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StrategX Elements Corp. — Management Reports 2023
Apr 24, 2023
48070_rns_2023-04-24_e07dc21f-6750-4389-a0c5-2ec0672e4f51.pdf
Management Reports
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STRATEGX ELEMENTS CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the Years Ended
December 31, 2022 and 2021
STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
GENERAL
StrategX Elements Corp. (“StrategX” or the “Company”) was incorporated on June 28, 2018, under the laws of British Columbia, Canada. On January 10, 2022, the Company’s common shares commenced trading on the Canadian Securities Exchange (“CSE”) under the symbol “STGX”. The Company’s principal business activity is the acquisition and exploration of mineral property interests. The Company is in the exploration stage and substantially all the Company’s efforts are devoted to financing and developing these property interests. There has been no determination whether the Company’s interests in unproven exploration and evaluation assets contain economically recoverable mineral resources.
The Company’s head office is located at 514 – 55 Water Street, Vancouver, British Columbia, Canada.
This Management’s Discussion and Analysis (“MD&A”) of the Company has been prepared based on available information up to the date of this report, April 24, 2023, and should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the years ended December 31, 2022 and 2021, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“ISAB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). All monetary amounts are expressed in Canadian dollars unless stated otherwise.
FORWARD-LOOKING STATEMENTS
Information and statements contained in this MD&A that are not historical facts are forward-looking information within the meaning of National Instrument 51-102 Continuous Disclosure Obligations of the Canadian Securities Administrators that involve risks and uncertainties.
This MD&A contains forward-looking statements, such as estimates and statements regarding the Company’s goals and future plans, including words to the effect that the Company expects a stated result or event to occur. These forward-looking statements are subject to known or unknown risks and uncertainties, which could cause actual results or performance of the Company to differ materially from results implied by such forward-looking information. Factors that could cause the actual results to differ include commodity price fluctuations, market capital access, global economy and politics, government regulations, environmental restrictions, exploration results, mineral title disputes, limitation on insurance coverage and availability of consultants delivering timely services, as well as those factors discussed in the section entitled “Risks and Uncertainties” in this MD&A.
Although the Company has attempted to identify important factors that could affect the Company or may cause actual actions, events or results to differ, there may be other causing factors out of the Company’s anticipation or estimation. Forward-looking statements contained herein are made as of the date of this MD&A and the Company disclaims any obligation to update any forward-looking statements, whether because of new information, future events or results otherwise. Accordingly, readers are advised not to place undue reliance on forward-looking statements.
CORPORATE HIGHLIGHTS
The Company had the following significant activities recently:
Listing at Canadian Securities Exchange (the “CSE”)
On January 10, 2022, the Company received its final approval to list its common shares on the CSE. The Company’s shares are trading under the symbol "STGX."
Stock option plan and grant of stock options
On March 31, 2021, the Company adopted a stock option plan whereby the Board of Directors may, from time to time, grant options to directors, officers, employees, and consultants. The term of the option grants is up to ten years and the vesting schedule, if any, will be determined by the Board of Directors. The maximum number of common shares reserved for issue shall not exceed 15% of the total number of common shares issued and outstanding as at the grant date.
On January 10, 2022, the Company granted incentive stock options to certain directors, officers, employees, and consultants of the Company to purchase up to an aggregate of 2,100,000 common shares of the Company. These options
1
STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
are exercisable for a period of five years at a price of $0.25 per share. All options will vest as to 10% on the date of grant, and a further 15% every three months thereafter.
Property agreement amendment
On September 24, 2018, the Company entered into a Letter of Agreement (the “Agreement”) with Hunter Exploration Group. Pursuant to the terms of the Agreement, the Company will acquire 100% of interest in the Project 939 and EA South Project located in the Northwest Territory, Canada. The Agreement was replaced by a Property Purchase Agreement dated January 11, 2021, which was amended on October 8, 2021 and then further amended on December 20, 2022. According to the second amendment dated December 20, 2022, the Company’s final date to complete its $4,000,000 work commitment is extended to December 31, 2024 from December 31, 2023; accordingly, the Company’s obligation to issue 1,500,000 shares is also extended to January 10, 2025 from January 10, 2024.
Private placement – 2022
On December 30, 2022, the Company closed a non-brokered private placement by issuing 63,600 common share units at $0.25 per unit and 1,200,000 flow-through common shares at a price of $0.30 per share for gross proceeds of $375,900. Each share unit is comprised of one common share and one half share purchase warrant, with each whole warrant being exercisable for one common share at a price of $0.40 per share for three years. In relation with the private placement, the Company paid $21,600 of finders’ fees, $2,351 filing fees and $16,500 legal fees.
On December 2, 2022, the Company closed final tranche of a non-brokered private placement by issuing 660,600 common share units at $0.25 per unit and 335,000 flow-through common shares at a price of $0.30 per share for gross proceeds of $265,650. Each share unit is comprised of one common share and one half share purchase warrant, with each whole warrant being exercisable for one common share at a price of $0.40 per share for three years. In relation with the private placement, the Company paid $6,000 of finders’ fees. The Company also transferred a value of $661 from share capital into warrant reserve.
On October 25, 2022, the Company closed first tranche of a non-brokered private placement by issuing 1,901,000 common share units at $0.25 per unit and 803,166 flow-through common shares at a price of $0.30 per share for gross proceeds of $716,200. Each share unit is comprised of one common share and one half share purchase warrant, with each whole warrant being exercisable for one common share at a price of $0.40 per share for three years. In relation with the private placement, the Company paid $30,621 of finders’ fees.
