteria set forth in the COSO Internal Control – Integrated Framework (2013). Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2023.
OTHER INFORMATION
Additional information related to the Company, including the AIF, is available on the Canadian Securities Administrators' SEDAR+ website at www.sedarplus.ca or on the Company website at www.nextsourcematerials.com.