On June 30, 2022, the Company closed a non-brokered private placement by issuing 2,836,050 share units at $0.30 per unit for total proceeds of $850,815. Each share unit is comprised of one common share and one-half share purchase warrant, with each whole warrant being exercisable for one common share at a price of $0.45 per share for three years. The Company paid $18,000 of finder’s fee and accrued $7,000 legal fees.
Special warrants
In July and September 2021, the Company closed a non-brokered private placement by issuing 1,852,500 special warrants at $0.25 per share for total proceeds of $463,125. The Company paid $15,000 of cash finder’s fees. In November and December 2021, the special warrants were converted into 1,852,500 common shares without additional cost.
Private placement - 2021
In 2021, the Company issued 6,816,096 shares at $0.15 per share and 80,000 shares at $0.25 per share for total proceeds of $1,042,415. The Company paid $14,400 of cash finder’s fees.
Warrants
In March and April 2021, the Company granted to directors, officers, and consultants 1,050,000 warrants, exercisable at $0.15 per share for a term of 2 years from the Company’s completion of a liquidity event. A liquidity event means a merger, sale of the Company, or an initial public offering, or such other similar events as shall be determined by the Board of Directors in its sole discretion. In October 2021, the Company issued 800,000 shares pursuant to exercise of 800,000 warrants at $0.10 per share for total proceeds of $80,000.
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
MINERAL PROPERTY
| Project 939 | EA South | Project | Project | |||
|---|---|---|---|---|---|---|
| (Northwest | (Northwest | Tasijuaq | NagVaak | Project Mel | ||
| Territories) | Territories) | (Nunavut) | (Nunavut) | (Nunavut) | Total | |
| Balance, December 31, 2020 | $ 544,501 | $ 316,949 | $ - | $ - | $ - | $ 861,450 |
| Acquisition | 25,000 | 25,000 | - | - | - | 50,000 |
| Staking costs and lease payments | - | - | 30,175 | 3,165 | - | 33,340 |
| Exploration | ||||||
| Assay | 21,101 | - | - | - | - | 21,101 |
| Camp costs | - | - | - | - | 68,617 | 68,617 |
| Community | 690 | 690 | - | - | - | 1,380 |
| Data | 30,614 | 8,556 | - | - | - | 39,170 |
| Geology | 79,016 | - | - | - | - | 79,016 |
| Consulting | 141,701 | 8,000 | - | - | - | 149,701 |
| Field | 1,285 | 1,996 | - | - | - | 3,281 |
| License and permitting | 2,204 | 1,734 | 4,896 | - | - | 8,834 |
| Geological survey | 121,419 | - | - | - | - | 121,419 |
| Travel | 11,249 | - | - | - | - | 11,249 |
| Government grant | (51,000) | - | - | - | - | (51,000) |
| Balance, December 31, 2021 | 927,780 | 362,925 | 35,071 | 3,165 | 68,617 | 1,397,558 |
| Acquisition | 25,000 | 25,000 | - | - | - | 50,000 |
| Staking costs and lease payments | - | - | 2,340 | 5,330 | - | 7,670 |
| Exploration | ||||||
| Amortization | - | 2,920 | - | 5,841 | - | 8,761 |
| Assay | - | 5,765 | - | 20,667 | - | 26,432 |
| Camp costs | - | - | - | 184,778 | - | 184,779 |
| Community | 690 | 690 | - | - | - | 1,380 |
| Consulting | 53,250 | 118,875 | - | 50,875 | - | 223,000 |
| Data | 7,575 | 22,188 | - | 15,469 | - | 45,232 |
| Drilling | - | - | - | 99,754 | - | 99,754 |
| Equipment rental | - | - | - | 76,009 | - | 76,009 |
| Field | - | 28,238 | - | 115,760 | - | 143,998 |
| Fuel | - | - | - | 339,300 | - | 339,300 |
| Geology | - | - | 1,800 | 90,954 | - | 92,754 |
| Flight and helicopter | - | - | - | 778,293 | - | 778,293 |
| License and permitting | 1,955 | - | - | 38,841 | - | 40,796 |
| Geophysical survey | - | 31,857 | - | - | - | 31,857 |
| Travel | - | 5,591 | - | 78,413 | - | 84,004 |
| Government grant | - | - | - | (7,805) | - | (7,805) |
| Balance, December 31, 2022 | $ 1,016,250 | $ 604,049 | $ 39,211 | $ 1,895,644 | $ 68,617 | $ 3,623,771 |
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
Project 939 and EA South, Northwest Territories, Canada
On September 24, 2018, the Company entered into a Letter of Agreement (the “Agreement”) with Hunter Exploration Group. Pursuant to the terms of the Agreement, the Company will acquire 100% of interest in the Project 939 and EA South Project located in the Northwest Territory, Canada. Project 939 and EA South comprises 12 prospecting permits (93,821 hectares) and 16 mining claims (12,638 hectares). The Agreement was replaced by a Property Purchase Agreement dated January 11, 2021 and subsequently amended on October 8, 2021 and then on December 20, 2022. According to the Property Purchase Agreement, the Company will have the following obligations:
Cash payments
| $100,000 | On or before July 3, 2018 (paid) |
|---|---|
| $100,000 | On or before August 17, 2018 (paid) |
| $50,000 | On or before July 1, 2019 (paid) |
| $50,000 | On or before July 1, 2021 (paid) |
| $50,000 | On or before July 1, 2021 (paid) |
| $350,000 |
Work Commitment
| $300,000 | By December 31, 2018 |
|---|---|
| $700,000 | By December 31, 2019 |
| $1,000,000 | By December 31, 2020 |
| $2,000,000 | By December 31, 2021 |
| $4,000,000 | (Amended to complete the totalamount byDecember31,2024) |
As of December 31, 2022, the Company has incurred accumulatively $1,663,299 (December 31, 2021 - $1,383,705) of exploration and evaluation assets.
Share payments
Issue 1,500,000 share units within 10 days of completing the $4,000,000 work commitment (Amended to issue the shares no later than January 10, 2025). Each share unit will be comprised of one common share of the Company and one share purchase warrant. Each warrant will be exercisable into one common share of the Company at a price of $0.50 per share for a period of five years from the date of issuance.
Annual Advanced Royalty Payment (“AARP”)
Commencing July 1, 2023 (Amended to July 1, 2025), a $100,000 AARP to be paid on or before July 1 and that of each subsequent year until the commencement of commercial production.
Royalties
The Project is subject to 2% Net Smelter Royalty and a 2% Gross Overriding Royalty on diamonds.
Government grant
During the year ended December 31, 2022, the Company received government grants of $102,000 (2021 - $51,000) from the Government of the Northwest Territories (the “GNWT”). The GNWT’s contribution is towards mineral expenditure incurred by the Company on the Project 939 and EA South. The Company recorded the $102,000 as deferred government grant at December 31, 2022 which will be recognized to reduce the exploration and evaluation assets when all reporting requirements are met under the grant agreement.
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
- Exploration update Project 939, Northwest Territories
The 939 Property (the “Project” or the “Property”) is located 235 km east of Yellowknife, Northwest Territories (NWT), North of the East Arm of Great Slave Lake near the First Nation community of Lutselk’e which will serve as a base for operations. The Property comprises 2 prospecting permits (11,116 hectares (ha)) and 7 mining claims (6,710 ha) of mineral rights. There has been no historical resource estimation work conducted at the Project and therefore, the Property is regarded as an early-stage exploration project.
During 2018, 2019 and 2021 StrategX completed exploration at the 939 Property including: the collection of 68 rock grab samples, 127 lake sediment samples, and 50 till samples; conducted ground magnetic surveys; ground Moving Loop Electromagnetics (“MLEM”); and an experimental, Aurora Rapid Reactance Tomography (“ARRT”), which is a snowmobile-towed Induced Polarized (“IP”) system; in addition, a lake sediment sampling survey collected 24 samples through the ice.
The StrategX sampling programs extended the known lake sediment anomaly delineated by KCI and the GSC in and up-ice direction over 5km to the northeast with values of up to 939 ppm Co; and delineated a high priority cobalt in lake sediment anomaly in Misty Lake.
The 2021 geophysical surveys identified important linear features (containing magnetic dykes) and interpreted intersecting structures that coincide with the lake sediment cobalt anomaly in Misty Lake. The presence of anomalous cobalt in both rock and lake sediment samples; favourable host lithologies; and the presence of untested geophysical anomalies at multiple locales within the Property are encouraging, and further exploration is warranted.
The Company has focused its exploration objectives attempting to discover the primary source of the anomalous cobalt in lake and till samples from Misty Lake and has applied an analogy from Broken Hill, Australia. The “Cobalt-Blue” deposit is a new type of primary mineralization forming only as Co-rich pyrite zones. This simple mineral assemblage has a high metallurgical recovery rate compared to other more common cobalt-base metal deposits. The significant increase in recovery has a significant economic consequence for any deposit found.
The next exploration program will be operated out of the Company’s field base in Lutselk’e which will also support EA South exploration activities. In 2021 the Company was given a Land Use Permit for the 939 Project which included permission for diamond drilling. The primary focus of activities over the next financial quarter continues to build on relationships established within the community of Lutselk’e. A drill campaign of a minimum of 1,000m of diamond drilling is being planned for the Misty Lake area. This program will target collaboration with other operators in the area to reduce footprint and logistical costs. A drill contractor is engaged, and a contract will be finalized shortly.
- Exploration update Project EA South, Northwest Territories
EA South is a large project comprising a series of claims within a larger permit on the south shores of the East Arm south of Lutselk’e. The area has received sporadic exploration in the past 50 years focused on different elements at different times. During the summer this year, the Company completed an initial first phase of exploration on its EA South project focused on a target called NorthStar located closest to the Company’s field-base in Lutselk’e, a Dene First Nation community. The first phase of exploration included a detailed 50 line-km ground magnetic survey, prospecting, mapping, and trench sampling. StrategX purchased a Overhauser GSM19 magnetometer-VLF and with two members of the Community and a geophysicist the Company carried out geophysical training. While the magnetics grid was being completed the Company also sampled 52 metres of bedrock within three old, blasted trenches from an earlier Cominco exploration program. The trenches were constructed across the fault-bound contact between a window of Archean-aged granites and younger Proterozoic Yellowknife Supergroup sedimentary rocks. The bedrock in the trenches shows chalcopyrite and bornite (copper) mineralization over 5 to 7 metres with one chip sample returning 1.71% copper.
The best results from the existing trenches include:
-
Trench 1: is 30+m long, one interval was 0.59% copper over 6m.
-
• Trench 2: is 7m long and returned 0.68% copper over 7m with one sample returning 1.71%.
-
Trench 3: is 5m long and returned 0.24% copper over 5m.
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
The resampling by StrategX confirms the results from the older work by Cominco. In 1958-60, Monpre and Cominco drilled 7 holes at the NorthStar target. One hole, DDH-14 (232ft) returned 1.03% Cu over 24m. At that time Cominco was exploring for copper porphyry deposits.
The Company has been focused on establishing a relationship with the Chief and Council whereby the Company can work out of the Community and use Lutselk’e as its base. The Company is planning to establish an airborne survey with a strategic partner to guide the next field season defining targets on its extensive 88,677-hectare property package.
Project EA South is on the south side of the East Arm of the Slave Archean craton. It is a structurally complex highly endowed area with Archean basement and Proterozoic cover sequences. The area has had a long history of structural and magmatic events with episodic mineralization from the Paleoproterozoic through to the Cambrian and possibly younger. The Great Bear Magmatic Zone located to the north and west of the Slave craton hosts known Iron-Oxide-Copper-Gold (IOCG) deposits (Nico and Sue-Dianne), considered an exploration analog for EA South, and supports the GSC view that the EA South property has the potential to host IOCG deposits. This is illustrated by the juxtaposition of IOCG alteration/mineralization and porphyry copper-gold mineralization. Reconnaissance rock sampling show values of highly elevated copper. The initial focus at EA South is the NorthStar porphyry copper-gold target (2km[2] ) located in the extensive Duhamel legacy prospect area, previously explored by Cominco over 50 years ago.
For 2023, the Company will evaluate a minimum of 5 other targets in the region covering the extents of the project permits, with the objective of outlining numerous drill targets for the second half of 2024.
Project Tasijuaq (previously “Project N”), Nunavut, Canada
In March 2022, the Company staked 4 additional claims, 1,013 hectares, at a cost of $2,340, and changed the project name from Project N to Project Tasijuaq.
The Tasijuaq Ni-Cu-Co-PGE prospect is in the northern region of the Melville Peninsula, focused around the Tasijuaq gabbroic intrusive system. The historical exploration data,in conjunction with new rock samples and surface mapping, is being reviewed and interpreted by the Company’s geological and geophysical staff. The Company is currently preparing an exploration planning document that lays out the next steps to advance the project.
Project Nagvaak, Nunavut, Canada
Effective August 1, 2021, the Company entered into a Mineral Exploration Agreement with Nunavut Tunngavik Incorporated (“NTI”), pursuant to which, the Company obtained a renewable 20-year lease with an area of approximately 2,665 hectares expiring on July 31, 2041.
Annual fees
| Year | Annual fees | Due date |
|---|---|---|
| ($/hectare/year) | ||
| 1 | 1 | On signing (paid) |
| 2-5 | 2 | On 1st(paid), 2nd,3rd and 4th anniversary dates |
| 6-10 | 3 | On 5th, 6th, 7th, 8th and 9th anniversary dates |
| 11-15 | 4 | On 10th, 11th, 12th, 13th and 14th anniversary dates |
| 16-20 | 5 | On 15th,16th,17th,18th and19th anniversary dates |
Minimum annual exploration work requirement
| Minimum annual | exploration work requirement |
|---|---|
| Year | Minimum annual work requirement |
| ($/hectare/year) | |
| 1-2 | 5 (Year 1 met) |
| 3-5 | 10 |
| 6-10 | 20 |
| 11-15 | 30 |
| 16-20 | 40 |
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
Government grant
During the year ended December 31, 2022, the Company received government grants of $7,805 (2021 - $Nil) from the Government of Nunavut for its community engagement support program.
– Exploration update Project Nagvaak
Significant progress has been made at Project Nagvaak by the Company in identifying the economic potential for energy transition metals. Surface rock sampling returned highly elevated values in nickel, vanadium, molybdenum, copper, zinc, silver, and PGEs from a large area (6,000m by 400m) –representing nickel equivalent (NiEq) grades >1%. In 47 out of 144 rock grab samples, the average NiEq* grade is 1.18% and includes highly anomalous average vanadium pentoxide grade of 0.42%. Nagvaak appears to have similar grades and volumes to other notable black-shale hosted deposits, located in Finland and China. The Company engaged Vital Drilling Services to provide diamond drilling services, and cash advances have been made to allow for shipment of a drill rig, fuel and other equipment required to commence a first phase drill program of 2,000m.
The Company hired Apex Geoscience to complete ground magnetic and electromagnetic surveys using the new Australian loupe time domain EM (electromagnetic) (TDEM) system over the Nagvaak property. A total of 62-line kilometres were completed over the property. Twelve high-priority targets were identified from the resulting high-resolution geophysical data set and are being planned to be drill tested. Also, historical BHP exploration grid and drill hole collars from 1996 were found and surveyed; the core is currently being logged, sampled, and analyzed using an XRF (X-ray fluorescence) spectrometer. As a result of this relogging and sampling, a large flake, high purity graphite has been identified in the BHP core. This has become another valuable addition to the mix of energy metals identified at the project.
Highlights:
-
62-line kilometres of high-resolution ground TDEM and magnetic surveying completed. The Loupe TDEM system is especially suited for this kind of mineralization and produced a data set far more detailed than prior surveys.
-
Six highly conductive zones coincident with magnetic anomalies occur at depth below surface mineralization across the 6,000-metre-by-400-metre targeted corridor.
-
12 high-priority drill targets have been identified.
Historical BHP drill core was discovered on the property and is being logged, sampled, and analyzed by an XRF spectrometer, and was sent to SRC Labs for analysis.
-
The company is now focused on drilling at project Nagvaak to make a major discovery in energy transition metals.
-
The discovery of large flake, high purity graphite is another commodity showcasing Nagvaak as a major discovery.
Geophysical targets
Multiple geophysical targets representing coincident high conductivity and magnetic anomalies have been identified below known mineralization at surface over a large area, suggesting a significant mineral system at depth. The time-domain electromagnetic system was utilized to measure the ground conductivity to a depth of 50 metres. The high conductivity is interpreted to be related to a sulphide-mineralized graphitic sedimentary host. The geophysical anomalies appear to be continuous at depth and along the mineralized corridor having dimensions over a kilometre-scale and correlate well with the observed gossans on the surface containing high values greater than 1 per cent nickel equivalent (NiEq) in rock samples collected to date. The magnetic survey data produced linear highs trending N70W to east-west, up to 100 m wide, that appear to dip to the north and south suggesting the magnetic anomalies conform to an east-west trending anticline. Many of the conductivity anomalies from the TDEM survey appear to correlate to the magnetic highs, suggesting the graphitic zones also contain magnetite or pyrrhotite mineralization; however, there are more significant conductivity anomalies than there are magnetic anomalies, suggesting the graphitic host rock is potentially more widespread than the metal deposition. The limited depth of investigation from the TDEM survey does not allow the bottom of the conductors to be resolved, but the
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
3-D models of the magnetic susceptibility indicate the mineralization may potentially extend to a depth of at least 150 metres.
The exploration team continues to be active with various activities, including defining drill targets, reviewing historical data from companies such as Aquitaine Minerals and BHP, and integrating them with newly acquired field data. The Company established a 25-person field camp located approximately 20 kilometres east of Project Nagvaak. The camp will serve as a strategic base of operations to advance its three stand-alone projects on the Melville peninsula (Nagvaak, Tasijuaq, and Mel). These projects have the advantage of being located close to coastal communities and having access to several barge routes. The drill rig arrived by barge and has been mobilized at site – currently positioned near the Nagvaak project site to execute the planned drill program, to commence during the summer months.
Note: _PGE’s + Au not included in the NiEq calculation. Includes nickel price of US$22,000/tonne, V2O5 price of US$21,000/tonne, Cu price of US$9,500/tonne, Zn price of US$3,500/tonne, Mo price of US$44,000/tonne, and Ag price of US$23/oz. NiEq formula uses the following formula: NiEq = Ni % + (V205% X 0.9545) + (Cu % X 0.4318) + (Zn % X 0.1591) + (Mo % X 2.000) + (Ag Oz X 0.0010). The NiEq* calculation will be lower if the metallurgical recovery of the metals is below 100% and will be determined when a resource deposit is defined._
Project Mel, Nunavut, Canada
Pursuant to an agreement with North Arrow Minerals Inc. dated January 13, 2021, the Company acquired 100% of the non-diamond mineral rights in respect of 46 mineral claims (covering approximately 56,075 ha of land) in Nunavut, commonly referred to as the “ MEL Project ”, subject to a 1% gross overriding royalty on non-diamond mineral production from the property, half of which royalty may be purchased at any time by the Company for $1,000,000. This royalty applies to any property owned by the Company within an area of interest extending up to 5 km from the Mel Project boundary. Pursuant to the same agreement, the Company will be granted a 2% gross overriding diamond royalty (reduced to 1% in areas where there is an existing underlying royalty) over the same property, half of which royalty may be purchased by North Arrow Mines Inc. at any time for $2,000,000. As consideration being paid for Mel Project, both the 1% gross overriding royalty on non-diamond mineral production and the 2% gross overriding royalty are valued at $Nil.
Under the agreement, the parties also agreed to share exploration infrastructure in support of their respective exploration and evaluation efforts on the Melville Peninsula and accordingly also entered a camp and permit sharing arrangement. During the year ended December 31, 2022, the Company accrued $Nil (2021 - $68,617) of camp costs.
SELECTED ANNUAL INFORMATION
The following table provides a brief summary of the Company’s financial operations. For more detailed information, refer to the Financial Statements.
==> picture [493 x 194] intentionally omitted <==
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As at December 31,
2022 2021 2020
Current assets $ 735,576 $ 847,759 $ 100,078
Non-current assets 3,863,876 1,591,483 1,050,467
Total assets 4,599,452 2,439,242 1,150,545
Current liabilities 1,966,776 371,958 113,265
Non-current liabilities 64,161 - 24,793
Shareholders' equity 2,568,515 2,067,284 1,012,487
Total liabilities and shareholders' equity 4,599,452 2,439,242 1,150,545
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
Working capital (deficiency) $ (1,231,200) $ 475,801 $ (13,187)
For the year ended December 31,
| For the year ended December 31, | |
|---|---|
2022 2021 2020 |
|
| Revenue | $ - $ - $ - |
| Expenses | ( 1,976,019) ( 566,013) ( 86,697) |
| Loss and comprehensive loss for the year | $ ( 1,954,032) $ ( 578,740) $ ( 69,954) |
| Basic and diluted loss per share | $ (0.07) $ (0.03) $ (0.01) |
| Weighted average number of common shares outstanding–Basic and diluted |
26,861,889 20,745,562 13,559,642 |
REVIEW OF FINANCIAL RESULTS
Years ended December 31, 2022 and 2021
Net Loss
For the year ended December 31, 2022, the Company incurred net loss of $1,954,032 as compared to a net loss $578,740 for the comparative year ended December 31, 2021.
The major items were as follows:
-
Accounting and auditing of $28,121 (2021 - $64,669) is for audit and review of financial statements and preparation of corporate income tax returns. The higher expenses in the comparative year were due to work related to IPO prospectus filing.
-
Consulting fee of $53,361 (2021 - $Nil) was geological consulting that is not related to specific project.
-
Corporate and shareholder communication of $268,198 (2021 - $18,741) is mainly related to building website, social media, news release and other communication activities after the Company’s shares listed on CSE.
-
Filing and transfer agent fees of $17,271 (2021 - $35,639) mainly consisted of CSE and transfer agent monthly fees. The higher fee in the comparative year ended December 31, 2021 was related to prospectus filing fees.
-
Insurance of $20,454 (2021 - $5,250) is for directors’ and officers’ liability insurance and general liability insurance.
-
Legal expense of $20,871 (2021 - $97,606) was related to corporate matters. The higher legal fee in the comparative period was due to the preparation of IPO.
-
Management fees of $141,000 (2021 - $133,500) consisted of $90,000 (2021 - $82,500) paid to a company controlled by CFO and $51,000 (2021 - $51,000) to a company controlled by the CEO.
-
Office expenses of $46,475 (2021 - $22,203) consists of office furniture, meals and entertainment, telephone and internet, supplies and interest expenses.
-
Project investigation costs of $30,646 (2021 - $Nil) are related to expenses incurred on investigating a potential project.
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
-
Rent expenses of $39,255 (2021 - $26,203) are rent and maintenance costs for its leased office.
-
Salary and benefit of $51,598 (2021 - $36,009) is paid to a full-time employee the Company hired in June 2021.
-
Travel of $28,282 (2021 - $Nil) is mainly due to trips to PDAC and other convention and promotion events.
-
Share based compensation of $434,917 of current year ended December 31, 2022, is related to amortization of fair value of 2,100,000 stock option granted in January 2022. During the comparative year ended December 31, 2021, the Company granted 1,050,00 warrants to directors, officers, and consultants with a fair value of $120,519.
-
Non-capitalized exploration expenses of 803,901 (2021 - $Nil) are drilling crew standby costs and bad fuel costs that are not related to active exploration activities.
Three Months Ended December 31, 2022 and 2021
During the three months ended December 31, 2022 and 2021, the Company had a comprehensive loss of $1,103,264, compared with a comprehensive loss of $179,635 in the same period in the prior year. The major increase is due to $803,901 of non-capitalized exploration expenses incurred in the period. The significant expenses during the three-month periods ended December 31, 2022 and 2021 were:
Accounting and auditing of $28,000 (2021 - $37,669); Consulting of $53,361 (2021 - $Nil); Corporate and shareholder communication of $65,456 (2021 - $17,115); Legal fee of $1,420 (2021 - $35,377) Management fee of $35,250 (2021 - $35,250); Project investigation of $30,646 (2021 - $Nil) Share-based compensation of $47,241 (2021 - $Nil); and Non-capitalized exploration expenses of $803,901 (2021 - $Nil)
QUARTERLY INFORMATION
The table below present’s selected financial data for the Company’s four most recently completed quarters, all information was prepared in accordance with IFRS.
| Three month | Three month | Three month | Three month | |||||
|---|---|---|---|---|---|---|---|---|
| period ended | period ended | period ended | period ended | |||||
| December 31, | September 30, | June 30, | March 31, | |||||
| 2022 | 2022 | 2022 | 2022 | |||||
| Total assets | $ | 4,599,452 | $ | 3,078,888 | $ | 3,012,754 | $ | 2,182,802 |
| Exploration and evaluation assets | 3,623,771 | 2,327,299 | 1,596,325 | 1,499,313 | ||||
| Shareholders’ equity | 2,568,515 | 2,534,082 | 2,572,461 | 1,945,534 | ||||
| Net loss and comprehensive loss | (1,103,264) | (215,174) | (310,903) | (324,691) | ||||
| Lossper share | (0.04) | (0.01) | (0.01) | (0.01) |
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
| Three month | Three month | Three month | Three month | |||||
|---|---|---|---|---|---|---|---|---|
| period ended | period ended | period ended | period ended | |||||
| December 31, | September 30, | June 30, | March 31, | |||||
| 2021 | 2021 | 2021 | 2021 | |||||
| Total assets | $ | 2,439,242 | $ | 2,399,890 | $ | 1,970,930 | $ | 1,718,699 |
| Exploration and evaluation assets | 1,397,558 | 1,247,472 | 1,278,959 | 1,062,820 | ||||
| Shareholders’ equity | 2,067,284 | 2,210,041 | 1,827,280 | 1,550,080 | ||||
| Net loss and comprehensive loss | (179,635) | (84,364) | (163,646) | (151,095) | ||||
| Lossper share | (0.01) | (0.00) | (0.01) | (0.02) |
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
The Company is in the exploration stage and no revenue has been generated to date. As at December 31, 2022, the Company had cash of $539,021 (December 31, 2021 - $831,038) and a working capital deficiency of $1,231,200 (December 31, 2021 – working capital of $475,801).
In the past, operating capital and exploration requirements have been funded primarily from equity financing and the Company will need to arrange equity or other financings in order to continue in operation. While the Company has been successful in raising capital in the past, there can be no assurance that such financing will be available to the Company in the amount required or that it can be obtained on terms satisfactory to the Company. The Company’s current financial situation indicates material uncertainties that cast significant doubt about the Company’s ability to continue as a going concern.
Cash Flows
Under operating activities, the Company used $792,261 in the year ended December 31, 2022, as compared with $241,465 in the comparative year ended December 31, 2021. The increased cash spent on operating activities is due to the Company’s listing at the CSE starting January 10, 2022 and non-capitalized exploration expenses incurred in fiscal 2022.
During the year ended December 31, 2022, the Company received $1,507,116 of proceeds from issuance of 5,461,250 share units and $701,450 from issuance of 2,338,166 flow-through shares. During the comparative year ended December 31, 2021, the Company received $1,042,415 of proceeds from issuance of 6,896,096 shares and $463,125 from the issuance of 1,852,500 special warrants. The Company incurred cash share issuance costs of $54,620 (2021 - $72,522). In March 2021, the Company repaid the CEO loan principal of $50,000.
In the investing activities, in relation to the mineral property exploration, during the year ended December 31, 2022, the Company spent $1,614,896 (2021 - $531,767) on exploration, and made a net deposit of $11,500 (2021 - $5,252) to the Government of Nunavut and the Northwest Territories in relation to permit application. The Company received $7,805 (2021 - $51,000) of grant from the Government of Nunavut and the Northwest Territories in the year ended December 31, 2022. The Company also purchased geological equipment of $35,045 (2021 - $Nil).
SUBSEQUENT EVENTS
None
OUTSTANDING SHARE DATA
The following table summarizes the Company’s outstanding share data as of the date of this MD&A:
| Numberofsecurities | |
|---|---|
| Common shares | 32,652,679 |
| Stock options | 2,100,000 |
| Warrants | 6,980,624 |
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
The Company entered into the following transactions with related parties during the year ended December 31, 2022:
a) the Company paid or accrued consulting fees of $51,000 (2021 - $51,000) in exploration and evaluation assets, and $51,000 (2021 - $51,000) in management fees to a company controlled by the CEO. As of December 31, 2022, the Company had $8,925 (2021 - $26,775) payable to the company controlled by the CEO and $15,968 (2021 - $Nil) payable to the CEO for reimbursement of expenses incurred on behalf of the Company.
b) the Company paid or accrued management fees of $90,000 (2021 - $82,500) to a company controlled by the CFO. As of December 31, 2022, the Company had $31,528 (2021 - $23,625) payable to the company controlled by the CFO.
c) the Company paid or accrued consulting fees of $56,000 (2021 - $63,000) in exploration and evaluation assets to a company controlled by the former VP Exploration. As of December 31, 2022, the Company had $Nil (2021 - $8,614) payable to the company controlled by the former VP Exploration.
d) 1,300,000 (2021 - Nil) stock options were granted to directors and officers having a fair value on issuance of $295,729 (2021 - $Nil), of which $269,234 (2021 - $Nil) was amortized and recorded in the consolidated statements of loss and comprehensive loss during the year ended December 31, 2022.
e) Nil (2021 – 1,000,000) warrants were granted to directors and officers having a fair value on issuance of $Nil (2021 - $114,780).
Due to related parties do not bear interest, are unsecured and repayable on demand.
Due from related party
On August 1, 2018, the Company and the CEO entered into a Revolving Line of Credit Agreement (“LOC”). Pursuant to the Agreement, the Company will make payments towards Project Green located in the Republic of Panama, of which the CEO currently holds the mineral property application. The LOC has a maximum funding amount of US$100,000, interest free, and repayable by July 31, 2025.
On June 15, 2021, the Company, the CEO and 10X Minerals Corp. (“10X”) entered into a loan Assignment and Assumption Agreement, pursuant to which 10X assumed the LOC from the CEO, and the Company consent to the assignment of the LOC from the CEO to 10X. The Company expect to have the loan settled with common shares of 10X. 10X was incorporated on March 10, 2021, under the laws of British Columbia, Canada, and is also controlled by CEO. 10X is a junior exploration company focused on exploring diamonds and specialty minerals in Nunavut, Canada.
As of December 31, 2022 and 2021, the accumulated advance is US$99,543 (December 31, 2022 - $134,789; December 31, 2021 - $126,393).
FINANCIAL INSTRUMENTS AND RELATED RISKS
The Company’s financial assets are comprised of cash which is classified as fair value through profit or loss, and due from related parties which are measured at amortized cost.
The Company’s liabilities include accounts payable and accrued liabilities, due to related parties and loans and loans which are all measured at amortized cost. After initial recognition, an entity cannot reclassify any financial liability.
Financial risk management
The Company’s objective in risk management is to maintain its ability to continue as a going concern. It is exposed to the following risks:
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STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
Liquidity risk
Liquidity risk is the risk that the Company might not be able to meet its obligations and commitments as they come due. As at December 31, 2022, the Company had cash of $539,021 (December 31, 2021 - $831,038) and a working capital deficiency of $1,231,200 (December 31, 2021 – working capital of $475,801).
Credit risk
Credit risk arises from cash held with financial institutions as well as credit exposure on outstanding receivables. The Company’s cash is held at high-credit rating financial institutions. Receivables only consist of refundable government goods and services tax. The Company has minimal credit risk.
Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and equity prices.
i. Interest rate risk
Interest rate risk arises from changes in market rates of interest that could adversely affect the Company. The Company’s exposure to interest rate risk is insignificant.
ii. Foreign currency risk
Foreign currency risk arises from fluctuations in foreign currencies versus the Canadian dollar that could adversely affect reported balances and transactions denominated in those currencies. The Company currently has a due from related party balance which is denominated in U.S. Dollars. A 10% fluctuation in exchange rates between Canadian and U.S. Dollars would result in a $13,000 change in due from related party and foreign exchange loss. The Company does not use any techniques to mitigate foreign currency risk.
iii. Equity price risk
Equity price risk arises from market fluctuations in equity prices that could adversely affect the Company’s operations. The Company’s current exposure to equity price risk is limited to declines in the values and volumes including those of its own shares, which could impede its ability to raise additional funds when required.
RISKS AND UNCERTAINTIES
The Company’s business is the exploration and development of mineral properties. As a result, the Company’s operations are speculative. The Company has no history of profitable operations, and its present business is at an early stage. As such, the Company is subject to many risks common to such enterprises, including under-capitalization, cash shortages and limitations with respect to personnel, financial and other resources, and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders' investment.
Whether a mineral deposit will be commercially viable depends on a number of factors, which include, receipt of adequate financing; correct interpretation of geological data; feasibility and other studies; the particular nature of the mineral deposit, such as size grade, metallurgy and physical structure; expected and real metal recoveries; proximity to infrastructure and labour; the cost of water and power; climactic conditions; metal prices; fluctuations in currency exchange rates and metal prices; timely granting of necessary permits; government regulations and taxes; and environmental protection and regulations. The effect of these factors cannot accurately be predicted, but in combination these risk factors may adversely affect the Company’s business.
The risks and uncertainties described in this section are not inclusive of all risks and uncertainties to which the Company may be subject. Furthermore, the Company may face additional risks and uncertainties not presently known to the Company and its management or risks currently seen as immaterial may impair the Company’s business in the future.
Early Stage - Need for Additional Funds - The Company has no history of profitable operations, and its present business is at an early stage. As such, the Company is subject to many risks common to such enterprises, including under-capitalization, cash shortages and limitations with respect to personnel, financial and other resources, and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and
14
STRATEGX ELEMENTS CORP. Management’s Discussion and Analysis For the year ended December 31, 2022
the likelihood of success must be considered in light of its early stage of operations.
Location - The Company’s property interests are in remote, undeveloped areas and the availability of infrastructure such as surface access, skilled labour, fuel and power at an economic cost, cannot be assured. These are integral requirements for exploration, development and production facilities on exploration and evaluation assets.
Exploration and Development Risks - Resource property acquisition, exploration, development, and operation are a highly speculative business that involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of precious metals and other minerals may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Major expenses may be required to locate and establish economically viable mineral deposits, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the acquisition, exploration or development programs planned by the Company will result in a profitable commercial mining operation. The potential for any project to eventually become an economically viable operation depends on numerous factors including: the quantity and quality of the minerals discovered if any, the proximity to infrastructure, metal and mineral prices (which vary considerably over time) and government regulations. The exact effect these factors can have on any given exploration property cannot accurately be predicted but the effect can be materially adverse.
Environmental Risk - Current or future environmental laws and regulations may affect the operations of the Company. These laws and regulations set various standards regulating certain aspects of health and environmental quality. They provide for penalties and other liabilities for the violation of such standards and establish, in certain circumstances, obligations to rehabilitate current and former facilities and locations where operations are or were conducted. Furthermore, the permission to operate could be withdrawn temporarily where there is evidence of serious breaches of health and safety, or even permanently in the case of extreme breaches. Significant liabilities could be imposed on the Company for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damages caused by previous owners of acquired properties or non-compliance with environmental laws or regulations. The Company intends to minimize these risks by taking steps to ensure compliance with environmental, health and safety laws and regulations and operating to international environmental standards.
Commodity Prices - The market price of precious metals and other minerals is volatile and cannot be controlled.
Conflicts - The Company’s directors and officers serve as directors or officers or may be associated with other reporting companies or have significant shareholdings in other public companies. To the extent that such other companies may participate in business or asset acquisitions, dispositions, or ventures in which the Company may participate, the directors and officers of the Company may have a conflict of interest in negotiating and concluding terms respecting the transaction.
Dependence on Key Personnel - The Company is very dependent upon the personal efforts and commitment of its existing management. To the extent that management's services would be unavailable for any reason, a disruption to the operations of the Company could result, and other persons would be required to manage and operate the Company.
Competition - The mineral industry is intensely competitive in all its phases. The Company competes with many other mineral exploration companies who have greater financial resources and technical capacity.
Political Risk - The Company’s operations and investments may be affected by local political and economic developments including: expropriation; nationalization; invalidation of governmental orders; permits or agreements pertaining to property rights; failure to enforce existing laws; failure to uphold property rights; political unrest; labour disputes; inability to obtain or delays in obtaining necessary mining permits; opposition to mining from local, environmental or other non-governmental organizations; government participation; royalties, duties, rates of exchange, high rates of inflation, price controls, exchange controls, currency fluctuations; taxation and changes in laws, regulations or policies; as well as by laws and policies of Canada affecting foreign trade, investment and taxation.
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